Profit From Panic With Businesses Like Fairfax, Linn

This was originally published on RealMoney. It is being republished as a bonus for TheStreet.com readers.

Equity markets are facing an unprecedented period in our history. What's happening now makes every crisis and recession besides the Great Depression look like a dress rehearsal. There is no quick fix for massive deleveraging that can now occur once the government begins to slowly buy assets. It takes time to revive a market that finally overdosed from its addiction to credit and leverage.

Instead of panicking, now is the time to step back and think rationally and intelligently about businesses. If you do, you will realize that there are quite a few options to put your money to work in businesses that will do extraordinarily well, from a relative standpoint, in this fear-stricken market. Although it may seem otherwise, not all businesses are coming to a complete standstill -- our economy is simply clogged, and unclogging will take a little time.

The 'World is Coming to an End' Stock

Very few businesses can offer the type of protection that one insurance company can. And I'm not talking about Berkshire Hathaway (BRK.A Quote) (BRK.B Quote), although that wouldn't be a bad place to park your cash.

The "other Berkshire" is Fairfax Financial (FFH Quote) a P&C insurer headed by brilliant capital allocator Prem Watsa. Fairfax is about as close as you can get to investing in a company that does great in good markets and exceptionally well in disastrous ones.

For insurers, after doing your best at underwriting profitable insurance policies, the next step is to allocate the insurance float appropriately. Watsa's allocation skills have been exceptional: In 15 years through December 2007, Fairfax's common stock holdings have appreciated 19.5% compared to 10.4% for the S&P. But I'm not here to tell you to invest in Fairfax because of common stock returns. Fairfax has prudently assembled a portfolio of credit default swaps that have been pouring in cash. Beginning in 2003, when everyone was riding high from the excess liquidity, Fairfax was buying CDS to protect its balance sheet.