Over the past few weeks, I've seen the value of my precious stock holdings go down-sometimes, alarmingly so.
Does this worry me?Not much.
Why?Because I realize that these drops in the stock market have been precipitated by consumer fears over an economic slowdown.
(We could argue all day long about whether the USA is technically in a recession or not, but few of us would dispute that the economy has been lagging.
) In fact, smart investors would view the current economic situation as a great opportunity.
Quality stocks are being unfairly devalued, which makes them available at a real bargain.
That is, stocks are being sold for less than they're actually worth, simply because consumers are afraid.
This fear can create golden opportunities for investors who are willing to plan cautiously and do a little research.
Remember that one investor's panic can be another investors' profit.
So how does one invest wisely during an economic slowdown?After all, most of us aren't inclined to perform voluminous amounts of research in our spare time.
One way to mitigagte the risk is to invest in what are known as non-cyclical or "defensive" stocks.
These are stocks in companies whose business performance and sales are not strongly correlated with the overall economic cycle.
These companies typically outperform the economy during financial hard times, and so they considered to be generally safe investments when the fear of recession rears its ugly head.
Quite simply, the difference between defensive and non-defensive industries is the difference between necessity and luxury.
Most of us can live without a new car during an economic slowdown; however, we still need certain staples, such as food, gas, and medicine.
Demand for these items is not strongly affected during a sluggish economy.
The same holds true for household staples such as soap, shampoo, and toothpaste.
People might cut back a little bit on such items, but not by much - after all, they're considered to be darned near essential.
For example, I purchased a sizeable amount of stock in ExxonMobil (XOM).
Why?Because Americans still use large amounts of oil and gas, even when the economy takes a downturn.
Sure, a lot of us will be watching our gas expenditures more, but it's safe to say that gasoline consumption will continue to be strong.
I picked Exxon/Mobile because it's a large, stable company-the most profitable and financially healthy of the major oil firms.
It has a long history of strong performance, and because industry analysts give it very positive ratings.
I also invested in Proctor & Gamble (PG).
Again, why?Because everybody knows them and uses their products-coffee, razors, medicines, batteries, detergent, bathroom tissue, personal hygiene products, and so much more.
They have outstanding financial ratings, and it is one of the largest and best-known companies in its field.
It is likely to provide a safe, stable source of investment in the year to come.
So remember...
When everyone else is scared, that's the time to be bold.
You can not completely avoid the hazards of the stock market, but you can still play wisely and with relatively little risks.
By picking safe, stable defensive stocks, you can take advantage of everyone's fear and expect a potentially high payoff.