Anti-crisis portfolio

The pandemic and crisis have brought down the stock markets of the planet, hundreds of thousands of people around the planet have already felt the discomfort associated with a lack of finance. But all these troubles can be avoided if you take care of financial security in advance and create a sustainable investment portfolio. Today I will talk about how to do this and show with specific examples that the stock market can help to cope with any crisis.

Setting goals during a crisis

Regardless of capital, experience and style of work in the market, the investor / trader must have a clear goal. During crisis periods, volatility increases and markets become unstable, stock prices fall, currencies devalue, safe-haven assets can also become cheaper at the moment. Based on this, priorities change somewhat:

  • capital safety comes to the fore;
  • the second most important goal is to increase funds.

When compiling an anti-crisis portfolio, we are not chasing record returns, we are focusing on sustainability. Therefore, in the investment portfolio you will see a lot of dividend aristocrats – these are companies that have consistently paid dividends for decades. You can withdraw dividends, receiving a stable income, or you can reinvest them, which has a cumulative effect. From a distance, such a portfolio turns into a powerful investment tool. For example, the S&P 500, subject to the reinvestment of dividends for the period from 1959 to 2019, gave a profit of about 40,000%. At the same time, the index itself grew by only 6000%.

An investment portfolio of this type will make it possible to survive any crisis without any problems. The stock market provides a lot of opportunities for both investment and active trading. If you are interested in this topic and want to start making money on the stock market, I recommend signing up for my special course on stock markets. We will start with the very basics and gradually begin to analyze real examples of transactions on the exchange and special work tactics.

Stock selection algorithm

Stock selection algorithm

Having decided on the goals, we turn to specifics – the selection of securities for the investment portfolio. The selection is carried out taking into account the following requirements:

  • stable dividends. Ideally, payments should not only be stable over the past 20-30 years, but also grow. Dividend aristocrats meet this requirement;
  • stable cash flows. We are not interested in promising newcomers; we need large players who earn money steadily. The more stable the income, the higher the likelihood that dividend payments will not be interrupted;
  • no problem debts. The worldwide practice of overcoming crises is to pump up the economy with money. Since the printing press at this time works at 100%, the infusion of unsecured money into the economy guarantees an increase in inflation. The regulator is forced to raise the interest rate, which affects the loan rates. As a result, it becomes almost impossible to refinance, companies begin to optimize the expenditure side and may abandon dividends;
  • evaluation of the schedule. You need to choose the right moment to buy securities.

For selection, I recommend using the stock screener, in it we are interested in the following filtering criteria:

  1. Dividend Yield – dividend yield, how much you get just for being the owner of the shares;
  2. Quick Ratio – calculated as the ratio of highly liquid assets to short-term debt obligations. Highly liquid current assets mean anything that can be quickly converted into cash;
  3. Current Ratio – total current assets divided by liabilities. It is desirable that this and the previous indicators be greater than 1.0;
  4. Payout – how much of the income goes to dividend payments. It is undesirable for this figure to exceed 100%;
  5. P / E Ratio – Calculated as the ratio of the share price to earnings per year per share. Low values ​​indicate undervaluation of the company, high values ​​indicate overvaluation. The ratio depends on the sector, for example, for the S&P 500, for example, the average P / E Ratio ranges from 13 … 15.

Stock Portfolio Testing

To test the idea, let’s make a small portfolio of stocks of several reliable companies, adding gold to it. For comparison, a couple of standard portfolios are taken. The test was conducted from early 2007 to late 2010. This segment covers the financial crisis and the beginning of the recovery period.

A couple of conclusions from the test results:

  • at the bottom, the value of our portfolio decreased by 3.58%, while competitors sank by 36.48% and 35.76%;
  • due to the fact that the companies included in the anti-crisis portfolio pay dividends, the loss would be covered with a margin;

With the subsequent recovery of the stock market, the gap in yield between portfolios remained. By the end of 4 years after the creation of investment portfolios, our option had grown by 45.12% (add to this 6-8% of dividends per year), competitors – only by 8.09% and 9.22%.