The S&P/ASX 200 Index (ASX: XJO) has entered into a bear market, down 23% from its all-time highs at the time of writing. With a lot of share valuations much more agreeable, now could be a great time to methodically buy quality businesses for the long-term.
Why methodically? Because picking the bottom of a bear market is a (lower-case 'f') fool's errand.
The lower oil price and economic impacts of the COVID-19 pandemic will be felt by the broader economy, but some companies will be affected positively while others will be hurt.
1. Add to your winners
As famed investor Peter Lynch would say, "the best stock to buy is the one you already own". To quote another great investor and The Motley Fool co-founder David Gardner, "Winners win".
Hopefully you hold a well diversified portfolio of at least 15 shares. Over time, you will likely see a few of these companies deliver outsized performance and drive most of your portfolio's returns. Adding to these long-term winners can help to supercharge your investment returns. Companies that are growing quickly tend to continue to do so because of a comparative advantage. They may have the strongest brand, high barriers to entry, or best product or leadership.
For my portfolio, these companies are Altium Limited (ASX: ALU) and Trade Desk Inc (NASDAQ: TTD). Together, they represent over 12% of my wealth, but I'd be happy to add to these positions. They are stellar businesses and in the case of the Trade Desk, could actually benefit from the changing behaviour associated with COVID-19.
Whatever these stocks are for you, because they have performed well, they may represent a significant portion of your overall wealth. If this is more than 10% of your portfolio, make sure that you are comfortable having so much invested in one company.
If you are just starting out investing and looking to build a portfolio, there are plenty of high quality long-term winners to choose from. Examples include CSL Limited (ASX: CSL) and Xero Limited (ASX: XRO).
2. Buy dividend paying ASX shares
Dividend paying shares tend to be some of the best listed businesses. This is because they have a strong history of earning positive free cash flow, showing that their business can make money over time. Dividend payers also generally have strong balance sheets, which provides security and opportunity during times of uncertainty.
Dividend yield is important, especially if you need the income, but dividend payers can and should also be able to grow over time. Some great examples of this are Altium and Aristocrat Leisure Limited (ASX: ALL).
