With the All Ordinaries falling below 4000, many people are speculating about the possibility of a double-dip recession, which would potentially be more damaging than 2008; with Governments around the world no longer able to provide 2008 levels of stimulus to try and re-start their economies. To me, there are 2 factors I’m considering in how to respond; Investing in industries robust to recession, and Identifying which companies will be the best long-term buys at historical lows. I’m certainly not counting on Europeans nor Americans to increase economic demand however emerging and frontier markets are a massive resource.
Industries robust to recession
Telecoms and healthcare are 2 winners here, people are always making phone calls and getting sick. Energy is another winner as people in frontier nations get power for the first time, and people in developing countries increase their demand. There’s only one way to give electricity to the masses in developing countries, and that’s burning coal. China is set to ramp up uranium demand in an effort to reverse the environmental damage of its annual 1.8 Billion Tonne thermal coal habit.
Two companies I’m currently researching are BHP and Cochlear.
Cochlear were recently given both barrels by the markets after it announced a recall of its 5th generation cochlear implant, and its main competitor received FDA approval to sell its product in the US. Cochlear’s still the leading brand with the leading reputation, and the fact they have voluntarily recalled a product with a 1% rejection rate should increase the company’s reputation longer term. They have huge untapped markets, with a technology that provides a great ROI for governments willing to shoulder the cost.
As the global leader in diversified mining, BHP’s executives target long-term asset life to enhance shareholder returns. Making up 12% of the ASX200’s value, whenever the stock market gets smashed, so does BHP. This creates some good buying opportunities. I’ve researched BHP’s asset base and based on my limited resources knowledge it’s quality.
One of the things that screwed a lot of people during the GFC was those who had to sell their shares due to margin calls. I don’t think it’s ever a good idea to “optimise” your portfolio so as to be too leveraged to not be able to sustain a 50% drawdown. While I’m using these tactics to model my portfolio, the broader strategy I’m using is based on professional development, spending less than I earn, and maintaining a healthy cash buffer.