Buy Companies That Sell What People Need 5 comments
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My friends, we’ve entered a period of heightened volatility in the markets. The S&P 500 staged a 1% rally or drop every day of the last week. On Wednesday it even staged both, rallying 1% in the morning, retracing its gains in the afternoon, and then finishing the day up half a percent. Gains came and went in a matter of hours and sometimes even minutes.
Stocks in general have been choppy since the credit crisis began last summer. However, things have definitely kicked it up a notch in 2008. True, the market today is roughly where it was three months ago, but it’s been a heck of a ride getting here.

Fortunately, certain investments perform extremely well during times of great volatility. Finding them is a lot simpler than you’d think: buy companies that sell things people need.
Analysis by Philip Isherwood from the investment bank Dresdner Kleinwort shows that historically the best investments to own during times of heightened market volatility are non-cyclical businesses. Isherwood cites the top industries for these markets conditions as Tobacco, Beverages, Multi-Utilities, and Pharmaceuticals.
It makes a lot of sense. When the market in general is choppy, investors will flock to the businesses with the most stable returns. It’s no surprise that cigarettes and alcohol top the list; people who consume these products usually do so year round. And they’re even less inclined to stop drinking and smoking when life is tough.
The same goes for Utilities and Pharmaceuticals. Unless we go back to being hunter-gatherers, people will need water, electricity and medication, regardless of how the economy is doing.
If you’re looking for a broad means of playing these trends, you could buy an ETF. If you’re more into individual plays, focus on the large caps like Altria (MO), Budweiser (BUD), etc. Investors in general are favoring large cap stocks while shunning the more speculative, smaller plays.
Which sectors should you avoid? Isherwood’s got that covered too. Steer clear of the companies that typically do well during times of low volatility: the Tech, Telecom, Mining, Oil Equipment, and Life Insurance sectors.
Again, the reasoning here is simple. If people are cutting back on expenses, they’re going to stop buying iPods and fancy cell phones long before they cut back on smoking or water.
The time to go defensive is now. Buy what people need, not what they want. The last five years have been dominated by the latter group—retailers, real estate, etc. The next year will be dominated by the former— tobacco, beverages, and drugs.
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This article has 5 comments:
Crammer need to find another line of work. Causes too many people to lose money!!!!!!!!!! Stupid I was to listen to him !!!!!!