The start of the New Year is a great time to make some investing resolutions.
We have an annoying habit of dropping resolutions within a few days or weeks, so I'm thinking of my resolutions as investing strategies that I'm going to stick to this year and beyond, not just for this month.
Here are my three investing resolutions:
Stick to growing businesses
Businesses like Altium Limited (ASX: ALU) and Bapcor Ltd (ASX: BAP) are predicting continued organic growth. It's this type of non-cyclical growth that I'm going to focus my investing choices on in the coming months. I'm avoiding businesses that may see profit fall in an economic dip – which is a possibility with Australia's falling house prices.
If a business keeps growing its profit then it can grow into a valuation, even if you overpay for it at the start. However, if a business' profit falls then it's hard to justify the current price share price until the bottom line recovers.
Focus on the balance sheet
The businesses that can thrive in all circumstances, particularly downturns, are ones with excellent balance sheets.
Businesses like Altium and REA Group Limited (ASX: REA) have very healthy balance sheets. If competitors with poor balance sheets run into trouble then our high-quality choices could make a cut-price takeover bid. In the long run, a downturn could help a quality share get even further ahead in its industry.
Keep thinking about the long-term
It's unlikely that every share I own would be completely unscathed in a potential downturn.
But, most businesses will do okay and eventually get through it. Remember that shares have returned an average of 10% per annum including through the crashes. The individual shares in the index also go through the ups and downs. Don't panic if some of shares go through a temporary dip themselves
That's why, even with the high valuations, I think Altium and REA Group could be good long-term buys today.
