Saturday, September 20, 2008

Follow the Monopoly Board

One question an investor in the stockmarket might be asking themselves right now is just when should one start buying stocks again.

Warren Buffett used his massive multi billions in cash to buy an energy company, Constellation Energy yesterday for a bargain price and he seems to be the only person in the world buying things, except the US federal government buying up private debt to "stop the markets from crashing".

Clearly nobody knows just how long this credit purge is going to continue for but what we do know is that there is more bad news to come.

That would indicate to me that there is more downside risk for stocks to come.

As long as the purchase you make is one that you can afford to hold and not have to sell if you need the money then a good beaten down stock is definitely one worth taking an educated punt on.

If one uses the Monopoly Board type style of investing that Warren Buffett has been using over the last year, buying utilities and more shares in staple producing companies like Coca Cola and Kraft foods an investor would do well to purchase similar shares if they exist on the NZX.

So what would you buy and what is resilient in these times of economic uncertainly and market turmoil?

Any of our energy stocks would be a good buy, Trustpower Ltd [TPW] Contact Energy [CEN] and Vector Ltd [VCT] will all do well in an extended downturn.

A company that I own, Goodman Fielder [
GFF] is an Australasian food giant with great brands and a whole range of staple food items from breakfast to dinner and all the snacks in between that people are still going to buy.

Auckland International Airport [
AIA] which I also have a shareholding in, is another good monopoly that will do OK during a downturn and its shares are currently at multi-year lows.

Even Telecom New Zealand [
TEL] would be worth laying some money down at anything less than $2.50 and it is getting close to that price. Even during a deep recession people will still need to communicate.

While there are plenty of cheap stocks worth looking at, especially in retailing, transport and export sectors and they are worth buying for a long-term investment, these companies are going to find the going tough during the long recession we are going to face.

Look for companies with strong brands, monopoly or near monopoly positions in their markets and the ability to cuts costs without impacting too heavily on their business.

The power companies that I mentioned would probably be some of the best performers over the recession and market sentiment as it currently is, that is, it is crap, like Warren Buffett you might get a relative bargain.

Related Amazon Reading

Everything I Know About Business I Learned From Monopoly
Everything I Know About Business I Learned From Monopoly by Alan Axelrod
Buy new: $11.65 / Used from: $2.00
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c Share Investor 2008

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