While it is easy to trade online, it is not always easy to know where to invest your money. It has never been a simple task to make the perfect trades but it has become even more challenging in a world fraught with uncertainty. The novel COVID virus has sent the world into turmoil and resulted in extensive economic hardship for many. One way to make sure you can thrive during this period, you need to make investments that experienced players call an “all-weather portfolio”. Here we look at some of those companies that offer some security and certainty.
Innovators and builders
A place to begin is to look at what other successful investors do during times like these. Research suggests that investors have favoured innovators and builders throughout time. It is easy to track which of these companies who favour innovating or building might have some success by following the work of policy makers. If you can put your finger on an area where there will be capital to incentivise development, then this is where you might want to put your money too.
A good example could be to look to job creation schemes and programmes for the retraining and redeployment of workers. Governments across the world are going to be driving money into schemes to promote recovery. Therefore, if there are innovators looking to maximise on this gap, then this is where you might want to place your money. There are a lot of bills moving through Congress that look to boost research and development and break the alliance on the supply chains in China.
The companies in the past that have proven a clever choice in difficult times have included Facebook, Visa, Comcast and more – all proven drivers of initiatives.
How “out there” do you go?
When seeking to invest in future initiatives, the more speculative the product or service and the greater the risk. You may be waiting a long time for this investment to realise its potential but when it does it may offer much return. For instance, investing in biotechs is to a degree a certain trading option that is not impacted negatively by the currency conditions. However, choosing a biotech investment opportunity may require a different sort of risk, as the innovation may fail.
However, research suggests that such companies offer a better average return on equity than others over the last three years. Therefore, it is seen as a place where savvy spenders congregate.
Some important rules of thumb
If all this sounds quite heady, then let’s focus on some more practical advice. First, avoid companies that require a speedy return to normal to survive. It is highly likely that these businesses could fail as we wait for a vaccine or wait for the world to adapt to new trading conditions. Equally, if there is a chance that the business will need to close for an extended period, then go elsewhere. Sure, the company might survive and bounce back but it will take a long time for your money to realise any returns. Another rule of thumb is to look at the debt obligations and whether these are manageable or not.
Most of all, stop and do your due diligence. Times of crisis are marked by panic reactions and those who survive will be more measured than the headless chickens running here, there and everywhere.
There are companies that are cashing in at the moment who won’t be able to survive in the long term – the pandemic has merely offered them a minor lifeline. Look to Kimberly Clark as an example – the pandemic has acted as a tailwind for a company that produces paper towels but the company is no more than mediocre and unlikely to offer much return on your investment. Therefore, reacting will mean that you put your money here and then realise that you need to chase another rainbow. Continue to think long term.
Read, read and read some more
While there are companies that are obviously having their time in the sun, there are others that are harder to judge. Zoom, a video conferencing tool, has had a surge of popularity because of working and schooling from home. Is this a transient response to a pandemic or has the pandemic genuinely changed the way we work? If we are now more likely to meek via video link then Zoom is a sound investment for the long term. You need to read around the sector to see what prevailing opinion suggests.
Equally, there are other companies that continue to grow and expand no matter the conditions. Look at Alphabet with its nine platforms and more than 1 billion users – this powerhouse isn’t going anywhere. Unless there is significant regulation to get in the way of its world domination, then you can be certain this is an all-weather investment. While people running to Alphabet as a safe haven has lowered its price, only by a small amount. Therefore, it is still a place to go during a storm.