When the Market Panics, It's Time to Start Buying

A good word to describe the markets today would be "chaotic." No sensible long-term approach appears to be working right now. Buy an attractively priced business at $30 a share, and it goes down to $20. Buy a little more, and the stock slips to $15. Move on to the next good business, and it seems like deja vu.

With no end in sight to the credit crisis, a global food shortage looming and soaring gas prices, it appears that the end is near. So let's start investing.

The End-of-the-World Portfolio

Believe it or not, there exists a stock or group of stocks that caters to every environment. If you step back and think logically, you can find solid investments that will do well as things get worse.

The most obvious example is Wal-Mart (WMT - commentary - Cramer's Take). Wal-Mart thrives in these types of environments. With everyone's assets sinking, from homes to stocks, cutting spending is the top priority. Wal-Mart helps people save money better than anyone else. Recession, an economics slump or whatever you choose to call this environment -- this is when Wal-Mart shines.

Yet Wal-Mart is not the only obvious choice during these turbulent times. While we might not be able to indulge ourselves with filet mignon, Americans still enjoy eating out. So while steak and wine might be put on hold, our appetites for more affordable fresh gourmet burritos at Chipotle (CMG - commentary - Cramer's Take) or a juicy burger at Jack in the Box (JBX - commentary - Cramer's Take) won't go away.

Embracing the Bear

The big picture is not to go buying restaurant stocks or Wal-Mart. The big picture is that the best money is made during times of panic -- and right now the credit markets have entire stock markets panicking. As renowned investor Shelby Davis aptly remarked, "You make your money in bear markets, you just don't know it at the time."

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Sham Gad is the managing partner of the Gad Partners Fund, a value-centric investment partnership modeled after the original 1950s' Buffett Partnerships. Previously, Gad was a writer for The Motley Fool and a securities analyst for UAS Asset Management, a small, value-focused fund in New York City.

Gad also runs a value investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Gad is working on a value investing book (title forthcoming) to be published by John Wiley and Sons in the summer of 2009. Reach Gad at [e-mail].