by Lance Helfert

One of the ironic aspects of the current economic crisis is that just a few months ago the world was complaining about high oil prices, but now economists fret that prices are too low. Lower oil prices should be great news for most companies because it lowers their costs. Unfortunately, oil prices are dropping because the market projects that companies will use less oil as economic activity - production and consumption - slows dramatically. Actual oil use will not decline, but growth will slow, and that drags prices down. As we said before, it's all connected.

A film producer told us that economic downturns are typically good for the film industry and the alcoholic beverage industry.  That is historically correct, but in recent years the film studios have been getting financing from hedge funds and other investment groups, so while people may indeed want to go to the movies to take their minds off the nation's economic woes, the studios may have trouble financing their wares. But his point still resonates: the economy reflects the daily needs and desires of the people within it.

This is why companies like PepsiCo (NYSE: PEP), Cadbury (NYSE: CBY), and Johnson & Johnson (NYSE: JNJ) appear in many value investors' portfolios. In a recession, people might not buy new home theaters, cars and appliances, but they still buy soda, chewing gum and medicines. Along the way, new innovations spawn new industries and new prosperity. The literal definition of "crisis" is "turning point", and no one can yet say what new direction our economy will take. Perhaps we will come out of this bear market as the world's premium purveyor of electric automobiles. Perhaps we will export wind and biofuel energy expertise to oil-rich nations as their natural resources decline.

We do not know how our economy or the prices of our stocks will react next week or next month, but we do know that the U.S. economy has been tested time and again, and in every case has proven resilient. The way we look at it, there are three doors to choose from - Yesterday, Today, and Tomorrow. Stocks are clearly cheaper today than they were yesterday, and if we believe in tomorrow then today should prove an extraordinary time to own stocks. Marty Whitman, a legendary 83-year-old value investor, was recently quoted as follows - "We can't try to pick the bottom, but it seems to me that there are great values out there now, just like in 1974." He added, "Everything went down every day, and if you bought, you hit a lot of 10-baggers [1,000% gains]."

The success of capitalism is assured not because of its efficaciousness as an economic system, but its accuracy as a description of human nature. We aspire to build, to create. We work tirelessly to make something new in the world, share it with humanity and enjoy the fruits of our labors. This is not a result of economic theory; it is simply who we are. That is why disasters and tragedies great and small have done little to impede mankind's progress. Watching the current uncertainty on Wall Street, we remember that even the Great Depression did not defeat the United States and our vision of capitalism. William Faulkner, who lived through WWI, the Depression and WWII, expressed the sentiment in his Nobel Prize acceptance speech: "I believe that man will not merely endure: he will prevail." Recognizing that the cycle of bear and bull markets is a natural phenomenon of public stock exchanges, entrepreneurial investors know that today we endure so that tomorrow we may prevail.  As Marty Whitman suggests, no one can "time the bottom," but anyone can see when a stock is selling for less than the value of its cash on hand, or less than its intrinsic value, and can therefore find abundant opportunities in bear markets

Lance Helfert is co-founder and president of West Coast Asset Management, and a co-author of The Entrepreneurial Investor: The Art, Science and Business of Value Investing. This blog entry is an excerpt from West Coast Asset Management's newsletter, Exclusive Outlook.