Buy and hold? Sell in May and go away? Bull market, bear market or lambs-to-the-abattoir market?

You will find no shortage of financial commentators trying to scare you out of the market and out of your holdings. Their advice often comes with the candy coating that "they are just trying to help you avoid losses", but there is poison within the message. Sure, it is painful to see your investments decline in value and there is rarely any good reason to hang on to a failed idea, but if you worry too much about trying to time the market, you will sell yourself out of any chance of reaping long-term gains. (For related reading, check out 4 Ways To Weather An Economic Storm.)

In other words, no matter what the economy looks like, there are always stocks worth owning.

In Pictures: 8 Ways To Survive A Market Downturn

Economies Do Not Stop
If you look around a bit, you see that even in the worst possible conditions there is still business activity. The way things sound on the news sometimes you would think the economy has completely stopped, but people are still shopping at the malls and going into restaurants. In other words, money is still being spent even if it is not as much as in the past.

In times like these, the stand-out companies find a way to reach into people's wallets. Apple (Nasdaq:AAPL) does not seem to have trouble convincing people to pay for its devices, and the lines at Panera (Nasdaq:PNRA) are still long. The key, then, is identifying those companies that will continue to convince shoppers that they still deserve that hard-earned money.

One way to do this is to find those companies where you see what one might call "irrational exuberance" about a product. I have managed, for example, to happily live my life without a single Apple product - a notion that would drive some Apple fans to distraction. Of course, I am not talking about anything truly irrational here - I am talking about a deep sense of customer loyalty and a strong commitment to customer service. There is, after all, a good reason that Southwest (NYSE:LUV) has kept flying through thick and thin and Olive Garden (owned by Darden (NYSE:DRI)) still has customers walking through the door every night.

Tough Times Lead To New Ideas
One common aspect of tough times is that "better and cheaper" comes back into vogue. The argument here is pretty straightforward - if you offer more for less in a time when people feel especially stretched, they will love you for it. These are the times when better logistics, better design and cheaper sourcing really shine - and those are the factors that let a company like Hennes & Mauritz (known to shoppers as "H&M") really stand out through hard times. Successful investing is not always (or even often) about finding the next revolution - often it is about finding the company that has managed to shave five cents off of the cost of a widget and pass that savings along to customers. (For more, see Industries That Thrive On Recession.)

Some Sectors Aren't As Dependent Upon the Economy
It is almost cliché by now to point out that companies in sectors like healthcare, food, alcohol and so on continue to see customers line up no matter the state of the economy. But the fact still stands that the economic ups and downs of the past 10 years really have not gotten in the way of companies like Gilead Sciences (Nasdaq:GILD) selling products that people really need. If you hold stock in a company that can count on reliable sales through almost any cycle, that can be a powerful asset in tough times.

Truly Innovative Companies Win
Above all else, innovation almost always wins and if you can find these companies, you can usually hold on to through thick and thin. The key here is innovation and not invention; selling people on a brand new thing (particularly one that lacks familiar reference points) is a much different process than selling people on an old thing done in a new way.

The catch is that these companies will almost always appear to have a lot of competition. What you must do as investor is dig in deeper and see which companies are doing things in a way that nobody else is quite able to match. Moreover, keep an eye on the R&D lines - companies that are truly committed to turning out a series of better mousetraps will not pull back on investing in the future just because the economy hits a sour patch.

Seek and Ye May Find
If you spend a little time poring over market history, you will see plenty of companies that have grown steadily and impressively through the last two recessions, along with stock prices that have generally followed the rise. That is a powerful argument against simply running to the bunker and hiding until the bad market passes. By all means, trim your holdings of stocks that are vulnerable to an ongoing malaise, but do not let the fears that always surround recessions to chase you out of truly excellent companies that can be long-term winners for your portfolio. (For further reading, check out 4 Tips For Buying Stocks In A Recession.)

Catch up on your financial news; read Water Cooler Finance: I-Spy, IPOs And iPhones.

Related Articles
  1. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  2. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  3. Economics

    Can the Market Predict a Recession?

    Is a bear market an indication that a recession is on the horizon?
  4. Mutual Funds & ETFs

    The 3 Best T. Rowe Price Funds for Value Investors in 2016

    Read analyses of the top three T. Rowe Price value funds open to new investors, and learn about their investment objectives and historical performances.
  5. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  6. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  7. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  8. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  9. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  10. Investing News

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. What is the difference between passive and active asset management? (SPY)

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  5. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>
  6. How can I hedge my portfolio to protect from a decline in the food and beverage sector?

    The food and beverage sector exhibits greater volatility than the broader market and tends to suffer larger-than-average ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center