Daily Insight: My Pullback Stock

Daily Insight: My Pullback Stock

“The perfect stock would be attached to the perfect company, and the perfect company has to be engaged in a perfectly simple business, and the perfectly simple business ought to have a perfectly boring name.” — Peter Lynch

Peter Lynch, the author of ‘One Up On Wall Street’ and one of our greatest inspirations here at MyWallSt, had absolutely no problem with buying “boring stocks”.

In fact, as you can see from the quote above, boring can sometimes be a winner. I was drawn to Lynch’s teachings once more after reading the following feedback from one of our MyWallSt community members. Commenting on the stock market’s recent turmoil and pressure on growth stocks, they said:

“It would also be very helpful to investors like myself to know where you guys are putting your money. Again, I know that's a personal thing for everyone… but if you [MyWallSt] just gave us one company you’ve added to in this pullback then that would be a great help. It could offer some great comfort in these very challenging market conditions.”

Of course, many investors — including our friend above — know that it’s all a matter of individual choice, risk tolerance, preference, familiarity, etc. But that doesn’t mean that I can’t give you some insight into the “boring” stock that got me through these downturns.

For me, that stock was Apple!

I know what you’re thinking: “Apple, seriously? My toddler could give me that answer.”

But Apple is the first company I ever invested in and remains my largest holding — though it is being quickly caught up with by Unity Software, which is a story for another Insight.

It’s the company I consistently invest in via a dollar-cost averaging strategy and maintain that I’ll never sell — it’s my ‘anchor stock’. Maybe it’s a bit much to call Apple boring, but it’s as far from a growth stock as you can get, and provides me with a relative safety net in times like this because:

  • It’s a mega-cap stock whose stock price movement is not volatile, quite literally ‘anchoring’ my portfolio

  • It pays dividends, which in turn can be reinvested into my portfolio or used as income later in my investing life

  • It’s not reliant on any one product — despite what the bears might say about the iPhone

  • It has a massive amount of cash-in-hand — near $200 billion

Now, I’m not saying that in times like these you should all go out and invest in Apple, as that’s just what works for me. Perhaps you want to invest in Amazon, Alphabet, Microsoft, Berkshire-Hathaway, or any number of other “anchor” stocks that share the above characteristics.

Or, perhaps you could consider rotating into some defensive stocks. Certain industries tend to do well in an economic downturn, such as utilities or healthcare. Owning strong-performing stocks in these industries could help mitigate any wider market issues.

Apple is the obvious choice to many, but don’t knock it. Sometimes the obvious choice is what you need during such volatility and to keep your portfolio protected. And, having that strong anchor to ground your portfolio also allows you to take risks with growth stocks.

After all, short-term thinking can be extremely dangerous to any portfolio. By reminding yourself of your own timeline you can regain some clarity. For example, a 20-year outlook makes each earnings report only representative of 1.25% of the time you plan on owning a stock. Most companies won’t fall apart over one bad earnings report, so remember to zoom out and think long-term.

Remind yourself of the reasons you already hold the stocks in your portfolio. If the underlying facts from these companies haven’t changed, neither should your convictions, even at times like this when it’s easy to lose faith. Companies will always rise and fall in the short term, the successful investors will hold on through this turmoil and come out the other end.

JamieJamie

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