Sunday, April 1

Week 352 - Gimme Shelter

Situation: You need to think about aligning your portfolio to “shelter in place.” A storm is coming. We just don’t know what will trigger the next market crash. A number of political, cultural, and economic factors are in play. But you do need to make lists:
   1) Which stocks that you now dollar-average into are worth continuing to dollar-average into when a market crash happens on short notice? 
   2) Which stocks do you want to hold onto throughout a market crash, so that you can reinvest or spend the dividends?  
   3) Which stocks would you sell, so as to park that money in relatively safe assets like the Vanguard High Dividend Yield Fund (VYM) and the iShares 20+ Year Treasury Bond ETF (TLT).

Mission: Use our Standard Spreadsheet to analyze companies that appear to be able to weather a market crash. In other words, which have a) less risk of loss in a crash than the S&P 500 Index (see Column M in our spreadsheets), b) low Long-Term debt (Column P), and c) positive Tangible Book Value (Column R).

Execution: see Table.

Administration: All of the companies in this week’s Table have S&P bond ratings that are A- or higher, and S&P stock ratings that are B+/M or higher (see Columns T and U). And all have at least the 16 years of weekly price points needed for quantitative data per the BMW Method. Only 9 companies meet the criteria. 

Bottom Line: Stocks crash from time to time; bonds don’t. Stock market corrections and crashes are difficult to predict, and recessions even more so. As Paul Samuelson said in 1966, “The stock market has forecast nine of the past 5 recessions.” Economies around the world are currently doing well: “Every major economy on earth is expanding at once”. This is a good time to remember that the biggest crash, which occurred on 10/19/87, did not precipitate a recession. But it did wipe out a lot of investors as $500 Billion of market value disappeared in a few hours without warning. Of course, the trick is to bulletproof part of your portfolio at all times. 

Risk Rating: 4 (where 1 = 10-Yr Treasury Notes, 5 = S&P 500 Index, 10 = gold bullion)

Full Disclosure: I dollar-average into NKE, WMT and NEE, and also own shares of TRV, KO, ATO and WEC.

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