Turning a Profit Amidst a Recession

"When blood is running in the streets, the way to make money is to buy assets."

This old adage jumped out at me as I flipped through the pages of the new issue of Forbes. The timing couldn't be better, and I couldn't agree more. With the recession on everyone's mind, most people are shying away from the markets. At first glance, it looks bad on every front, and it is only getting worse. However, there is still a profit to be turned. There is a reason so many investment advisers are so excited.

Leave it to the Wall Street tycoons to smile in the face of a down-falling economy. Really, it is not an entirely difficult concept. It all boils down to assessing the risk-return trade-off. This theory builds upon the idea that the higher the risk, the higher the expected return. With a recession constantly looming overhead, volatility is at an all-time high in the marketplace. If you look closely, the opportunity is not hard to miss. Each sector of the market has a unique gem to offer.

Personally, I think right now is a great time to take a look at the Vice Fund (VICEX). Originally created to counter-mind the efforts of socially responsible investing, this fund invests in stocks such as tobacco, alcohol, and gambling. The fund's manager is highly respected and has met with great success. Additionally, as much as consumers gripe and complain about the flailing economy and rising gas prices, they will not give up their cigarettes. Nor will they forgo the pleasure of gambling. I certainly won't expect them to give up the booze in bad times either. In my personal opinion, the Vice Fund is looking pretty good right about now.

Another great tactic to use in this type of market is to seek out the panics. This particular tactic can be tricky, but also highly profitable. With the word recession hanging around the market is easily startled. One piece of bad news and people start selling. In turn, stock prices fall drastically at the drop of a hat. Lately, this has been happening more and more, normally before receiving the full story. People are quick to panic. When the full story is received and processed, the market calms down and the stock rebounds. For those quick on the draw there is a nice profit to be made here. The most recent examples of this are of course Bear Sterns and American Airlines.

Investing for the long haul, in a drowning market it is also a good idea to focus in on the asset side of the balance sheet. Those companies with a higher portion of liquid assets will be more readily able to sustain a recession. The liquidity ratio plays an important role in assessing long-term risk. Of course, you don't want this number to be too high as that could indicate a low return on your investment. Even so, I would look for a higher liquidity in this economy that I would look for in a stable market.

The lesson to be learned here is that opportunity always exists. You just have to know where to look.