When the market and economy are soaring, it is easier for companies to make money. However, many new ventures started during times of prosperity can’t survive a downturn.
A company that can survive a downturn (without a federal bailout) is likely to be a big winner when the economy revives.
How do you identify such opportunities?
The company must be sound financially and that means little debt and a healthy stash of cash. For new ventures, look for companies that keep overhead low (no $1,500 waste baskets) and cherish cash.
Scalable
Another hint is to look for companies that have a scalable business model, which means it can expand efficiently while maintaining a good financial profile.A sour economy is ripe for companies that can solve problems for other companies or consumers and not bankrupt customers in the process.
Think about major sectors of our economy that are growing even in this recession and those sectors that will be leading us out of the recession.
A few come to mind:
- Health care
- Technology
- Energy
- Financial services
Years ago a friend who owned several restaurants told me his guidance was:
“Feed the rich and become poor – feed the poor and become rich.”
He didn’t cater to the poor, but he avoided restaurants that only the well-to-do could afford. He was successful because he made eating out fun and modestly priced.
Opportunities
Adversity is nothing but an opportunity waiting to be discovered for the optimists.The recovery from this recession (depression) will be prolonged when it begins.
Like a good chess player, investors must be thinking several moves ahead. Now is a good time to look for those companies that offer opportunities out of adversity.
