Build a Shields-Up Portfolio
Board: Macro Economics
So I wonder- is this time different- will the upcoming recession cause a stock market drop which buffers the dividend players more than the other stocks? Could they in fact rise while the rest of the market is falling?
Several thoughts, for what they're worth....
1). Good businesses bought at reasonable prices doing business in sectors that are needed whether the economic times are good or bad, will weather the market storms better than the rest.
2). Companies that meet the above conditions and pay dividends offer some recompense for any volatility in price while those which don't pay dividends.....well.....don't.
3). Buying "growth" companies in a recession is swimming against the tide, an endeavor guaranteed to wear one out eventually.
4). If the overall market goes down, it generally takes the good, the bad and the ugly with it. The good companies bought at a reasonable price will return its owners to good order more surely than the others. Whether that return will be done quickly or not depends on what's driving Mr Market's moods.
5). If one is not certain that they are buying a good company at a good price, then it pays to wait until a price is offered which is so compelling that all doubt is removed.
6). Now is the time for investors to be certain of the integrity of the management of the companies they own. Greed and fraud seem more blatant than ever & that usually presages a violent reaction from Mr Market. The fraud will be purged from the system and we don't want to be among the long-term victims of that purging process.
7). In a world where debt burdens are leading to higher interest rates in the worst of cases, it is probably safer to assume that higher rates will eventually occur at all heavily indebted enterprises. One might be wise to factor in debt service fees commensurate with much higher rates when determining if profitability in tough economic times will be sustainable. In other words, debt-free enterprises which pay nice dividends might be given extra consideration over similar business models which are heavily indebted.
8). Try to employ your investment dollars such that if you are correct about your estimates of our economic future, then you will prosper.....but also try to limit your investments to those companies which meet another hurdle: that even if your estimates of the future prove to be incorrect, you will still prosper.
These are tough standards, but if it was easy, we'd all be bankers!