climate

INTRODUCTION: 

No, I was not invited as a speaker to i3investor Investor Summit 2023.

But yes, I lifted the title of the event, because "How to Invest in a Recessionary Environment" seems appropriate amidst the gloomy investment climate. 

PART 1: 

Investopedia says that, utilities & consumer goods companies do well in recessions, and consumer staples, grocery stores, discount stores outperform. In the local context, TENAGA, PPB, MRDIY come to mind. I would even argue that, alcohol drinks are also consumer staples, such as HEIM.

One Nasdaq article in March 2023 advised investors to: 

1. Have an emergency fund;

2. Remember cash is king; & 

3. Don't check your stocks too frequently in a recession. 

The same article told readers to stay away from these companies:

1. High debt companies;

2. Cyclical companies;

3. Speculative or growth companies;

4. Tech companies. 

The Mortley Fool's one recent article seemed to concur with the Nasdaq article, and told readers  don't be shy to miss out on opportunities if you have difficulties surviving now. 

"It can be a great idea to invest during a recession -- but only if you're in a strong enough financial position to do so and only if you have the right attitude and approach. 

You should never compromise your near-term financial security for long-term gain. 

Remember that if you're hurting financially, there's no shame in missing out on opportunities. 

Instead, focus on paying your bills and staying physically and mentally healthy. You can always ramp up your investments at a later point in life -- once your job is more secure, your earnings are steady, and your mind is more at ease on the whole."

In one Forbes article, some best recession stocks were suggested: Merck, Becton Dickinson, Ameren, Pepsico, In the local context, we have pharmaceuticals like AHEALTH, medical device manufacturers like SCOMNET, utility companies like TENAGA, consumer goods like F&N. 

PART 2: 

More details can be found in my past article "How to Identify Stocks to Invest for the Long-Term on KLSE?".

Consumer stocks that have good cashflow, like HEIM, has been my favourite. 

Malaysian banking stocks are also my preferred stocks. Malaysian banks have survived quite a number of years of recessions & still grew over many years. 

Although debts for these companies may be huge, stocks beaten down during Covid 19 pandemic era will rise again if the companies are strong enough. It has been my long-held belief that tourism stocks like Airasia/Capitala or Genting would recover. 

PART 3: 

The past 3 years have been generally a bear market for Malaysia, i.e. if you bought a stock held until now, you'd most likely at a loss or broke even.

Most profits would have come from buying into the right sectors, & selling at the right time at the high. (gloves, tech, plantation, small cap stocks, etc.) One either has to have very good investing acumen or be very lucky to hop on the right bandwagon at the right time. 

As a retail investor, we have limitations. I acknowledge that I can't receive info as fast as fund managers or analysts or market makers. 

But what I can do to reduce my risk, is by selecting quality companies that have in the past, performed well generally over many years, which gives assurance that it would continue to do so in the future. "Retail investors can invest with a long time horizon, which fund managers with yearly KPIs don't have this priviledge." 

I'd buy when Mr. Market turns gloomy, buying at a lower price than the 5 year chart mean helps (to me at least). By buying during a recessionary condition, companies' business performance drops & stock prices usually are lower. That sets the backdrop for the potential for the share price to rise when the economy improves. 

With the KLCI at 1428.54 now, it's near the 10 year low. 

My target is simple.

To buy & hold until the KLCI reaches 1600. 

Although the unity government and the coming state elections have not given much confidence to foreign funds, I trust Malaysian companies to continue to do well & appreciate over time. The only problem for most investors, is the patience to hold until KLCI reaches 1600.

CONCLUSION: 

My current approach is similar to what Howard Marks in "Mastering The Market Cycle: Getting the Odds on Your Side" said: 

“As Sir John Templeton put it, “To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”

Better days will come for the Malaysian stock market. 

If you can't sell your stock at a good price today, why not wait until one day next year? Or 2 years from now? You just need to pick a day, which the buyer offers you a better price.

P.S. TLDR; version: My investing approach in a recessionary environment - I would buy stocks of companies with good financial track record (profitable & good cashflow) selling at reasonably low prices from a long term chart viewpoint & hold until things improve vastly before selling.

Disclaimer: This article is not tailored financial advice, but mere general stock sharing / observations. Please do further due diligence. The author may own some abovementioned stocks.