The stock market can be a nerve-racking place.
It’s not uncommon for even the most experienced investors to start feeling uncomfortable every now and then, particularly when the market or individual stocks experience a sharp downturn or sudden corrections. They can certainly make you second guess your investment theses – making you wonder whether the market really does know something that you don’t.
Is the company or the industry as a whole in a decline? Was the stock overpriced when I bought it? Just how far will the stock fall? Should I sell the stock at a loss to prevent losing any more money or, alternatively, should I buy more to take advantage of the lower prices?
These are just some of the more common questions investors will ask themselves on a fairly regular basis.
As an investor, it is your job to overcome these emotions, however difficult that may be. One of the best ways to do this is to get to know the companies before you invest in them, whilst also investing in quality companies that possess plenty of growth potential – ones that would pass the “sleep at night” test, whereby you can sleep comfortably knowing that the company will be much larger in five or 10 years’ time, regardless of tomorrow’s stock movements.
Coca-Cola Amatil Ltd (ASX: CCL) is a perfect example. It was a difficult year for shareholders in 2013 as the beverage distributor faced heightened competition from Schweppes as well as pressures from the grocery channel. While the situation certainly took its toll on the share price, the company’s brands are amongst the strongest in the world and are not about to lose their place in the market. With enormous growth potential in Indonesia, you can bet your bottom dollar that this company will be much larger over time.
Another excellent example is Telstra Corporation Ltd (ASX: TLS). After three years of solid returns, the telecommunications group’s shares have retracted slightly since the beginning of the year. However, the group is going from strength to strength and continues to recognise an enormous influx of customers from rival telcos. With shares currently trading at $5.03, this is a company to hold onto for the next decade (or two).
Although it has had its fair share of critics in recent years, Westfield Group (ASX: WDC) is another solid bet. The shopping centre operator has been under the spotlight with investors remaining cautious due to the rapid expansion of the online retail sector. However, Westfield has acknowledged this risk and, in response, is strengthening its balance sheet by divesting from non-core assets to improve its stronger centres. Shares are currently trading at $10.23 while a number of analysts have suggested it could be worth $12.00.
While you could recognise capital gains as these companies expand over the years, you could also accrue their generous dividends. Coca-Cola Amatil yields 5.2% while Telstra and Westfield yield 5.6% and 5.1%, respectively.