What’s your first reflex if your hand accidentally touches a hot stove? Most likely, your hand recoils quickly in hopes that you won’t feel severe pain.
Now let’s make a stock market comparison. What’s your first reflex when the 24-hour news cycle tells you that the sky is falling and that changing politics, war, terrorism and disease will soon be knocking at your door? The reaction is probably the same as when you touched the hot stove, but this time you’re recoiling from investing your money.
This is a normal reaction, particularly after going through some tumultuous years in the stock market that left many people scarred. But this is a reaction that can severely impact your investment strategy and here’s why. Moving all your investments into cash due to overhyped fear and panic is going to hurt you down the line. It’s going to stunt your money’s ability to make more money. The next time you are tempted to recoil and give into that instinct to completely pull away from the stock market, think instead about zooming in on your investments.
While I’m generally a macroeconomic thinker and write most of my articles based on that mindset, in times of peak anxiety, I find it helps to take more of a microeconomic approach. Unlike a macro approach that studies the economy as a whole, a micro approach will help us zoom in on specific companies and businesses. It reminds me that while there will always be trouble spots, there will also continue to be good solid businesses making money for themselves and their investors.
To that point, let’s zoom in on Procter & Gamble (P&G). When you think about a specific company to invest in, P&G is one that personally comes to mind. Why? Because P&G is entrenched in the global economy. Here’s a company that was founded almost 180 years ago, and today operates with almost $84 billion in revenue each year. Their 80 core brands produce roughly 95 percent of the company’s profits, and they’re the brands that you see every time that you walk through the grocery store and most likely have in your own home- brands like Bounty, Charmin, Crest, Dawn, Gain, and Gillette just to name a few.
So number one, you’re investing in what you own. Number two is that you are investing in the people that run P&G, and these people have clearly demonstrated an ability to grow this company despite wars, recessions, and depressions. There are thousands of smart P&G employees around the world that are running division after division as if their entire family’s livelihood depends on it…and in many cases it does.
Yes, P&G’s stock price will go up and down, but it gives me great comfort to own stock in a company that has well known staple-type products, literally sold all over the globe.
I’ve written before about how one of the secrets of increasing your wealth is to mirror the habits and actions of the wealthy. For example, if you’re a wealthy foreigner, let’s say Prince Al-Waleed bin Talal, the grandson of the first ruler of Saudi Arabia, where do you think would be a good place to keep your billions safe? Well, the Prince clearly believes in global brands because he’s invested in P&G, Citigroup, Twitter, the Four Seasons, Apple, Disney and more. On top of being a prince, Forbes has named this man one of the world’s most intelligent investors twice, so clearly he understands fundamentally sound investing.
Now let’s look at another excellent investor who is a little closer to home and one of my personal favorites, Warren Buffett. Based on his portfolio, Buffett also believes in U.S. and global multinational companies. As of the writing of this article, P&G makes up approximately 4% of his portfolio, along with investments in Wells Fargo, Walmart, Costco, Visa, and Charter Communications and several other multinational companies. As many scary headlines as Buffett probably reads every day, he still remains an investor in these global firms.
Getting back to our zoomed in view on P&G, let’s just look at where they are today. Procter & Gamble’s brands are the products that almost every household has on hand. This is a company that is focused on providing quality products that everyone needs. Ultimately, I’d say that as long as hair continues to grow, babies continue to be born, and people want to smell good, Procter and Gamble will be here.
So when the world and the market seem scary and you’re ready to recoil and move to cash, just remember that sometimes it helps to zoom in on your holdings, and understand if you own companies that are highly integrated, entrenched, and/or essential to the global economy. If that’s the case then you should be able to handle the constant stream of bad news that comes from the financial and popular media.
There are no guarantees in this world, but solid, entrenched, global companies employing smart people will most likely continue to survive and grow regardless of government upsets, wars, disease, and nearly all other scary headlines. If the companies you own can stay the course and always fight to grow, regardless of what happens around the globe – then you too can stay the course regardless of how rocky the ride.
The information is provided to you as a resource for educational purposes only. By mentioning specific companies in the article in no way should be considered an endorsement of the company or a recommendation to invest. Nothing herein should be considered investment, legal, or tax advice. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. It is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
Certified financial planner Wes Moss offers financial and accessible investment advice to Atlanta Bargain Hunter readers.