Forum Topics Stocks to buy on the pullback
SebastianG
3 years ago

Unfortunately I haven't been as active on Strawman as late due to an insane period with work.

I know we all have a friend, that has a friend, that knows someone, who has some particular insight about an upcoming stockmarket crash.  But... I know a guy! He is a particularly savy investor with a lot of money he has earned as a private investor over many years.  About a month ago he started to move a sizeable portion of his portfolio into cash (I know).   At a very basic level, his rationale for substantially repositioning his portfolio is general market uncertainty, supply-side induced shocks, increased inflation and an eventual realisation that interest rates have to go up.  He is currently positioning himself to invest in stocks that might benefit from inflation and increasing interest rates.   To be honest, while I do have an understanding of these things, I do not have the time, energy or knowledge to manage my portfolio on the basis of such macroeconomic indicators.  But I have thought for some time that a substantial correction was coming and as a result, I have tried to only invest in high quality companies.  With that in mind, I thought I'd open up for discussion which stocks you may be looking at if there was a substantial pull-back?

For me, EOL is at the top of the list.  I feel it is optimistically priced and many people are holding it for the long-term, so it has been difficult to find a good spot to buy in.

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reddogaustin
3 years ago

@SebastianG

I agree the market will dip when interest rates formally rise.

However, otherwise I am of a contrarian point of view.

I don't think you need to be positioned to change into another type of company. I think you need to stay in the high-quality companies you have invested in right now, and buy more of them when the dip does come. Those the are companies you want. Not new ones.

Why change on macro (or micro) economic indicators? If you believe your companies are genuine quality, then the best action is to do nothing. It is well proven that buy and holding quality companies over time is when the wealth creation occurs.

Perhaps not the response you were looking for, if so, my apologies.

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Chagsy
3 years ago

I guess we all have our eyes on certain companies that we would like to buy into. 
Rather than creating a list might I suggest certain criteria for companies that are safer should you think we are in for some rough times?

  • cash flow +ve 
  • no debt 
  • an ability to pass on costs to customers 
  • retain growth no matter the macroeconomic conditions 
  • not overly expensive by usual valuation metrics 

the list gets considerably smaller with the above conditions!

speculative stocks often correct harder than established profitable ones. Many of the stocks currently favoured on Strawman do not fulfill the above. 
stock screening services can rapid reduce the options. 
best of luck

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umop3pisdn
3 years ago

Wouldn't it depend on the reason for the market correction?

If the market dipped because the US dollar collapsed, would that be the same investment opportunity if the EU fell apart? Or China started WWIII?

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Hackofalltrades
3 years ago

Why do you think interest rates have to rise? They might rise a percent, but I think we're looking at rates being 2-4% below inflation for many years to come. 

Northern Star is cheap at the moment (at least compared to when I bought it =/). I think Kip McGrath is also. 

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reddogaustin
3 years ago

@Stuey727

I agree. You are correct. It is unlikely we will see rates jump to 5 or 10%.

I would propose though, that even a rate increase from 0.01% to 2% over a year or two is "massive", and the conservative or "managed" money will move from shares into other things like bonds. It wouldn't materially affect you or I through our mortgage or savings account, but to big money, a few % means a lot.

Retail investors like you and I are beholden to no rules. So we can do what we want. And I, for one, will be doing nothing but buying more of the stocks I already own. No switching, no changing, no chasing.

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Chagsy
3 years ago

Fair point

perhaps minimal debt would be better. The problem with debt in an environment of increasing inflation is the capacity to service that debt as lending rates increase (obviously)

Some REITs for example have significant gearing ratios but the debt is at low rates and locked in for long periods, so could still be attractive investments as rental increases can be negotiated to match debt servicing requirements. Having said that I would still aim for those at the lower end ie not more than 30-35% or so. 
Currently most REITs trade at all time extreme Cap rates though. I'm sure @Peregrine can add more to this.  

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