So, Ben and I were talking last night about the recession and where you’d park your money if you had a lot. And we sort of got to talking about “what’s a good buy right now.” Like in the “olden days” when a recession meant you would buy certain kinds of stocks, because they performed well in a recession.
A couple things struck me why this was different this time, and I find them frustrating. I also can’t help but wonder what sort of impact their reality will have on the stock market, our nation’s perception of that as a barometer of the nation’s financial health, and the economic recovery in general.
First, so goes the theory, certain “comfort” and “blue collar” products, and thus their stocks perform well. We kept thinking of good, solid, blue collar brand names – like Jim Beam or Bud – only to realize that in fact these brands were products in highly-diversified portfolios. Is diageo a good buy? People might buy more Red Stripe in lean times, but less Bushmills. More Smirnoff but less Laguvalin. But who the hell knows what their sales/portfolio mix is, and the increased sales in low cost brands may well be offset by declining sales in their luxury brands. If you take companies like SABMiller or Anheuser Busch/ImBev or LVMH or Diageo, I just have no way of knowing, really, without being an analyst, whether they’ll perform better or worse in a lean economy.
We spent a lot of time trying to think of holding companies whose brands were primarily, definitively made up of less expensive products, and we could only think of a few – Frito Lay, Pabst, and maybe Procter and Gamble.
The other, newer, more interesting thing is, I think, that, really, in these economic times, that sort of thinking is pretty much over. The stock market is doing some seriously insane things. The ups and downs it’s having as investors wrestle with their portfolios, and hedge funds wrestle with withdrawals and banks wrestle with their balance sheets is totally eclipsing the ups and downs of any solid stocks.
I’ve heard people like
Fred Wilson talk about how Google’s a solid company and he’ll buy when it goes down to 400 and of course everyone’s talking about Apple’s solid earnings. A gambling man would gamble, in the old days, that Apple’s a solid company, and after watching its earnings for 15 years I can tell you straight up that this recession won’t impact it very much. But will it’s stock go up? I don’t think so. Not much. Because the market’s working out kinks that have nothing to do with individual stocks.
What I’d be doing as an investor – as opposed to someone who freaked out and liquidated everything earlier this year – would be watching and waiting not for some mythical low point on a specific stock. What I’d do is identify my targets – the ones who looked good in the old days – but not buy them until I start seeing consistent evidence of the market actually responding to individual stocks and company news. I’d wait for these lurching 500+ ups and downs to be over, let it settle a bit, and after a week or two of seeing individual companies go up and down, based on earnings or news, then I’d dip my toe back in.
But I do find it interesting that the market, while comprised of individual companies’ values, is really not reflecting that right now. It’s another sign of the sort of cancerous spread of this credit crunch. Housing bubble burst -> CDOs -> Credit Markets -> Stock Market along with who knows what else?
on October 29, 2008 at 01:16 PM
