By any measure, 2009 was a banner year for investing. The only problem was many investors were too fearful of a second down-leg in the markets to participate.

Some unlucky souls sold everything at or close to the bottom in early March, when the fear and gloom was thickest. Many more, however, unloaded positions in strong companies at rock-bottom prices along the way, even though they should have known better.

It’s human to doubt yourself at major turning points in the stock market. As you scan the 2020 Portfolio, you’ll see that well over half of our positions were entered in the second half of 2008. In those dark and demoralizing weeks, one-day selloffs of up to 10 percent in supposedly safe stocks were commonplace. Consequently, many of our initial positions went underwater almost as soon as we entered them, giving us plenty of reason to doubt their worth.

Cutting Edge Tech charter member American Superconductor (NSDQ: AMSC), for example, was entered at a price of USD22 a share on Sept. 26, 2008. Over the next two months, it fell relentlessly, eventually striking bottom at just USD9.56 a share on November 21 for a paper loss of more than 56 percent.

Ironically, at the same time American’s share price was falling off a cliff, business was never better. The company reported year-over-year growth in revenue of nearly 90 percent and achieved its goal of profitability, despite a surging US dollar during the crisis that depressed overseas income. Both the superconductor wire and power systems divisions were reporting dramatic technological and marketing breakthroughs, particularly in China. And management was forecasting even bigger advances for 2009 and beyond.

In short, American’s shares were cheaper than ever at the same time its business prospects looked better than ever. We didn’t like the paper loss. But it didn’t take long to make the decision to keep the stock in the Portfolio. Nor did it take long for the stock to launch a remarkable recovery, despite the continued weakness in the economy and markets. Today, the stock is up more than four-fold from its lows, and we’re sitting on a paper gain of nearly 100 percent from our initial entry point.

Thankfully, market events like the meltdown of late 2008 are relatively rare. In fact, the only time in the post-World War II period when there were dramatic declines–10 percent or more in 12 weeks or less–in consecutive years was in the inflation-wracked 1970s. The first was a 17 percent decline in the S&P Industrials over nine weeks starting in October 1973 with the Arab Oil Embargo. The reprise was a 19 percent drop in five weeks surrounding President Nixon’s resignation in August 1974.

Neither event bears any resemblance to today. For one thing, there’s little or no inflation. And no matter how disjointed politics are in Washington, there’s certainly nothing going on that’s remotely as disruptive as the ongoing removal of a president from office. Finally, the primary catalyst for the meltdown was a sharp contraction in credit. But while those who really need money are still having trouble getting it, financially solid corporations and individuals are borrowing at the lowest rates in a generation, as the banking system continues to heal itself.

In short, there’s absolutely no reason to expect a repeat of the bear market than began in mid-2007 and ended in early March 2009. In fact, the large numbers of people expecting such an Armageddon are a sure sign this market is still climbing its proverbial wall of worry, that expectations are still low and easy to beat, and that there’s still plenty of money on the sidelines.

Even stocks of strong companies like American Superconductor must eventually pause when they’ve quadrupled in so short a time. That’s one reason we’ve held our buy targets relatively steady rather than pushing them when share prices rise. And it’s why we’ve recommended taking at least profits in positions from time. The majority of these are not income stocks. You’re not paid to hold them unless there’s real upside.

But neither is there any reason to expect a market meltdown to send them sharply lower as was the case in late 2008. The real point is that even during an environment like 2008, stocks of companies with strong underlying businesses were not sells, but in fact better buys than ever.

Transcendent Trends

Now for the most important reason I’m bullish on Portfolio 2020 as we enter 2010: Every single one of our picks is firmly on course to profit from at least one megatrend that’s reshaping our economy, our society, and our daily lives. And the same goes for the other stocks discussed in other articles posted to the site.

This week, for example, Portfolio 2020 Associate Editor Yiannis Mostrous posted an article on a Chinese company poised to take advantage of an often overlooked need in that country for recycling growing stockpiles of waste metal used by burgeoning industry. We’ve added China Metal Recycling (Hong Kong: 0773) to the Metals and Materials segment of the Portfolio.

As Yiannis points out, China is already the world’s largest consumer of ferrous and non-ferrous scrap, accounting 16 percent of the former market and 31 percent of the latter. And this company is poised to take advantage of what should be runaway growth for that market.

Also this week, Gregg Early has posted a piece that highlights the rise of the use of Thorium in reactors rather than now almost universally used uranium. We’ll be keeping an eye on his pick Lightbridge Corp (NSDQ: LTBR) as a potential speculation.

As Gregg writes for now the best plays on nuclear are the giant engineering companies. One great one: French giant and Beyond Our Borders Portfolio member Alstom (Paris: ALO, OTC: AOMFF), which is also a major player in advanced mass transport, carbon dioxide sequestration for coal-fired power plants and water.

Gregg and I will be writing about the growing use of water in power generation next week. For a more conservative play on nukes, try Electricite de France (Paris: EDF, OTC: ECIFF), the world’s largest producer of nuclear energy with an expanding global base of plants from Europe to North American and Asia.

Rare Elements

Another area of interest we’ll be tracking in coming weeks is rare earth elements (REE). These are essential raw materials used in a growing number of advanced technologies, including magnets, wind turbines, hybrid vehicles, MRI machines, thin-film solar panels, more efficient electric motors, LED lighting and consumer electronics from computer monitors to plasma televisions.

The REE market is already at roughly $1.25 billion globally and is expected to more than double over the next five years. And supplies are geographically constrained as well. China currently produces over 95 percent of global REEs and is now imposing tariffs on their export.

The main investment opportunity appears to be in Canada, which is a major source for everything from light REEs like Lanthanum, Cerium and Samarium to “heavy REEs like Europium, Terbium and Yitrium. The main problem is the as yet undeveloped nature of the business and the lack of large players participating.

In October, I moderated a panel that included the CEO of junior miner Avalon Rare Metals (TSX: AVL, OTC: AVARF). Since then, the company has updated progress at its earth elements deposit at Thor Lake in the Northwest Territories and at its Tin-Indium project in Yarmouth County, Nova Scotia. Results were sufficiently positive to continue advancing on both projects, with complete findings slated to be due out later this month and an economic analysis in the first quarter.

As is the case with most developmental companies, Avalon has no earnings. Nor does it expect to realize any revenue from its properties until 2011 at the earliest. Happily, it also has no debt and has apparently been able to raise capital effectively, with a September 17 private placement raising approximately CAD17.5 million. The ongoing cost of developing three of the company’s six properties is roughly $150,000 a month, with projected capital spending of CAD9 million for all of fiscal 2010.

In official documents filed with Canadian regulators, Avalon states it expects to be able to cover all of its capital needs with current cash resources for at least the next 18 months. After that, it will likely need to raise more capital to see development through, which in turn will depend on the success of its drilling program as well as the prices for REEs.

That’s the question with any developing mining company, a sector where there’s a fine line between boom and bust. That’s one big reason why we generally prefer the likes of BHP Billiton (NYSE: BHP) and Vale (NYSE: VALE), both of which are Portfolio recommendations. But I’ll be keeping an eye on Avalon and its CAD246 million market capitalization (approximately USD238 million).