AFTER the Christmas holidays, New Year fireworks and all the wishes that we have made and received in welcoming the final teen year of the century, we are now back to charting the investment strategy for the year and what should investors do in the current market conditions.
Before we explore what are our strategies for the year, it can’t be help to notice that in the race to the English Premier League (EPL) title for 2018/19 season, the team that most people thought will not likely be on top of the table at the turn of the New Year is actually sitting pretty at the helm, leaving behind its closest rival, Manchester City seven points behind. However, Liverpool’s lead at the top was cut to four points early on Friday morning as they lost 1-2 to Manchester City playing at the Etihad.
Despite the loss yesterday, the odds of Liverpool winning the EPL remain high and only a disaster could prevent it from claiming its first EPL title ever since the EPL was introduced in the 1992/93 season. Liverpool last won the League title when it was then known as the Football League First Division in the 1989/90 season – some 29 years or a generation ago!
What has changed? Firstly, if we look at how Liverpool has performed this year it can be said that is strongest asset is its defence. It has only conceded 10 goals in 21 matches in the EPL this season, while in goal scoring, Liverpool is presently second highest goal scoring team with 49 goals. Indeed, Liverpool’s attacking front is a dangerous side led by its 13-goal top scorer, Mohamed Salah, while Sadio Mane and Roberto Firmino are equally striking with a combined of 16 goals among them. Thus, almost 60% of Liverpool’s goals were scored by just three players.
The Liverpool team, brought together by none other than Jurgen Klopp has players from 12 nations that make up his 21-team members that had appeared at least once this season. Of this, seven are from England itself while three others from Brazil and the rest from Netherlands (2), Belgium, Croatia, Spain, Scotland, Cameroon, Guinea, Egypt, Senegal and Switzerland. It’s a diversified team that makes the difference in results. The diversification in the players are not only evident in positions but also in geographical origin of the players.
Three words from the above analogy – Be Defensive, Be Diversified and Be Dangerous – the three “D” words can also be deployed in the current market scenario for 2019.
We all know the year is not going to be an easy year for investments and hence it is important that investors seek solace in boring names that are defensive in nature and perhaps are also good yield plays. Among them should be some large capitalised consumer names, Reits or even selected banking stocks which are resilient in their earnings and are at the same time conservative in nature.
Being diversified is also important. Investors definitely should not put all the eggs in one basket or in one market. As can be seen how Liverpool has diversity among its players, investors too should adopt the same.
How is this done? Investors should first identify which sectors within the market are expected to be key beneficiary of either growth or less economic headwind, beneficiary of government policies, potential M&A activity or even sectors that are less impacted by the vagaries of commodity prices. In some stocks, the diversity in earnings is a natural thing if the company itself has diversified earnings not only from different sectors but also different countries.
Being dangerous is perhaps something new in portfolio management but if we were to use the analogy in football, one could see how a team like Liverpool is so dangerous when is on a counter attack while even when ts in a normal run of play, its able to create chances for its strikers to go for the final kill.
In the market, investors too could adopt a counter attack strategy, i.e. when there is a sudden slump in a particular stock, especially if there is no apparent reason to justify, or if the market had corrected the stock’s price beyond what is deem to be necessary, investors could deploy an aggressive trading strategy to take advantage of the fall in price and perhaps an oversold position, to profit from a counter rally in the stock price.
In instances like this, it is easy to lock-in gains of about 5%-10% from the bottom but investors need to be cautious in the names that they are investing in this strategy as stocks that an investor is willing to take a quick bet must be of not only with strong fundamental value but the investor is well verse with the company itself.
In short, 2019 is not going to be an easy year for investors but to profit from a weak market, investors need to deploy the right strategy. What better way than to be defensive, diversified and dangerous to pick the market winners.
By May this year, Liverpool will likely be crowned champions of the EPL for the first time and for investors, it may be also time to perhaps lock in the gains based on this strategy as one should not be overly exposed in a market as the saying goes, “Sell in May and go away”. For investors who are still uncertain on what strategy to deploy for the year, seeking professional advice is a must to get the best of returns. After all, #YNWA.