The theme this week on the Retirement Quick Tips Podcast is: Nowhere to Hide. It’s been a rough year, with threats of a deepening recession and continued, sticky inflation dominating the minds of most investors. So this week, I’m talking about how you can navigate an economic and investing climate where it seems like there’s nowhere to hide.
In the intro episode of this week I talked about James Carville’s catchphrase - “it’s the economy, stupid!” Carville’s catchphrase helped highlight the recession in the election year of 1992, and helped Bill Clinton get elected as president. Exactly 30 years later, we find ourselves in another recession - this time driven by massive government spending related to Covid ($4.5 trillion worth so far), which has stocked eye-popping inflation, and the need for the Fed to step in to aggressively raise interest rates.
So today, I want to highlight something that I think will be very important going forward, and that is: It’s all about quality, stupid!
- Quality will be important for some time to come. I think that gone are the days when speculative traders could make money on meme stocks, cryptocurrency, and unprofitable tech stocks.
- I also think that in a difficult market, it’s going to be less profitable to be a passive investor and just invest in the overall stock market. I think being more discerning and picky as an investor will become more important.
- I believe that there’s too many things broken right now with our economy and that the pain could be with us for some time... Interest rates have remained low for too long, and all of this cheap and easy money has created a big inflation problem and bubble in a lot of areas - real estate & stocks - to name a couple.
- But that doesn't mean that investing in these areas is going to be a waste of time and money. You just have to be more discerning.
- At the core of investing in quality in anything is to pay attention to the underlying fundamentals. When it comes to a stock, you’re buying a piece of that business. So we need to look for some key ingredients that make for good businesses:
- Consistently profitable
- Strong cash flow
- Durable and predictable
- Healthy and growing dividend
- Low debt
- Disciplined management
These are some of the most important things to look for when buying a stock or selecting a mutual fund or ETF - it’s all about quality. Quality should be the bedrock of an investment portfolio at all times, but it’s easy to get greedy and leave the quality investments behind in favor of higher returns.
But the high flyers of the last decade have begun to come back down to earth, and I think that it’s the quality that will shine through in this difficult market environment, and also when we emerge on the other side.
That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.
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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance