Two ways to invest in a downturn

What is an investor to do?

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A big week, with rates on the rise, an Optus outage and a downturn on the horizon. Let's get into it…

RBA sees no other choice

I'm a broken record on interest rates and the RBA. But, I hope, for good reason.

First, remember that high inflation is considered (I think, correctly) a worse scourge than high interest rates. Why? Well, interest rates fluctuate, but prices ever go one way… and stay there.

Inflation is a permanent reduction in our standard of living. Left unchecked, we could end up losing somewhere around 25% or more of our purchasing power (and it's been much worse in some other countries). That'd be close enough to a lost generation of improvements in living standards.

By comparison, interest rates fluctuate in both directions, as we saw during the COVID pandemic, and we're seeing again now.

Second, I remain disappointed by the lack of action from the Federal Government to help deal with that inflation. Other than an announcement on the weekend that they would consider cancelling and delaying certain (undisclosed) infrastructure projects, there's been no action from them to actually help the RBA. Cutting spending and/or raising taxes would be an appropriate (and welcome) response, meaning the Reserve Bank would have much less to do.

And before you man the political barricades, I'll also remind you that the last Federal Government left a huge structural deficit and the Budget estimates for future years were nothing but the red ink of continued deficits.

The inflation rate rose in each of the last two months. Absent action on fiscal policy from Parliament, the RBA rightly considers itself the only adult in the room, and so raised rates.

But, Treasurer, it's not too late to more evenly (and effectively) spread the pain, to limit the work the RBA has to do, and to help drive inflation down.

The ball is in your court.

And, Shadow Treasurer, here's your chance to put the nation first and not play politics with any sensible policy proposals from the government.

This is a test for our Parliament, and the stakes are very high.

Optus Outage Outrage

The Optus thing?

I'm a Telstra Group Ltd (ASX: TLS) shareholder, so you might think I'm loving the pain being piled onto its major competitor, but I just can't get worked up over it.

30 years ago we didn't even have mobile telephony, the internet or WiFi.

But in 2023, you'd swear the world almost ended when Optus went down for half a day.

I mean, it's not great. And I know people and businesses count on their mobile phones and EFTPOS terminals.

But in the list of first-world problems, the outrage displayed earlier this week was surely on the podium.

Yes, they need to do better. For their own sake, as well as their customers'. But the carry-on – including an announcement of a government enquiry – is disproportionate.

My sideways glance, instead, is at the rest of us.

Have we really outsourced that much personal and corporate responsibility that we pretend we're not responsible to make sure we have a Plan B?

Where were the fallback options put in place by big businesses? Where was the cash in the wallet or purse?

Are we really that entitled that we want to blame a telco for ruining our lives?

Apparently, we are.

And so soon after the COVID pandemic, where we really should have considered how prepared we were for the unexpected.

Imagine trying to explain the outrage to our grandparents. I'm pretty sure they'd laugh at us.

Two ways to play the slowdown

The economy seems to be slowing down. Perhaps that's a 'thanks, Captain Obvious' statement, but the future is uncertain, so a little circumspection and humility is always a good idea.

What is an investor to do?

I think the worst option, historically-speaking, is to take your bat and ball and go home.

The US S&P 500 Index (SP: .INX) delivered positive gains in 8 out of the last 9 days, including a 6% jump last week alone.

The ASX was up 3.1% last week – its best week of 2023.

If you were out of the market, you missed all of that.

Two other options, though, appeal to me, as I discussed with my co-host Andrew Page on an episode of our Motley Fool Money podcast just this week.

The first is to be a little contrarian. There is a lot of negativity priced into certain shares and certain sectors right now. Too much negativity, I think. Not because they're wrong about a downturn, but because some share prices almost seem to suggest the sun will never come out again. There's an opportunity there, I think.

The second is to look for companies that'll continue to grow, even if their sectors stagnate, or fall. A while ago I looked at one of the companies behind the introduction of the now-ubiquitous '36 months interest free' offers.

During the GFC, Flexigroup (as it was known, then) flourished, even as retail sales faltered. How? It was small and growing. It was disrupting the status quo. It gained market share.

Apple was another. We all know Apple, of course. While the US (and most other countries) had a recession, Apple kept making every post a winner. How? It was selling something people wanted, and were prepared to buy. It was, of course, the iPhone.

Not every beaten down discretionary retailer is going to bounce back, bigger and stronger.

Not every growing disruptor will be successful enough, or its shares cheap enough to buy.

But those examples are, I think, illustrative of potential opportunities for investors to discover on the ASX today.

Have a great weekend.

Fool on!

Motley Fool contributor Scott Phillips has positions in Telstra Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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