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Is It Time To Play Defense with Your Investment Portfolio?

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Is It Time To Play Defense with Your Investment Portfolio?

The bull market has been charging ahead for more than a decade now, but financial professionals are starting to wonder whether the good times are about to come crashing down on the American public’s prosperous portfolios.

That means it could be time to become a bit more defensive with your investments, says Dr. Joseph Belmonte, an investment strategist and author of Buffett and Beyond: Uncovering the Secret Ratio for Superior Stock Selection(www.buffettandbeyond.com).

“People will talk about having good luck or bad luck in the market, and you never want to depend on blind luck,” says Dr. Belmonte says. “But another definition of luck is when opportunity meets preparation. And if a recession is coming, as so many people fear, then you want to make preparations.”

One suggestion for doing that, he says: Stay away from cyclical stocks, which are stocks that perform well when the economy is humming along, but struggle when things turn sour. These are companies that provide something that’s not essential to daily living or that consumers can at least postpone purchasing when times are tough.

Examples are car manufacturers, higher-end retail stores, and mortgage companies. Specific examples are Ford, General Motors, Caterpillar and Macy’s.

With the potential for a recession looming, Dr. Belmonte says, it’s vital that you review your portfolio, examine whether you have cyclical or non-cyclical stocks, and decide whether you need to make adjustments.

He says a few things worth remembering as you shift your portfolio to the defensive mode include:

-Look for efficiency. The companies you seek for your portfolio should be efficient. “They must have a relatively high return on equity and a consistent return on equity,” Dr. Belmonte says. “If the ROE is high and consistent, we know the firm has the capacity to create value because it is already doing so.”

-Examine a company’s history. Dr. Belmonte says that Warren Buffett likes to look at a company’s average return on equity over a 10-year period, most likely because over any 10-year period the economy goes through recessions and also economic expansions. “As the economy goes through these cycles, expectations about a company’s future will rise and fall with the mood of all of us,” Dr. Belmonte says. “Buffett probably feels that over a 10-year period, we see the average of at least one complete economic cycle, and of course, the ensuing mood swings that accompany both the good and bad times.”

-Consider value. Price follows value, Dr. Belmonte says, so invest in stocks that increase their value “every minute of every day.” He says McDonald’s is one example. The stock’s price may drop in tough times, but eventually the price catches back up to the company’s overall value. To find such companies, he says, look at how a stock performed during the last recession from June 30, 2008, to March 30, 2009. Value-added stocks didn’t fall as far as the overall market, and recovered much more quickly.

-Focus on businesses you understand. A company might sound good in theory, but if you don’t really have a good grasp of what it does and how the market for it might develop over the long haul, then it could be a risk for you. Dr. Belmonte suggests looking at businesses you have a good understanding of, so you can make an educated guess of where they likely are headed. “If you take a business you understand, and that company has a high and relatively consistent ROE, you are probably looking at a pretty good contender for your stock portfolio,” he says.”

“I always tell people to remember the good, the bad and the ugly,” Dr. Belmonte says. “The good stocks should be in our portfolios; the bad stocks should be in someone else’s portfolios; and the ugly stocks should be in nobody’s portfolio.”

 

 

Dr. Joseph Belmonte, author of Buffett and Beyond: Uncovering the Secret Ratio for Superior Stock Selection (www.buffettandbeyond.com), is an investment strategist and stock market consultant. He is fond of saying, “If you want to live on the beach like Jimmy Buffett, you’ve got to learn how to invest like Warren Buffett.” Dr. Belmonte has developed hedged growth income strategies for family offices, and has lectured to numerous professional and investment groups throughout the country. His weekly video newsletter is sent to thousands of investors, money managers, and academics both nationally and internationally.

Japan’s Trade Deficit ‘Narrowly’ Declines in October

Los Angeles, CA – A weak yen and lower oil prices combined to boost Japan’s export volume and cut the country’s massive energy bill, narrowly reducing Japan’s trade deficit in October.

The development was a bright spot among otherwise gloomy data, including recent GDP figures that showed the country – the world’s number-three economy – had slipped into recession.

Japanese exports, led by mainly autos and steel, jumped nearly 10 percent last month with imports climbing by a modest 2.7 percent.

All in all, the new activity translated into a monthly trade deficit of $6 billion.

According to the new figures, the value of shipments to China rose 7.2 percent, while exports to North America climbed 8.5 percent and those to the European Union were up 5.4 percent.

The October boost in exports, say analysts, could be a flash-in-the-pan as Japan is facing tepid growth in the European Union and an overall slowdown in China’s economy, both key export markets.

Last week, the government released figures showing that Japan’s gross domestic product figures contracted 0.4 percent for the second straight quarter after suffering a 1.9 percent contraction in the previous three months.

11/24/2014

Brazil’s BRIC Cracks on Disappointing Growth Figures

Los Angeles, CA – There’s a serious fissure developing in the BRIC wall as the latest government figures show that Brazil has slipped into recession, with the Latin American giant’s gross domestic product (GDP) contracting for a second consecutive quarter.

According to the official government statistics bureau in Brasilia, the country’s GDP stands at about $567 billion, down 0.6 percent from the previous three months, while revised figures for the first quarter showed a drop of 0.2 percent.

The government had initially had reported first-quarter growth of 0.2 percent.

The country last experienced a recession in late 2008 and early 2 009, when a world economic crisis slashed demand for steel, minerals, farm goods and other key Brazilian exports.

The BRICS – Brazil, Russia, India, China and South Africa – together represent 18 percent of the world total, are all experiencing slowdowns in their once fast-paced rates of growth. Exacerbating the economic difficulties is Russia’s volatile activity in Ukraine, which has sparked a rash of sanctions on Moscow by the US and the European Union.

Last month, leaders of the five countries met in Brazil and decided to create their own development bank as a counterweight to what they perceive are “western-dominated financial organizations like the US-based World Bank and International Monetary Fund.

The new development bank will reportedly be based in Shanghai and is expected to be functional within two years. It will be capitalized at $50 billion, a figure that could grow to $100 billion to fund infrastructure projects. The fund would also have $100 billion at its disposal “to weather economic hard times.”

08/29/2014