What to do About the Japanese Selloff (NYSE: BP)

• The market is ready to go
• Are you?
• A truly heinous investment

A sell off seems imminent. The global marketplace is littered with oily rags. All that's needed is a spark.

And while some people may look back at the Japanese earthquake as “the cause” that initiated a sell-off of stocks, bonds and commodities, it's simply a catalyst.

Just about every asset class out there has ramped higher, and while the move higher fits neatly into my thesis of inflated commodity prices, no bull market goes straight up forever.

So this sell-off (if it does indeed begin now) should offer us a chance to average into commodity assets at more attractive prices.

I've made this same statement before, if you recall. I predicted the possibility that Ben Bernanke's announcement of Quantitative Easing 2 could disappoint.

I'm also of the opinion that a lack of continued liquidity after QE2 expires in June could cause a similar across the board correction.

But this type of natural disaster, where hundreds of thousands, if not millions of Japanese institutions, individuals, government bodies and investors will have to raise cash, and quick, could be the major catalyst that surprises the market to the downside.

The question is: will you join the hoard and sell this news?

Or will you take the opportunity to buy your favorite assets at discounted prices?

There's a reason that Baron Rothschild uttered that famous quote, “Buy when there is blood in the streets.”

Right now, it's tough to look at this natural disaster and the ensuing tragedy as a time to think selfishly. Most people will look at this opportunity to go shopping as distasteful. But you didn't cause this tragedy. Buying assets at distressed prices is a good thing for the markets. It creates liquidity and demand when the market needs it most.

The thing is: most people won't buy their favorite assets at distressed prices.

I gave similar advice to buy the bad news in early May of 2010, right after the BP BP oil spill.

Here's what I said back then:

“I hate to search for profitable investment opportunities from this disaster – but that's my job. And, as part of my job, it's vital for me to point out that oil companies, especially offshore deepwater oil companies, are extremely unpopular right now.

That's exactly when we should be buying. And I realize it feels icky to buy BP right now. I hesitate to tell anyone to do so, just because the stock is currently selling off even more…

The company is already approaching its 52-week lows, and for good reason, but let's not lose our heads.

BP is one of the biggest oil companies on the planet. They have a market cap of over $150 billion, and had annual gross profits of $63 billion last year. A $3 billion cleanup bill will certainly sting this company, and I fully expect that number to balloon.

Not to compare the 1989 Exxon (NYSE: XOM) Valdez disaster to the current Louisiana tragedy – but in terms of creating a buy opportunity, I think it's a fair comparison.

Investors who bought Exxon one month after the Valdez tanker ran aground have seen their shares appreciate nearly 800% in the ensuing 21 years. That's the kind of gain you can only get by buying when something is cheap and hated…

If BP stock approaches 2009 lows of $35 a share, I think it would be foolish not to buy. Maybe it's icky, but there's nothing icky about potential 800% gains.”

Buying BP when it was selling for less than $35 last year was an icky proposition.

But it turned out to be a profitable investment, and if you want to be a profitable investor you have to pounce on the icky situations. They present some of the best buying opportunities you're likely to find.

So my suggestion is to make a list of some of your favorite companies and assets that you want to own. Pick your price. No one knew for sure that BP would fall to below $35 last year, but picking that price ahead of time and having a plan to buy at or below those levels locked you into the best BP share prices since the depths of the recession in 2009.

If you don't formulate a plan now, you won't be likely to buy when the time is right.

So make a list complete with your dream price, set aside some capital and be ready to go shopping while the streets continue to run with blood.

Some people may think it's distasteful to invest in times like these, but those people are missing out. Don't miss out – making good investments won't hurt the victims of the Japanese tsunami anymore than abstaining from the markets will help them.

Someone needs to be a buyer when everyone's selling. It might as well be you.

Good investing,

Kevin McElroy

Editor

Resource Prospector