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Investing in a Recession: How Investors Take Advantage of Uncertainty

Sam Miller
Sam Miller
October 12th, 2022
managing your wealth

Everyone, from your great aunt to your auto mechanic, is talking about the economy.

No one knows for sure what the future will bring. Yet, some believe that even a worst-case scenario for the economy brings opportunity for investors.

These investors are sometimes called “contrarian.” They are well-known in the stock market for buying when others are selling, and for investing in a recession or a depression.

We found a few such investors who survived and even thrived in the downturns of their time.

Best Investments During a Recession or Depression

Investing when the chips are down is not a new concept. Oil tycoon J. Paul Getty made his fortune during the Great Depression.

“Buy when everyone else is selling, and hold on until everyone else is buying.” –J. Paul Getty

Getty was already a millionaire before the 1929 stock market crash. He wrote his mother a letter detailing his intentions during the Great Depression:

“… We can buy them [properties] for 10 cents on the dollar … but drilling still costs almost as much as ever … If we do not take this opportunity of buying oil production and properties at ridiculously low prices to the extent that we conservatively can, we had better retire from business … It is the opportunity of a lifetime to get oil companies for practically nothing.”

Getty’s subsequently purchased Pacific Western Oil Corporation and shares of Tide Water Associated Oil Company and Skelly Oil. By 1957, he topped Fortune Magazine’s rank of the richest Americans, with a net worth of $700 million to $1 billion.

Sir John Templeton made his fortune by purchasing stocks in companies at the start of World War II.

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” –Sir John Templeton

Sir John Templeton is considered the founder of “international investing.” According to the John Templeton Foundation, “He took the strategy of ‘buy low, sell high’ to an extreme, picking nations, industries, and companies hitting rock-bottom, what he called ‘points of maximum pessimism.’”

The Foundation reports that Templeton borrowed money to buy 100 shares each of 104 companies when World War II began. Four failed, but he profited greatly on the others.

In 1999, Money magazine called him “arguably the greatest global stock picker of the century.”

Billionaire and “value” investor Warren Buffet, CEO of Berkshire Hathaway, is well-known for recession investing, and buying recession proof investments.

“In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.” –Warren Buffet

During the 2007-2009 Great Recession, when other investors were selling, Warren Buffet purchased stocks like Mars/Wrigley, Goldman Sachs, General Electric, Dow Chemical, and Swiss Re.

In an October 2008 op-ed in The New York Times titled, “Buy American. I am,” Buffett shared one of his best-known beliefs: “Be fearful when others are greedy, and be greedy when others are fearful.” And, he added, “Most certainly, fear is now widespread, gripping even seasoned investors.”

Five years later, according to the Wall Street Journal, Buffet had made at least $10 billion, by investing in the recession.

Investor Michael Burry made billions (and became famous) by bucking the trend.

"If you are going to be a great investor, you have to fit the style to who you are." ―Michael Burry

Scion Capital’s Michael Burry convinced investment firms to sell him credit default swaps against subprime mortgages preceding the 2007-2009 Great Recession. This reportedly earned him $100 million personally and $700 million for his company.

Burry gained even more fame when Christian Bale portrayed him in the book and movie, “The Big Short.” (Well-known investor John Paulson also bet against subprime mortgages. Gregory Zuckerman detailed Paulson’s move in his book, “The Greatest Trade Ever Made: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History.”)

In a publication titled “MSN Money Articles, 2000/2001,” Burry describes his Warren Buffet-type investment philosophy: “I try to buy shares of unpopular companies when they look like roadkill, and sell them when they’ve been polished up a bit. Management of my portfolio as a whole is just as important to me as stock picking … All of my stock picking is 100% based on the concept of a margin of safety, as introduced to the world in the book “Security Analysis” (by Benjamin Graham and David L. Dodd).

What Makes a Good Recession Stock?

“Even though we’ve had this tremendous run in the stock market over the last decade, we’re still finding value, because when companies disappoint, they basically get shot. They get left for dead … it’s those businesses … that create an opportunity for … value investors.” – Mellody Hobson

If you have never heard of Mellody Hobson, it’s about time you do. Hobson is co-CEO and President of Ariel Investments, a mutual fund company and investment management firm with assets totaling $16.1 billion. In 2015, Time Magazine named her one of the world’s “100 Most Influential People.” In 2020, she was #94 on Forbes list of “The World’s 100 Most Powerful Women.” She is the first black woman to be chairperson of an S&P 500 company, and she is a regular contributor on ABC’s Good Morning America.

She used Warren Buffet’s value-based investing approach to successfully guide her company through the 2008 financial meltdown, by knowing the best investments to buy during a recession.

She is using the same approach today that she used then.

She states in an August, 2022 letter to clients she co-authored, “While Wall Street sits on edge and markets remain erratic, we are actively leaning into the moment by judiciously acquiring the downtrodden shares of quality companies whose value we believe should be realized over the long term. Values are abundant when the investment environment feels the most uncomfortable … There is always the possibility more pain lies ahead. Since no one knows, we stay focused on the long-term.”

Recession Investment Results

How successful are “ordinary” people in recession investing? The Motley Fool article “What to Invest in In a Recession,” reviews recession investing results from the Great Recession (2007-2009), the 2001 recession, and the 1990-91 recession.

It reports, “If you invest at the market's lowest point during a recession, you're likely going to do quite well over time.” It finds, “Even if you had invested in an S&P 500 index fund at the worst possible moment in 2007 … you would have achieved an 8.4% annualized return in the 13 years since.”

And, they report, “If you had invested $10,000 in a standard S&P 500 index fund at the worst possible time during the 1990-91 recession, your investment would have grown to more than $150,000 in value today, assuming dividends were reinvested along the way.”

Applying Lessons Learned about Recession Investing

There is plenty to learn from investors throughout history about investing in a recession, choosing recession-proof investments, and finding the best-performing investments during recessions.

You can apply all these lessons, as well as those learned from your own experience and investing community, by using a solid wealth management platform like Vyzer.

Vyzer will track and analyze all your investments both independently and together. Moreover, it will empower you to make your own investment decisions, like the well-known investors above, regardless of the direction everyone else is going.

Wishing you the very best in your investing journey!

The Vyzer Team