Everyone is selling. Recession is on the horizon. Investors are nervous trying to minimize loses. One may panic, but the one who are steadfast will be the one reaping all the profits. It is the time to own recession proof stocks which I’ll tackle in this post.
There are basically two approaches you can do when the economy is on a downturn.
A. Be aggressive
Gain as much profit as you can. This type of investor must be someone who can tolerate high risks in hoping for high rewards in return. The downside is you may end up losing a lot of money. This type of investing is not for the faint of heart. The attack plan of this kind of approach is trying to capitalize on investors in a panic-sell mode. Of course you still have to pick good stocks (more on this later). But pick the right choices and once the economy is on the up again, then that is the time you will reap your rewards.
B. Be defensive
Sometimes it is not all about making money, but more of not losing money. If you are the type of investor that would rather earn at a steady, safe pace, then you are a part of a safe bet in a declining market. You won’t reap double-digit returns but it will keep you from going broke in the long run.
The three basic thoughts to consider:
1. The economy will bounce back. Just like in a booming bull market, where there is always that inevitable top, there is also always a bottom in a bear market. You have just have to ride the downturn. Don’t panic.
2. Whether you take the aggressive or the defensive approach, it is important that you really understand the structure of the companies you are investing in. During a bad economy, your portfolio should only have companies that are sure to survive the downturn. Stay awway from start-ups, or companies with unproven track record. Go with companies with low debt, a history of steady growth, a history of strong earnings, and a low P/E ratio.
3. Hold that “sell” button. Remember that stocks will not always be in the red. It may at sometime rise higher than expected.If a company has a history of sound fundamentals, it will come back up. Avoid selling at a loss unless you absolutely have to.