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Can investors insulate themselves during recession?

Team Veye | 30 Mar 2020

Can investors insulate themselves during recession?

The economy is falling rapidly into a recession due to the expanding COVID-19 crisis and the investors worldwide are hunting for recession-resistant sectors and industries.

What happens when the world is having a double whammy? Global market slowdown along with a global pandemic, though may be linked, is rare. Should the investors go for value buying across all sectors even at such times?

The thing one has to ponder over is that when people are selling their stocks and liquidating their portfolios who are buying these. Many smart investors who bought during such times carefully had significant returns on their investments.

In our earlier article, we had asked whether a smart investor can survive the crises. Is identifying companies having growth potential and investing in such companies enough?

It requires no brainer to identify sectors or companies which are countercyclical. Such sectors perform well during the recession and normally have price appreciation despite the prevailing economic headwinds.

Among the sectors and among industries, there are some which are very susceptible to economic changes while others perform regardless of what is happening to the economy. Observing the phases of a business cycle are considered very helpful.

Well-managed companies that have low debt, good cash flow, and strong balance sheets often do comparatively better during such times.

Although no company remains isolated at such times, people need and buy certain items on a recurring basis. Healthcare, utilities and consumer goods sectors are the places where people spend money irrespective of the state of the economy. And when the cash flow is weak people don’t go buying furniture and clothes, they instead defer it. Keeping such things in mind rather than timing the market has always proved to be prudent.

Disclaimer

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