Survival Strategies for Stocks During A Recession (Part 1)
Uncertainty is integral to projection, and no one can live in the worlds of stocks and investments without considerable disquiet about what may lie ahead. The motives of professional investors and the media are suspect when they make gloomy forecasts, because they may merely be trying to win stocks we hold at distress prices! Such exploitation is unnecessary, because we can all think like professionals, and build portfolios of stocks which can stand us in good stead during bearish phases of business cycles.
Stocks as Weather Vanes of Recession
Failure to improve productivity, and disturbances in balances of supply and demand at any point of a business model, may be inferred, from expert reviews of past recessions, to predict down swings in relevant sections of an economy (Dow, 1998). Any company, which fails to match competitive cost trends for its products and services, is headed for trouble. Similarly, if the economic health of the customers of a business are affected adversely, or if strategic suppliers cannot match demand trends, then a company in which you hold stocks is likely to suffer. All stocks will yield the same conclusions when inquiries are made about their cost trends, customer well-being, and supplier linkages: however, each of these factors can be used to forecast reliably, how the values and yields of securities are likely to behave in the future. The results may not be very meaningful when good times abound, with bullish sentiment dominating the values of stocks. However, maintaining a conservative approach, at least for stocks held for the long term, will protect investors should a recession strike unexpectedly.
Finding Stocks Which Are Recession Resistant
Personal Consumption Expenditures (PCFs) are relatively easy to understand as economic indicators, because all investors in stocks are also consumers (Ellis, 2005). We can relate such data to our personal experiences without resorting to the expertise of others. This concept can be used to build a portfolio of stocks around things which we either buy directly, or the purchase of which is associated with our daily vocations. Anything which we would continue to buy even if our household or company budgets were under strain, points to a manufacturer or to a service provider that can thrive even in a recession. Since the exact unfolding of a recession is never known with certainty, all portfolios should build long term holdings around such stocks of ‘essentials’.