everything: And The Contrarian, David Dreman, Says It's Time To Buy!

Yet another buy call. :)

We have plunged into the worst financial crisis since the 1930s. The leadership of Treasury Secretary Henry Paulson and Federal Reserve Chief Ben S. Bernanke in fighting it has been sluggish and inconsistent. Although we've just elected a new President and Congress, they will take time to develop policies to stimulate the economy and promote liquidity. What's an investor to do?

First, do not flee the market by selling your quality stocks. Yes, it's the worst bear market since 2000--02, and stocks are trading at valuations not seen in decades, but equities will come back. Second, because credit is subject to unpredictable crunches and it's impossible to guess when this bear will end, don't buy on margin. Third, don't hold shares of companies that will need cash to expand or refinance. There is a good chance they won't be able to borrow.

Fourth, keep your bond maturities very short. When governments face economic crisis, they print money. The magnitude of this crisis suggests that the printing presses will be running around the clock for some time. That means we'll see serious inflation when we emerge from the recession. Long-term bond prices could then drop even more than equities already have dropped. Stocks, by contrast, hold their own over long stretches of inflation.

How patient do you have to be? Some economists argue that it will take years to recover from the worldwide collapse we're facing. I don't agree. The Fed and Treasury may have handled the crisis ineptly so far, but the U.S. and every other economic power know only too well the lessons of the Great Depression. Nobody will try to fight the recession by raising interest rates, or by closing the door to imports, as we did in 1930 with the Smoot-Hawley Tariff Act. We're already seeing real global cooperation to prevent true disaster, such as early October's coordinated rate cuts by the Federal Reserve, the European Central Bank, the Bank of England and the central banks of Sweden, Canada and Switzerland.

Panics invariably provoke investors to make the wrong moves. So resist the panicky calls from many of your friends (and some experts) to move to cash while you still have some savings left.

And if you have uninvested cash? There is almost an endless choice of quality businesses trading at or near liquidation prices. Start with oil companies and producers of raw materials. In a panic, people think growth is gone forever. These stocks reflect that misapprehension.

Oil exploration and production companies have fallen as sharply as has the price of oil. Three to look at: Encana (44, ECA), with a price/earnings ratio of 7 and a yield of 3.7%; Nobel Energy (47, NBL), P/E 6, yield 1.4%; and Parallel Petroleum (3, PLLL), P/E 4. Other oil stocks I would consider are Chevron (70, CVX), P/E 6, yield 3.7%; Occidental Petroleum (46, OXY), P/E 5, yield 2.8%; Valero Energy (18, VLO), P/E 4, yield 3%; and Transocean (70, RIG), P/E 5. Also look at these raw materials companies trading at a small fraction of their former highs: Rio Tinto (152, RTP), P/E 4, yield 4%; and Freeport- McMoran Copper & Gold (23, FCX), P/E 3, yield 8.7%.

In tobacco both Altria Group (17, MO), P/E 10, yield 7.6%, and Philip Morris International (40, PM), P/E 12, yield 5%, look attractive. In retailing, Best Buy (22, BBY), P/E 7, yield 2.5%, and Target (34, TGT), P/E 10, yield 1.8%, appear cheap. So does the cruise company Carnival (20, CCL), P/E 7 (see p. 134). Also in the bargain basement: General Electric (17, GE), P/E 8, yield 7%; Pfizer (16, PFE), P/E 7, yield 8%; and Eli Lilly (33, LLY), P/E 8, yield 6%. In capital goods I like Eaton (41, ETN), P/E 5, yield 5%; and Paccar (26, PCAR), P/E 8, yield 2.8%. They've both been knocked down sharply and should bounce back when the downturn ends.

One last investment that should work out well over time: Buy property, if you live in a place with a forest of for-sale signs. The housing crisis is terrible, but it won't last forever. If you can get a mortgage, and if I'm right about inflation, you will eventually be paying it back with 50- or 60-cent dollars. Pay 20% down on a house that rises 40% in five years and you'll triple your investment, assuming you can cover the interest and maintenance with rental income. If prices rise above the rate of inflation, a reasonable possibility given how depressed they are now, your return will be still higher, possibly significantly so.

Take that money out of your mattress. If you don't, you'll miss one of the great buying opportunities of your life.