Interest rates aren’t expected to go down soon. Here’s what you need to do to protect your portfolio! [Wednesday: The Independent Investor]
Miles Everson’s The Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
We’re excited to share another investing insight in today’s “The Independent Investor!”
Every Wednesday, we bring you insights about the world of investing because we believe that this activity can help you attain financial freedom through wealth creation.
Today, we’ll talk about why it’s important for you to understand credit in spotting buying opportunities in the stock market.
Excited to know more?
Continue reading below!
The Independent Investor
During the first half of 2023, the S&P 500’s returns were at 16% while the Nasdaq composite and small-cap Russell 2000 were up by 32% and 7%, respectively.
Fast forward to today, these indexes are shedding their gains.
The S&P 500 and Nasdaq are both down by more than 6% since the start of August. Meanwhile the Russell 2000 has sold off 10%.
All this is happening since the market is starting to listen to the U.S. Federal Reserve, a.k.a. the Fed.
For the past year, the Fed has committed itself to bringing down inflation to its long-term target of 2%. While the agency chose not to raise interest rates during its September 2023 meeting, another hike is expected to happen before the year ends.
Additionally, the Fed’s officials have said that interest rates will likely remain above 5% until the end of 2024.
Due to this, it’s highly unlikely that interest rates will come back down to manageable levels until the Fed is absolutely certain that inflation has vanished.
Given this economic outlook, strategists and analysts at big financial institutions are no longer counting on a “soft landing,” for the U.S. economy.
Instead, these folks are now bracing themselves for a looming recession.
Due to this grim economic outlook, finding a suitable investment strategy seems like a challenging task… and while that may be the case, it’s not entirely impossible.
According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, investors are doing themselves a disservice if they don’t try to understand a company’s credit situation.
Monitoring a publicly traded company’s credit health enables an investor to know whether a firm could finance its debt and avoid the risk of bankruptcy.
More importantly, knowing about a firm’s credit health enables savvy investors to find cheap, undervalued, or mispriced stocks in the market, netting them sizable gains in the long run.
In fact, that’s exactly what happened in 2009 when Professor Litman advised his clients to hold on to airline stocks.
Within a few years, the shares of airline carriers like Jetblue Airways and Delta Air Lines went up by 296% and 345%, respectively.
At the time, the bond market treated many of these firms like they were at risk of going bankrupt.
On the other hand, Professor Litman and his team saw that these companies had plenty of cash reserves that enabled them to finance their debt with no issues. They realized that once the market caught on to that, the stock prices of these firms would go up.
As we’ve discussed above, knowing about a company’s credit situation is very useful in identifying opportunities in the stock market regardless of the economic situation.
Now, we’re not saying that you need to know everything there is about credit to do a little digging of your own.
You just need to take a quick look at the past few years of a company’s income and compare it total to the firm’s debt burden. This way, you’ll know whether a company can pay off its debts in the long run.
Once you know about a firm’s credit situation, you’ll be able to assess whether to buy its stock or not!
Stay tuned for the next “The Independent Investor!”
Happy mid-week, everyone!
In line with MBO Partners’ continuous dedication to supporting you and your business, we want to notify you about an opportunity to access potential tax credits of up to USD 32,200.
The American Rescue Plan Act of 2021 provides specific provisions for self-employed individuals, known as the Self Employed Tax Credit (SETC), for which nearly everyone with Schedule C income qualifies. This acknowledges the unique challenges faced by those who work independently especially during times of illness, caregiving responsibilities, quarantine, and other circumstances.
There are two criteria you must meet to qualify for receiving the tax credit of up to USD 32,200. Click here to see how you can obtain the SETC to know more about this.
Act NOW! This credit will expire on April 15, 2024, so we encourage you to submit early to see if your business qualifies. Also, if you know others who may qualify for the SETC, you may share these details with them.
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Head of Marketing
Valens Dynamic Marketing Capabilities
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