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Imaginary Investing In A Market Collapse

August 12, 2011 by · Leave a Comment—I’m a big fan of “imagine” conversations, mainly because they take me back to the glory days of high school class-skipping shenanigans. These spaced-out talks would focus on completely unrealistic projections, as participants started each scenario with a drawn-out “MAGIN” that quickly veered off into the realm of stupidity. Indeed, we were deliberately unrealistic in order to test our strategic capabilities, creating both fantastic and horrible scenarios.

Well, I think the joke is on me. Looking at the over-hyped sandbox that is the adult world, it seems that reality is even stupider than most teenagers could imagine. Somehow, our leaders have banked the tangible value of companies, countries and people on markets that react violently to fear, push record profits through speculation and are, overall, equating the value of our lives to nothing more than a digital, debt whirpool. Europe is desperately trying to hold its bulging crisis under the one-size-fits-all EU t-shirt that it never should have bought, the US is a dying animal that will soon be put down, China is no longer the sick man of Asia but now the secretive catalyst, and gold is pounding through the headlines. Turn on the TV, behold the re-emergence of Great Depression speak, pass the bong.

So, my two cents are this: Imagine if the markets collapsed, stocks dove way past 2008 levels and you had a nice chunk of cash to invest. What would you do (let’s imagine the markets are still open and alive)? If you recall the ridiculous profits some investors pulled during the last crash, investing in companies like Apple, which went for a mere fraction of its current worth, then the options seem endless. A recent article by Matt Krantz at USA Today highlights the best stocks from the Standard & Poor’s 1500 Index during the last five years. Select Comfort (SCSS) pulled a 2,508% gain in 2009.

But it’s easy to look for the winners of the past; what interests me is the winners of the future collapse. The best stock picks require foresight, exhaustive research and luck, especially in a hypothetical, panic-stricken environment. Pondering this situation (in the luxury of being in advance of course), I would likely consider some of the following.

Money. Will gold and silver prices soon go parabolic as currency destruction drags all fiat money to zero? Considering that central banks around the world are buying the physical bullion and that we have used it before as the common currency, we can’t disregard the fact that we may use these precious metals again, at least for the intermittent period. If you are confident that this will happen, then I would make a list of the best majors and juniors—from Barrick Gold Corp (ABX—TSX) to Golden Reign Resources (GRR—TSXV). I would also keep my eye on established silver giants like Pan American Silver Corp. (PAA—TSX), as well as high-potential juniors like United Silver Corp. (USC—TSX).

Oil. Peak oil and an upcoming energy crisis, combined with humankind’s lack-of ambition to do the right thing, makes me almost sure that a collapse in oil and gas stocks is a welcome buying opportunity. Companies abound, so its really your pick here. For the Canadian market, giants like Suncor Energy Inc. (SU—TSX) would be nice to scoop up at a low price, while the vast market of exploration oil and gas companies are already cheap enough to buy, forget, and re-visit in a couple years.

Food. Potash and agrominerals are all the rage these days, as the world goes increasingly hungry and the population continues growing. Of course, a global market collapse may wipe away a good chunk of people, but food will always be in demand, unless we started getting thinner. That is, food will always be in demand. Thus, I would be quick to grab shares of Saskatchewan-based giant Potash Corp. (POT—TSX) and ambitious juniors such as Eagle Star Minerals Corp. (EGE—TSXV), among others.

What else? Perhaps base metal companies for the reconstruction efforts (if there are any), nuclear technology for the upcoming wars and energy crisis, weapons manufacturers for increased global conflict—the list goes on. Though I have focused my quick-list mainly on Canadian-based companies, this doomsday investing mentality can apply to any market anywhere. The benefit to thinking like this is that, rather than running around with bewildered panic on my face when markets crash, I would remain (somewhat) cool and calm, as I already “imagined” it. Now if I could just get the $100,000 to invest . . .  

“The way to make money is to buy when blood is running in the streets.”
~ John D. Rockefeller

Chris Devauld
Prospecting Journal


Disclaimer: The author holds shares in Eagle Star Minerals Corp. Some members of Cordova Media Inc., which owns the, may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. 

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