What kinds of companies would you invest in during a recession/depression?
A web user asks, I’m thinking about using this economic opportunity to invest in a few stocks, but I’m not sure which areas to focus on. Any tips?
Can you help them out? Post your advice!
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Posted in QnA
at the moment all the stocks are much lower than they were about a year ago. so basically, you can buy anything you want and be certain of profit in 2-4 years (maybe longer)
the credit crunch hit banks the hardest (obviously) so i would suggest buying some bankshares. dont put all of your money into one stock though, especially not a bank, since banks could still fall down.
set up a portfolio with some diversification.
get either 1/4th to 1/3rd of your portfolio in bonds, buy some that are under the intrinsik value. as for the rest, to get good diversification you could invest in a fund, a tracker, or devide your assets over a set of companies in different area’s of expertise.
if you want to do the last, i would advise getting, a financial company, a commodoties company (miners,oildrillers, gas expoloiters, woodders) and a or several retailer.
food retailers are usually the stablest in the market, cus, well people gotta eat, electronic retailers or sellers of wares with high prices tend to be less stable, as the economy becomes tighter, people will spend less on the luxuries.
that said, the key is, diversify, diversify.
my current portfolio is 30%bank 20%food retail 40%bond 10% liquidity
the key is not to panic and sell low, if your portfolio is diverse enough, it will always bounce back.
One thing to think about is that some companies, some industries do well when times are bad. For example, discount stores might do even more business as more people look for bargains, instead of getting them at classier stores.
Some industries are considered to be recession proof. The financial mags must be full of articles about these kinds of stocks right now.
Money Mag is saying thet the blue chips will rebound.
http://money.cnn.com/2008/09/15/pf/blue_chips.moneymag/index.htm?postversion=2008091518
Like what someone had already said, make sure you difersify your portfolio. Different industries react differently in the market and having a well diversified portfolio will lower the risk.
Secondly, I normally would recommend treasury bills but according to CNN this morning, there returns are extremely low. They recommended certificate bonds at banks.
As stocks go, if you feel as though the recession/depression will continue, invest in stocks that have a negative beta. You can find this information on yahoo finance. If a stock has a negative beta this means that if the market is falling, these stocks are rising.
The way i see it,the answer depends on the financial goal that you have.If the intenion is to stay invested for a long term(2-3 years),the aim should be to pile up large caps like L&T,Infosys,Reliance.These sectors have been beaten down badly cos of the economic turn around, but the fundamentals are very strong for these companies.
If you are looking for a lesser period(say 1 year),then god help you:-)
But still,real estate sector can be looked at.they have been hammered like anythin for quite sometime and are sure to bounce back in near future.But they are cylical stocks,so book profit whenever you can.
This is just my thinking.