The Ultimate Money Guide for Bubbles, Busts, Recession, and Depression

Chapter 12. HOW TO PROFIT DIRECTLY FROM A MARKET DECLINE

Most people don't think about profiting directly from a market decline. They don't understand the concept, and they don't know how. That's a shame, because one of the key things you need to help get you through tough times is money. And in bad times, to acquire that money, sometimes the best defense is to go on the offense.

Others don't consider this opportunity because they think there's something sinister about making good money in bad times. The fact is that the more people who can build wealth, the better it will be for everyone.

In the 1930s, only a very small handful of investors turned the tables on Wall Street and actually transformed the three-year market decline into a profit opportunity. Bernard Baruch, an adviser to several American presidents, was one of them; Dad was another. Initially, the two men didn't know each other. Yet their approach to the market was similar. Here's how Dad described his experiences:

I had gone to work on Wall Street as a typist at the age of 16. I knew very little about the stock market then. But I found it so exciting that I went back in 1929 as a customer's man (stock broker). I traded some stocks for myself and a few clients. When the crash hit, I was as surprised as everyone else by the utter fury of the decline. But my portfolio was clean. Neither I nor any of my clients had one share of stock.

My good fortune was due to a combination of poverty and a healthy dose of skepticism. I saw ...