I could almost hear the collective groan from investors as they awoke to news of overseas market falls. Listening to hysterical radio commentary or viewing the sea of red figures on their technology gadget of choice will likely have lead to thoughts of – “If only I….” or “I wish I hadn’t….”. That’s the emotion, now it’s time to hone in on the reality of the situation. First, have faith in some coping strategies. Second, do a realistic assessment of your individual circumstances. Finally, be on the lookout for opportunities. Coping strategies: When wrestling with emotional demons, always keep in…
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I could almost hear the collective groan from investors as they awoke to news of overseas market falls. Listening to hysterical radio commentary or viewing the sea of red figures on their technology gadget of choice will likely have lead to thoughts of – “If only I….” or “I wish I hadn’t….”.
That’s the emotion, now it’s time to hone in on the reality of the situation. First, have faith in some coping strategies. Second, do a realistic assessment of your individual circumstances. Finally, be on the lookout for opportunities.
When wrestling with emotional demons, always keep in mind the following:
By itself, weakness in the overall market is not a good reason to sell your shares.
Maintain your objectivity, because your own reaction to a market fall will determine the ultimate outcome.
Assess your individual circumstances:
1. Assess why the wider market is falling and whether this will impact materially on your particular holdings.
2. Remember that you bought your stocks for a reason. If you believe the company’s prospects are still good there may be an opportunity to buy additional shares.
3. We all make mistakes. If your answers to the underlined sections of points 1 and 2 above are yes and no respectively, then it may be time to take action. Put aside the price you paid for the stock, because the sell decision should take into account the company’s future prospects and fundamentals when compared to the current price.
Criteria for selecting 3 safe haven stocks:
I have taken into account both medium-to-long term prospects for these stocks as well as facts gleaned from overnight market moves.
Prior to last night’s significant fall in US 10-year bond yields, they had risen strongly over the month. One analysis on Bloomberg earlier this month cited a 8.5% change in the US yield, while the Australian 10-year bond yield had a 9% change over the same period. The two have a very close correlation and effectively move in lockstep.
On the basis of falling bond yields and positive company fundamentals, the stocks I selected are as follows:
Telstra Corporation Ltd (ASX: TLS)
A strong balance sheet and sustainable dividends are vital during a market downturn. In a recent article entitled: Is Telstra Corporation Ltd’s grossed-up dividend yield of 7.8% too good to be true?, I made the case for the sustainability of the dividend. Additionally, the recent buy-back is evidence of balance sheet strength. Should Telstra follow the general market down, the yield will go higher and be relatively more attractive when compared to falling 10-year bond yields.
Transurban Group (ASX: TCL)
This leading toll road operator has high barriers to entry and defensive and growing cash flows. These income streams last for decades and provide the resources to make further acquisitions and upgrades, which in turn provides increased cash generation. For more information refer to: Why Transurban Group is a stock to hold for decades.
Rio Tinto Limited (ASX: RIO)
This selection may surprise some readers. The company certainly meets the strong balance sheet test, but another reason to hold the company is the support provided by projected dividend yields for FY2014 and FY2015 of around 3.8% and 3.9% respectively. Another three reasons were cited here. Only days ago, additional confirmation was provided by broker Morgan Stanley. The rating on the stock was upgraded to overweight on the company’s ability to both reinvest and return cash to shareholders.
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Mark Woodruff has an indirect interest in Telstra Corporation Ltd and Transurban Group.