Famous investors often counsel other investors to focus firstly on the downside risk in a stock rather than in its upside potential. Warren Buffett perhaps put it best (yet again!) when he noted that:
The first rule of investing is to not lose money; and the second rule is to not forget rule number one!
Now could be the time for investors to heed those cautionary words – if they haven't been practicing them already – given the warnings coming from a number of leading commentators.
This week, it was reported in the Fairfax press that highly regarded economist Gerard Minack believes there is a one-in-three chance of a recession in Australia in the next year.
Minack's comments come hot on the heels of a 'Market Insight' article published by BT's Head of Income and Fixed Interest Mr Vimal Gor which laid out the case of why he believes Australian interest rates have further to fall. The crux of Gor's argument is that should the housing market begin to fall then there is a 50% chance of a recession in the next couple of years!
Meanwhile, according to hedge fund extraordinaire and billionaire George Soros there is a 50% chance that Greece's economy will go "down the drain". Catastrophic talk such as this is reminiscent of the worries which enveloped financial markets during the Global Financial Crisis (GFC) and is a reminder why Australian investors would be wise to practice some defence in their portfolios.
So, if investors want to play defence rather than offense in a market than seems to be growing increasingly risky, what are the best ASX stocks to own?
Here are three that could fit the bill…
- Telstra Corporation Ltd (ASX: TLS) offers shareholders a market leading telco position with a defensive revenue base and solid dividend which would likely be maintainable even through a recession.
- Ramsay Health Care Limited (ASX: RHC) provides hospital services which are non-discretionary in nature. This makes Ramsay's revenues defensive and even its margins should be maintainable in a recession.
- Transurban Group (ASX: TCL) is the leading provider of toll roads in Australia. Often there is little choice for commuters but to pay the toll and take the road making the group's revenue stream more consistent even during a recession.
