Investing: Bright spots amid the chaos

The recent stock market turmoil felt like “financial Armageddon,” said Roben Farzad and Tara Kalwarski in BusinessWeek. And there will surely be plenty of ups and downs before it’s all over. But panic is never a good strategy. “The time to panic, if there ever was one, was a year ago, when stocks were hitting their highs—not now, when they are hitting their lows.” Relative to Treasury bonds, stocks haven’t been this cheap since 1978. That’s why legendary value investors Martin Whitman of Third Avenue Funds and Rob Arnott of Research Affiliates are having a field day. Whitman is finding great deals on international stocks; Arnott is wading through the rubble in the financial services sector, which has suffered from what Arnott calls an “anti bubble”—when an entire sector plummets on pure panic.

You may have to look hard for the bright spots, though, said Paul La Monica in CNNmoney.com. At one point earlier this month, every domestic stock mutual funds except one—Forester Value—was in negative territory. But that fund’s manager, Tom Forester, isn’t exactly hunkering down. When the global markets were in panic mode, Forester was shopping for bargains in tech, media, health care, and even financial services. Like most value investors, he’s looking for strong companies that have been dragged down by overreactions in the market. “That’s what makes my investment strategy possible. I buy things when they are beat up due to emotional extremes,” says Forester. “I’m glad we’re human.”

Recall what happened to the stock of Amazon.com over the past decade, said Elizabeth O’Brien in SmartMoney. Seven years ago, the retail supersite got hammered along with the rest of the technology sector. As late as this summer, its stock was trading at 14 times its 2001 lows. Translation: A $10,000 investment would have been worth $140,000. The secret to spotting winners among a sea of losers is “digging beyond the headlines and finding companies that buck the trends.” Some companies took on less financial risk than their peers or “simply have strategies that are right for the times.” The TJX Companies, for one, sells designer clothing and accessories at deep discounts and “is benefiting as consumers tighten their belts.”

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