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I am sure you remember, a few weeks ago I asked if you were frozen in the falling market headlights.
Well after the stock that went over the cliff, I told you about last week, it happened to me.
I was frozen, and I had to do something it. If not, I will lose out on too many great investments.
After speaking to a friend and fellow investor, I realised that I have 15 companies ready to buy already. Remember that buy list that I have been telling you about and urged you to get started on?
How I got unfrozen
This is how I got unfrozen and I suggest it is something you do should it happen to you.
I took my buy list, ignored all companies there the chart looked like a falling knife, and looked at the rest.
From this list, I selected a company with the most conservative financing and bought it.
It is a solid, dirt-cheap company in the free-to-air TV business that is doing surprisingly well. We are still doing the final analysis on it, but we will most likely recommend it in the newsletter at the beginning of next month, so I do not want to say too much at the moment.
Thinking about higher interest rates
After reading through a few third quarter fund management reports and the November 2022 newsletter by Lyn Alden, I realised that the increase in interest rates is going to take a while to play out and is going to cause a LOT of pain.
Just think about it, over-indebted companies have fixed interest rates, for a while or at least, until the next bond repayment. But at some point, they have to refinance at a higher interest rate. This means over time, the next three years for example, their interest expense may be up to four times higher (from 1% two 4%).
If they have a lot of debt this will lower their profitability. And if they have a problem with profitability, and cannot refinance, they will go bankrupt.
Companies to avoid like the plague
As there are a lot of zombie companies around the best thing you can do is to avoid highly indebted companies like the plague. Even if they do survive the higher interest rates their profits will be lower, which is definitely not going keep their stock prices up.
Now on to the Mind Game part…
The Mind Game
Rule #11: The “best” investment strategy does not exist
As the Prussian military strategist General Carl von Clausewitz said:
“The greatest enemy of a good plan is the dream of a perfect plan.”
Last week I wrote to you and told you that the best investment idea does not exist. This month I want to expand on that idea and tell you that the best investment strategy also does not exist.
The best investment strategy you will ever find is NOT the one with:
- the highest return,
- the lowest Sharpe ratio
- the lowest maximum draw-down
- the strategy currently beating the market
- the strategy that worked best in the last bear market
Your best investment strategy you will ever find is:
- A sensible strategy
- That is good enough to achieve your financial goals
- That you can stick with in good times and bad (up and down markets)
- That lets you sleep comfortably at night, every night.
It is simply the strategy that fits your nature and with which you are comfortable.
It cannot be just any investment strategy
It can of course not be any investment strategy.
It must be a strategy:
- That has proven it works,
- In different markets world-wide,
- Over long periods of time,
- In up and down markets.
But do not worry about finding a strategy that fits your nature, there are more than enough to choose from.
(You can find a list of all the best strategies we have tested here: Quant investing – best investment strategies)
Don’t change it!
Once you have it be careful before changing it.
Because if you change it to, for example the one currently beating the market, you will (most likely) do so at the worst possible time.
Think of the value investors selling cheap companies and buying technology and internet companies, at crazy valuations, just before the internet bubble burst. They all lost more than just their shirts…
Why you must be comfortable with it
The reason you must be comfortable with it is because it WILL underperform the market some of the time – this is something that happens to ALL the best investment strategies.
Sometimes this can go on for a few years.
The thing is - only if you are comfortable with your strategy will you be able to stick with it over these tough times, and that is what you must do if you want to get the great long term returns you want.
PS I know markets are still uncertain BUT have you already started building your buy list? If not, why not sign up today and start now.
PPS It is so easy to forget and put things off why don’t you sign up right now?