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Investing 101: Stock Purchase Strategies

STOCK PURCHASE STRATEGIES – CYCLES/CYCLICAL/DEFENSIVE/BWYB/RESEARCH

Investing may seem daunting, we all know that, the vast majority of people leave money in their bank accounts, without knowing how their savings are becoming de-valued. But investing doesn’t need to be too complicated, and you don’t need a degree/masters/PHD in economics to know where you should put your money.
In this guide we look at a handful of reasons and justifications to help you decide what’s a good investment for you, where you’re happy to put your money.

• Economic Cycles & Defensive Play
Understand ‘cyclical’ companies and benefit from timing economic cycles and buying stocks/shares in companies whose fortunes are linked to growth factors, understand your defensive play, and how to position this way in times of uncertainly/risk off.

• Long Term Approach
The longer you’re in the markets without playing with your positions, typically the better performance you’ll see. Invest in companies that are positioning themselves to change and benefit the dynamics of global civilization. If you can get in early, the gains can be significant.

• Buy what you’d buy
Use your own preference to drive your stock purchases, products and services that you believe in… Buy into what you enjoy and use during day-to-day life.

• Researching Companies
A few pointers and consideration for when you’re looking to invest into companies. Research is very important in giving you peace of mind and sitting happy with your new investments.
Economic Cycles & Defensive Play
Whether you have, or haven’t any prior financial market experience, you should know the markets move in cycles and waves. The global economy expands and contracts, and markets rally and tank. This cycle is common and has always played effect throughout history.

We have spoken a little bit about growth in the interest rate guidance notes, when an economy is strong, consumers are typically optimistic with their disposable income. They typically have more money; interest rates are low and they’re looking to spend. When the economy is tough, consumers and businesses will typically tighten their belts. The relevance here is stock price, typically, stock price falls in times of pessimism, which is a great time to buy value stock, and typically stock price rises in times of optimism, to sell value stock (at high price).

You can typically use this cycle to find out a possible entry points during highs and lows for the specific stock/share you’re looking to buy.

CYCLICAL SHARES
Cyclical shares practically mirror the health of the current economy. Profits & dividends increase during the growth periods, but fall during the contraction periods.

It’s hard to understand when the market has hit rock bottom or when the market has peaked. But we don’t need to time these to perfection, as we have displayed in the course videos. The larger something falls, the greater the recovery to the previous high.

Obviously, we need to consider and bear in mind, like we mentioned on the interest rate guidance notes, these economic effects have a ripple effect throughout the supply chains down to consumers or vice versa. For example, in recession retailers are hit immediately, due to restricted consumer spending. Then we often see the manufacturers and suppliers realise the knock-on effect through reduced stock take and order influx. The makers of components and producers of direct raw materials are typically the ones who are hit last.

In summary, cyclical shares have greater upside potential in market booms, and outperform when the economy is strong. However, defensive shares perform better to combat downturns. The higher the risk the higher the rewards.

Things to look for in a good cyclical share/company:
1. The company has little or no debt.
2. When there are downturns, the company can anticipate/react quickly.
3. In good times, the company doesn’t over-expand or leverage too much.

Cyclical Sectors: Aerospace, automotive, banks, construction, engineering, media, manufacturing, mining, property, retail, travel & leisure.

DEFENSIVE SHARES
Slow and steady wins the race, a term you’ll often hear in life. And whilst this is true and gives peace of mind and generally lower risk, you also want to be aware of more aggressive opportunity (refer back to cyclical).

Anyway, defensive shares, they clearly wont grow as fast during strong economic growth (like cyclical shares would). But they also don’t struggle as much in times on economic contraction. This is because defensive shares typically defensive shares typically provide products or services which are required all the time.

Healthcare, supermarkets and the like. Even in tough times, the government and consumers still need to spend money of food and medicine for example.

We refer to them as defensive stocks because they manage and hedge risk when the economy and stock markets are falling. There is no guarantee of a full hedge, but I’m sure you’d rather have your portfolio weighted to reduce/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>/>