“‘Buy when everyone else is selling, and hold until everyone else is buying.’ This is more than just a catchy slogan. It is the very essence of successful investment.”

That quote from legendary oil tycoon J. Paul Getty appears in his book How to Be Rich, as well as in the beginning of one of my favorite investment books, Contrary Investing by Richard E. Band. As long as I’ve been in the investment business, I’ve never seen a more simple and effective piece of advice. That particularly goes during tumultuous times like these.

By my reckoning, this bear market began in mid-2007 with the cracking of formerly popular high-yielding investments in the face of rising interest rates. The Dow Jones Industrial Average did make a new high in early fall 2007, but it too was soon caught up in the selling. By early 2008, only energy, natural resources and utilities were bucking the downdraft, and by July they were also caught up in the downturn.

Up until early September of this year, the saving grace was that stocks of companies surviving the bear’s underlying stress tests as businesses–weakening growth, tightening credit and high raw material prices–were generally holding up. Investors waited with bated breath every time companies announced earnings. But solid results were generally rewarded with relatively stable stock prices.

That changed with a vengeance this fall, as the US financial system’s implosion accelerated. Rather than just dumping the weak and holding the rest, investors began to sell everything. Finally, here in early October, the action has become a wholesale liquidation, with depression-fearing investors selling indiscriminately, sending prices into virtual freefall across the board.

These are scary times to be sure, and they will be until global investment markets can stabilize. The world’s central banks are working feverishly to unfreeze lending by pumping up failing banks and adding funds to the system. Their success is critical to halting the decline in stock prices, as well as the ultimate damage to the economy.

The good news is, at the core, this is a money problem. It may take a while–and a lot more money than anyone now expects–to stabilize the system and quell the panic. But sooner or later, pumping enough money in will shore up banks’ balance sheets and they’ll again start lending, both to each other and to their customers. Their aggressive actions are a major reason why the current situation will not evolve into another Great Depression, no matter how scary things look now. Another reason, of course, is deposit insurance, which has prevented the kind of destabilizing bank runs of the 1930s that really intensified the financial panic of that day.

Pessimism does run deep here, and it continues to hit stocks of otherwise strong companies. The other side of that coin, however, is compelling values, in fact the best in many years.

Canadian oil and gas producer income trusts, for example, now trade at levels they last held when oil itself sold for USD20 to USD30 a barrel, and when natural gas for USD2 to USD3 per million British thermal units. Basically, they represent another chance to buy oil at under USD30.

Limited partnerships’ average yield is at an historic high, as well as an all-time high premium to Treasury bond yields. Utility stocks–despite boasting their strongest business fundamentals in a generation–have lost more than a third of their value in 2008.

The idea of contrary investing is that stocks are always at their cheapest and best values when pessimism hits a peak. At such times, buyers are scarce, as waves of selling drag prices ever lower. The bottom is hit with only the strongest hands still in the game, at which time the buyers slowly start to come back.

Those fortunate and brave enough to buy at such low points in the past know the rewards of such “contrary investing” well. The problem is it’s very difficult to bet against the market emotion, particularly when it’s at its strongest. That’s why most investors have so much trouble selling at tops, even when prices are wildly out of step with reality. And it’s why few ever take advantage when the Street has a yard sale of stocks of otherwise great companies.

You’ve subscribed to this service at clearly a very emotional time for the market. That’s a pretty good sign you do have the fortitude and inclination to buy at this low point.

As we’ve said at the outset, this service is about taking advantage of an immense opportunity to create wealth, based on what could reach USD50 trillion in spending over the next decade. This spending is backed by governments, sovereign wealth funds and other global powers that are not typically knocked off their game, even by major economic events such as the one we’re going through. That makes it about the surest investment opportunity, as well as the biggest in history.

The New World Portfolio, as I pointed out in my last Viewpoint, is essentially our roadmap for playing this opportunity. Over the next several weeks, we’re continuing to add stocks, which in turn are highlighted in the editors’ articles. The list can be accessed by clicking on the New World Portfolio tab on the home page.

The real beauty of investing in the new world is you don’t have to take crazy chances. In fact, most of the recommendations in the New World Portfolio are established companies that are pivoting to the opportunities in creating a new global infrastructure. All companies have been stressed by credit conditions and weakening economies. But our picks have been through these wars before.

They’re obviously not immune from the selling wave now engulfing the world, but they are battle tested. In fact, when the dust clears, they’re likely to be in even better shape than before, as weaker rivals are shaken out.

The Red, White and Blue features large US companies tapping into the boom. Beyond Our Borders highlights similarly dominant companies based elsewhere. Again, these are established companies that are leveraging their old world advantages to the opportunities of the new.

In Red, White and Blue, we now have two picks, both recommended by energy editor Elliott Gue. Schlumberger (NYSE: SLB) is highlighted in the article Oil 3.0. Kinder Morgan Energy Partners (NYSE: KMP) is recommended in the article America’s Gas Growth.

The current lineup for Beyond Our Borders is as follows. BASF (Germany: BAS, OTC: BASFY) is highlighted in Gregg Early’s piece Small Tech vs. Big Tech, Here vs. There. Electricite de France (Paris: EDF, OTC: ECIFF) is recommended in my article Power Plays. China Resource Power (Hong Kong: 836) is the focus of Yiannis Mostrous’ Chinese Power Producers.

Cutting Edge Tech picks give us something a little different: more speculative bets on the technologies that will shape the future. The upside is great. And at these post-selloff prices, the risk is lower than in a while. Gregg’s pick QinetiQ (London: QQ, OTC: QNTQY) is also recommended in his Small Tech vs. Big Tech piece. His article Emerging Technology, Developed Markets has another pick, now very cheap American Superconductor (NSDQ: AMSC).

Again, our view is long term. All of us should be prepared for this market selloff to go on a while longer, until the world’s central banks are able to get enough money out there to free up lending and calm the markets. That means prices may indeed go lower than our entry points for Portfolio picks.

Once this crisis is calmed, however, the world is going to face the same problems it did before this period of stock market liquidation. That’s basically the growing need to rebuild our critical systems across the board in the face of a surging population, growing urbanization and connectivity, intensifying environmental degradation, stretched supplies for natural resources, outmoded regulation and decaying basic infrastructure.

It’s a big job. But to borrow a well hackneyed phrase, someone has got to do it. And the companies big and small that carve out their niche will be the most prosperous in the world over the next decade, no matter what the near-term economic, political and market direction.

It will take fortitude to step up to the plate right now, with so many running for the hills and buying canned goods. But again, that’s precisely the time when stocks of great companies are at their cheapest–and the time to start buying them.

Roger S. Conrad
Editor, Roger Conrad’s New World 3.0
October 9, 2008