In the depths of the Great Recession, the economy and financial markets were characterized as being caught in the grips of a massive heart attack. Many well known publicly traded companies eventually succumbed. Some of the more notable failures included AIG, Bear Stearns, Chrysler, Circuit City, General Motors, Lehman Brothers, Linens’n’Things, the Tribune Company, and Washington Mutual. Investors were panicked in early 2009 -- who would be the next to go under? With massive amounts of governmental intervention and resuscitation, however, the housing and auto markets stopped going down and the financial crisis stabilized by the end of March.

As the first quarter ended, investors surfaced to buy stocks and bonds, particularly those that had sold off the most and were given up for dead. The fifty worst stock performers of 2008 doubled in 2009, whereas the fifty best performers of 2008 advanced just 9% in 2009. The smallest stocks gained 113% last year; the largest stocks went up only 22%. The “higher risk” NASDAQ advanced 45% compared to the stodgier Dow which only gained 23%. Stocks paying no dividends moved ahead by over 50% in 2009, more than twenty percentage points higher than the old fashioned dividend payers. And the bond market reacted similarly. Bond investors bought the least credit worthy “junk” corporate bonds, which appeared on the edge of default in March. These bonds produced a 50% gain last year, offsetting their 25% decline in 2008. In contrast, the “risk free” ten-year US Treasuries posted a negative 9% total return. Ironically, by the end of the year, the financial media described 2009 as the year for “risky assets.”

The tough times of the past two years separated the well managed companies from the poorly managed ones. Companies in the same industries, operating in the same economic environment, produced decidedly different outcomes. General Motors and Chrysler, for example, went bankrupt in 2009 while Ford reported billions in profits and quadrupled in price. In early 2009, JP Morgan reported a massive quarterly loss, cut its dividend by 87%, and then a few months later, as if reincarnated, reported a $3 billion profit. Goldman Sachs followed a similar path when it posted an even larger loss in early 2009 and then managed a miraculous recovery and earned over $3 billion a few months later. Both stocks posted big price gains in 2009. Their major competitor, Citigroup, also reported a loss, hacked its dividend, but remained tethered to the US Treasury. Its stock price declined 50% in 2009. Citigroup remains in intensive care. Mega mall operator General Growth Properties went bankrupt while Developers Diversified, another retail owner/operator, survived and saw its stock advance by 90%. Retailers displayed similar results. Macy’s survived and posted a 60% return for the year; Nordstrom recovered and gained 180%. Other retailers were less fortunate: Eddie Bauer, Boscov’s, Sharper Image, KB Toys, Mervyn’s, and Lillian Vernon went bankrupt.

Companies that were well financed and well managed largely stayed out of trouble. They simply never got sick. In general, their stocks held up better in 2008, but showed only modest gains at best in 2009. Companies such as Johnson & Johnson, Chubb, State Street, Kraft, and Automatic Data Processing posted single digit gains last year. Other “steady Eddies” such as Exxon, Wal-Mart, Procter & Gamble, and McDonald’s actually declined. Constancy was out last year, recovery in.

Finally, there were companies that actually thrived and got healthier during the crisis. These select few continued to grow their businesses and profits, and their stocks did well. The Technology sector, for example, was a leader throughout 2009. Many of the tech companies are the top innovators in their respective industries. Companies such as Apple, Amazon, Intuitive Surgical, Salesforce.com, Google, and Visa led the performance parade in 2009.

The healthiest economies in the world, such as China, also did well in the past year. Although the emerging markets securities declined more than the developed markets securities in 2008, they were leaders in 2009 and throughout the past decade. The improved position of many of the developing countries’ finances, their relatively faster growth prospects compared to the developed world, and the advent of exchange traded funds have made investing in emerging markets more mainstream.