How the Market Will Reward Those Who Invest Today

Nothing is more annoying today than hearing, "The market will recover; it always does." We've been hearing this as the Dow hit 8500, 8000 and 7500.

Investing in stocks will ultimately prove to be rewarding again. But instead of repeating what you have already been hearing, let me illustrate the step-by-step mechanics of why the markets will eventually reward those investors who are willing to commit at these levels today.

Step One: Low Oil Prices Are a Good Thing

If you own oil company stocks, the low oil price has not been a friend to your portfolio. But I'm here to tell you that if oil were still trading over $100 a barrel today, we would be facing a recession that would make our current, actual recession look like a dress rehearsal. As the price of gasoline has fallen by over 60% over the last two months, the average multicar family is saving over $200 a month, a very meaningful sum for most people. So how do lower gas prices favorably affect the stock market?

Step Two: Consumption Stabilizes

Cheap pump prices are among the greatest market-oriented tax cuts you could ask for. Over 60% of U.S. GDP is consumption-based, and since job creation is nonexistent, paying less for gas to fill up your car and to heat your home increases disposable income.

Businesses are slashing prices for products and services, and this provides another lever of help to the consumer. As I pore over the flyers of Best Buy (BBY - commentary - Cramer's Take), Target (TGT - commentary - Cramer's Take) and Kohl's (KSS - commentary - Cramer's Take) in my Sunday paper, I see that prices are as competitive as ever. While these price cuts will hurt corporate profits now, it's the right thing to do.

Thankfully, a lower oil price also reduces expenses for companies in the form of reduced transportation costs. This is crucial, because continued lower prices, or deflation, hinders corporate profitability and prevents companies from creating jobs.

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At the time of publication, Gad had no positions in stocks mentioned, although positions may change at any time.

Sham Gad is the managing partner of the Gad Partners Fund and the Gad Partners Offshore fund, value-centric investment partnerships based in Athens, Georgia. Gad has written extensively for the Motley Fool and was a securities analyst for UAS Asset Management, a small, value-focused fund in New York City in 2007. Previously, Gad managed assets for the Gad Investment Group. For additional information, please visit www.gadcapital.com.

Gad also runs a value-investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Send Sham Gad an email. You can reach Gad at [e-mail].