Here is where we put it all together. Part of this series is all about seeing the big picture and helping investors to focus and get through a very difficult period.
Since I began this series the DJIA is down 15%, the S&P500 down almost 18% and the TSX is down almost 19%.
Any investor or company needs focus at times in order to be successful. Doing what you do best is what sets apart the amateurs in business from the true professionals and this is no different when investing. In a difficult economic environment an investor wants and needs to see the businesses they own moving towards their core customers in order to ensure profitability. This is not the time to expand into new businesses that a company has no experience or competencies operating within. A successful business will be able to go back to its grass roots of what made it successful and continue to be successful in tough economic periods.
A recession is a contraction of the economy and businesses need to contract in response to protect themselves and ensure the viability of their long-term operations. This is not the time to get fancy, complicated or unfocused. Companies will move towards what they have absolute confidence in doing and what they excel at doing very well. They will sell non-core assets, trim down and aggressive spending of growth areas of their business will become more conservative.
This entire series is about business fundamentals and giving my readers insight into how I approach any business when investing. I believe good business practices lead to better businesses and excellent investment opportunities.
I will focus on companies that have low or negligible debt, that make a profit, who never compete on price and never sacrifice margins, who have competent and experienced management, that pay me a dividend for the capital I invest, that have a sustainable competitive advantage, that have management who have the pulse of their business and who can focus on doing what they do best. Meanwhile the main theme of my portfolio management will be a focus on capital preservation, quality investments and using indexed products to buy into various markets cheaply that I don’t fully understand.
There are obviously other items I focus on when investing, but this series I’ve shared I feel will offer investors the best chance to be successful no matter the economic environment.
Bottom Line: Be rational in your investing activities and understand what you want to own. Know your risk tolerance, review it or revise your expectations of risk if you must. Losing money is inevitable when you invest – no one can escape that. What you can do is minimize your risk. Focus on Enduring Value and you’ll do fine in the end and over the long-term.