What A start to 2020 we have had. The threat of WW3. The fear of a new healthcare epidemic via the coronavirus. And the fear of Liverpool winning the toughest league in the world for the first time since 1990. This tidbits of news are enough to depress any soul.
Turning to the stock market, January has been as volatile a month as we have seen in recent years. It is as if investors have forgotten all about volatility. And who can blame them. We have had smooth sailing for the past couple of years.
The recent downward moves in markets have shaken a few investors. But downwards moves are entirely normal. It is nothing to be afraid of. In fact, it is to be expected.
As I have mentioned before all the way back in 2018 when the last big downwards movement in stock markets occurred, you should, at minimum, expect stocks to fall at least 10% once a year, 20% once every few years, 30% or more once or twice a decade, and 50% or more once or twice during your lifetime.
Looking ahead, what else is to be predicted over the coming decade?
I have looked at my crystal ball to help me make some predictions for the 2020s as well:
- There will be a bull market.
- There will be a bear market.
- Someone will call a new technology a megatrend and the stock investments that try to exploit this will most likely crash.
- The ten largest companies in the world in 2030 will be different companies than the ten largest companies today.
- Investment fees will decline. Passive will continue to steal share from active. It will also be the decade that makes or breaks fee free investing platforms such as Freetrade.
Vague isn’t it?
That’s the point. No one can predict what the stock market will do from one day to the next. So don’t try and second guess the market. Instead focus on yourself and your own biases. Don’t get suckered into story stocks. Don’t get suckered into a particular ‘world changing’ trend. Expect stocks to rise in the decade. And when they fall, which they will, don’t panic. This is all to say that have a plan and stick to it. This should lead to a successful decade ahead.
As for January, they were a few businesses that were trading at relatively attractive businesses that caught my eye. I bought into 4 stocks. They are:
- AG Barr – Bought 45 shares at £5.29 a share.
- PZ Cussons – Bought 128 shares at £2.01 a share
- Reckitt Benckiser – Bought 3 shares at £59.27 a share.
- Unilever – Bought 4 shares at £43.09 a share.
The sharp eyed amongst you will note that these are all consumer staples stock. I have not hidden my admiration for companies in this sector before. The businesses within it tend to produce outsized returns.
A study conducted by Dr Jeremy Seigal showed that 11 of the top 20 best performing stocks between 1957 and 2003 were from the consumer staples sector!
And there was a good reason for this. In years gone by, consumers buying decisions were mostly based on advertising and distribution. The biggest consumer companies with the largest budgets were the only ones that could advertise on TV. They were also very cosy with supermarkets with shelf space being a major detriment for any new product entering a market.
Fast forward to today and this has changed. All thanks to the internet. A new upstart could easily advertise to a target audience on platforms such as Google or Facebook. Furthermore, with the rise of e-commerce, supermarkets no more have the distribution power they had before. A small company can now sell directly to the end user – just look at how Dollar Shave Club broke Gillettes stranglehold on the razor blade market.
And to add insult to injury for the big consumer branded companies, customers today are more likely to try new products and new brands due to freely available reviews on the internet. In the past, one would be wary of buying a non branded item due to the lack of knowledge about its quality. But today, thanks to a plethora of readily available information and higher consumer protection standards, consumers are more willing to try newer and cheaper products much to the detriment of older more established brands.
These confluence of factors have lead to some terming the current situation the death of brands. I for one have written about this topic before and it is definitely worth a read.
The good news is not all brands are going to fade away and lose pricing power. I previously wrote an article detailing 4 factors to look at when assessing a consumer staples company so I won’t be reapeating myself here.
Looking at the companies I bought above, they each have a good stable of growing brands. Take Dove, Unilever’s single biggest brand, as an example which was introduced in 1955. On the outside it may seem like a sluggish and slow brand. But looking at the numbers, it is anything but. Dove is available in over 170 countries and during the past decade, its revenues are up over 80%! Not bad for a 65 year old brand!
The only one of the above companies that is struggling at the moment is PZ Cussons. But it is executing a turnaround by selling non core assets. If this comes to fruition, the shares could be really cheap on a 5 year view.
Looking at what these purchases mean for my passive income, it adds £30 to my annual dividend income. Looking at my portfolio as a whole, it is now expected to generate £3,956 on a yearly basis. I’m edging ever closer to the £4,000 mark. Hopefully I will hit it in the next month or two.
That is all for now. I wish you all a successful 2020!