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Global War! Everything is at stake!
I always thought that Russia would not attack Ukraine, at least there won’t be a full-scale war. There was too much at stake to take such drastic action. But, Russia shocked each of us, and over a year ago, on February 24, 2022, it attacked Ukraine.
During these troubling times, everything seems uncertain. Investment is no different. In fact, war affects everything and everybody. Probably that’s why there’s a song that says, “War, what is it good for?” Because nothing good could ever come out of one.
With that said, in this website article, we’ll try to answer the question, “What can we do to overcome war uncertainties affecting our investment portfolio?”
Equity Portfolio in Loss?
Just before the war broke out, the Indian market was at an all-time high, breaching over 18,000 points in the Nifty 50. Since then, the market has tried to breach the 18K target multiple times, but all in vain, thus crashing down mainly due to reasons that are somehow related to the Russia-Ukraine war one way or another.
But, this crash, or, let’s say, the correction that’s going on, is mainly due to higher inflation. wherein central banks have no other choice but to raise interest rates. If there’s one truth about the stock market-economy correlation, it’s that whenever the central bank raises interest rates, the market has a high probability of falling.
We knew there was a correction due in the equity market. We knew it was right around the corner. But, I thought that since the market has peaked and due to inflation, the companies are posting reduced earnings, which makes the already peaked market seem overvalued and thus a correction.
Never had I thought that there would be a war and its aftermath that would bring about a market correction.
Here we are.
Gold & Crypto market negative correlation:
We always worried about how the cryptocurrency would react to situations, be they geopolitical or economic. And we now know that they are no hedge against anything. In fact, based on their performance, cryptos are more volatile than others.
Where the real hedges, gold and silver, are performing exactly as expected. Both gold and silver are going up while the equity market is correcting, whereas crypto is much more aggressive and thus crashing.
The crypto market didn’t need a war to make its value plummet. But it sure didn’t help the cryptocurrencies in any way whatsoever!
When we talk about asset allocation, we need to look for asset correlations with one another. Equity, crypto, and gold have a negative correlation, where if equity or crypto go down, the gold market goes up. Similar to what we are seeing now.
Take a look at the gold and silver chart and compare it with the equity market; you’ll understand the exact point I’m making here.
Asset allocation will balance your portfolio’s returns. It reduces volatility. But as of now, crypto has been disappointed by being positively correlated to equity. There’s more to know regarding the crypto market. Check out this article to know more about cryptocurrencies. CLICK HERE!
What is Cryptocurrency? Its Types, Features, Benefits & Drawbacks Explained
How to Asset-allocate?
If you are a conservative investor who wants to earn between 6% and 7% with less risk, asset allocation is very important for you. Invest in equities for sure, but also own gold, silver, and bonds. Because when one goes down, the other will help you balance your portfolio.
If you can sustain moderate risk and expect a 7–10% return, then your exposure to equity should be higher. Say 60–70%, where the rest 30–40% can be invested in gold, silver, and bonds.
If you are ready for a higher risk and would take a chance for better returns, go all in on equities and maybe invest in much riskier assets.
There’s one other way to go all in on equity investing while also safeguarding your portfolio and thus your money. We call it investing via the “Coffee Can” strategy.
What is Coffee Can Investing?
“Coffee can investing” is a term that refers to investing in shares of companies that have continuously outperformed the market and provided investors with an outstanding return over time.
Isn’t that what we all want? But there is a catch here.
Under coffee can investing, we choose those companies that are already well established and have a market leader’s kind of presence. They have very low competition and sustained healthy growth, these companies are consistent compounders. This means they make more money for the investors for a sustained period of time, if not forever.
Basically, investing in blue-chip companies and staying invested is the key here.
How to Pick Coffee Can Investable Company?
The recipe for picking a well-established company for coffee can investing in 3 simple steps is as follows;
- Return on Capital Employed & Return on Equity on a 5 Years average should be over 25% (at least 20% ROCE & ROE is suggested)
- Check the company’s Sales growth, it has to be over the last year’s sales unless extraordinary circumstances such as the Pandemic or War.
- Price to Earnings Growth Ratio (PEG) under 1% is suggested. But, go for anything that’s available as low as possible.
My Top 5 Picks for Coffee Can Investing:
- Hindustan Unilever: The company is a market leader in the FMCG space. This is India, we have a huge population, and we consume a lot!
- Tata Consultancy Service: This Tata Group company is the market leader in the IT space and is the second most valuable company in India. The company is a cash cow in itself.
- Pidilite Industries: This Adhesive manufacturer holds over 70% of the market. Highly suggested considering the Government’s intention to spend more on Infrastructure.
- Supreme Industries: Amazing product portfolio and is available at a reasonable valuation. A worthy buy for the long term.
- Asian Paints: The company is the largest Paint manufacturer in India. Same as Pidilite, this company will also benefit from government initiatives towards Housing and infrastructure.
Check my video on Budget 2023, Have explained it in detail, CLICK HERE!
What is Coffee Can Investing? Top 15 Companies to Own:
Disclaimer: These are not recommendations. But mere information. All the mentioned companies except Supreme Industries, are valued highly. I own them all except Asian Paints in my personal portfolio.
Before investing, I will also say this: Due to inflationary pressure, all the company’s margins will be hit for sure, so reduced earnings will be seen in the future. In such a case, the stock may drop for some time. Remember, inflation is the biggest concern here.
With that said, do not invest in lump sums. The core principle of coffee can investing is to own well-established companies by investing via SIP for as long as possible and holding onto them forever.
To know more about Coffee Can Investing, check out this article, CLICK HERE!
Conclusion:
Going forward. Firstly, do not panic and sell. Wait for the situation to calm down. The market has already corrected almost 1,500 points. You’ll not be any better off selling now. Selling now in the hope of bottom fishing during such an uncertain time is not a wise decision.
Secondly, and most importantly, do not panic buy. SIP during such a time is the best option. But before you invest, spread out the allocatable amount into 3 parts. I call it a 121 strategy.
This means, investing the first 25% of the allocatable amount as and when the market opens, not immediately tomorrow, but spread out over various days. Then, in the second part, we will allocate 50% of the available funds by the time we have a clear picture of where the market is headed. So, this is after, when things get normal.
The final 25% should be held mostly in cash because we are expecting an interest rate hike from the Federal Reserve, probably by the beginning of 2024. This way, our final portion of investments coincides with the Fed rate hike.
For More Information, Check this Video:
Disclaimer: All the information on this website is published in good faith and for general information purposes only.
