It's relatively easy to make gains in a bull market, particularly when hoards of new money is streaming from term deposits and savings accounts into high yield stocks.
But when the market enters a correction, your ability to make quality investments shows through. As Warren Buffett famously said: "It's only when the tide goes out do you discover who's been swimming naked."
Picking sound companies with many years of successful earnings and dividend growth is essential to preserving capital. Something which defensive investors believe is paramount. After all, no one likes to lose money!
For Australian investors that could mean picking companies which are included in the S&P/ASX200 Index (INDEXASX: XJO), have strong brand recognition and occupy a position of competitive advantage.
BHP Billiton Limited (ASX: BHP) is one company which immediately springs to mind. It is, by market capitalisation, the biggest mining company on earth. It recently announced a demerger of some of its non-core assets which wasn't well received by investors, who subsequently sold down its stock. This has provided an opportunity for long-term investors to buy in a little cheaper.
One company which also got sold down following its results release was Computershare Limited (ASX: CPU). Computershare is an important player behind many stock markets around the world. Despite the sell-down, Computershare's global reach, customer base and strong balance sheet mean it will likely survive a market correction. Given its large float, it will also be a likely beneficiary of rising interest rates.
Lastly, a company many investors would be familiar with is Scentre Group Ltd (ASX: SCG). Scentre Group is the Westfield of Australia and New Zealand. Recently formed, the company trades on a price-book ratio of 1.01 and is forecast to pay a 5.7% dividend.
Our #1 dividend stock idea – Yours FREE!