When we spoke on New Year’s Day, I told you not to worry about a recession this year.
I’m bringing it up again three months later for a very good reason. Once again, the so-called “experts” in the media and Wall Street are warning that the economy is about to hit the skids.
Let me be clear. Nothing could be further from the truth.
Yes, growth is slowing. Fourth quarter GDP was recently revised down to 2.2% from an estimate of 2.6%. But I see no economic data to suggest the economy is about to go backwards.
We still have one of the best job markets of the past 40 years. And while housing and auto sales have slowed, they remain well above recession levels.
Here’s the thing. While I stand by my optimistic forecast for tech stocks in 2019, all this talk about the “R” word reminds me that it may be the perfect time for you to take my “investor personality test.”
This is a process by which you figure out how you really feel about stocks, the market and the economy.
The bigger idea being that if you really want to be fully prepared for both good and bad times, start by first understanding what makes you tick as an investor.
Because over the long haul, that can save you lots of heartache – and a lot of cold, hard cash….
What the Numbers Tell Me
Don’t get me wrong, I’m not saying we will never have another recession. But I’ve poured over tons of data, and my forecast remains the same.
I’m looking for a short and reasonably mild recession beginning in the first quarter of 2020. That gives us nearly a year to get ready for the downtown.
And as someone who has been involved in investments going on 40 years, I believe there’s no better way to get prepared for challenging markets than to know who you truly are.
I say that because lots of people feel like they own the world in a bull market. In a bear market… not so much.
So to help guide you quickly through the self-examination process, I’ve boiled it all down to five key investor personality traits.
Take a look:
Tech Investor Personality No. 1: Growth
This field really appeals to investors who want to profit from companies with above average prospects for growth in sales, earnings and cash flow. For these investors, those three categories are far more important than the stock’s sticker price.
Moreover, not only do growth investors not worry about the stock’s price, they are more than willing to pay a premium for that growth as measured by key metrics.
For instance, growth investors don’t mind paying 40 times forward earnings when the overall market trades at just 15 times next year’s profits.
So, growth investors are looking for firms that grow their earnings per share by 25% to 40% a year. That means they are looking for earnings to double in as little as 18 months.
The very best growth investors shift gears in a recession. They go bargain hunting, confident growth will return and make them a lot of money.
For instance, take a look at the massive shift that’s underway toward wireless 5G technology. Fact is, this shift is turning world of science fiction into science fact. With lightning fast connection speeds, and lower latency, 5G will shift how things work in our world. I’m taking everything from homeland security and emergency rescue services to agriculture, policing, pollution, banking and the stock market.
It’s an opportunity that CNBC reports is worth $12.3 trillion. It’ll add up to 22 million new jobs and boost the U.S.’s GDP by $3.5 trillion.
Having even a sliver of this potential windfall could change your family’s financial status for generations to come.
Tech Investor Personality No. 2: Income
At first, this might sound counterintuitive – a technology investor more concerned about the size and quality of the dividend than the growth.
But this actually has become much more prevalent since the bull market began in the spring of 2009. There’s a growing sense among investors that in a low-interest rate environment, getting a steady dividend stream is a great way to bring in extra cash and increase the stock’s overall return.
And consider this: over the last several years, the tech sector has steadily courted this type of investor by either adding dividends or increasing the payout ratio.
Flush with cash, tech firms have become some of the largest contributors to dividend growth over the past several years. That trend should continue well into the next decade.
However, income investors often find weak economies challenging because many firms will cut dividends to improve cash flow. I think it’s better to take the next type of approach.
Tech Investor Personality No. 3: Growth and Income
This is an investor who prefers to take a balanced view of building a tech portfolio, getting an overall blend of both. However, depending on the person involved, the scales can tip dramatically toward one end of the spectrum or the other.
In fact, as straightforward as this category sounds, it actually has some hidden complexity. Some people want both growth and income, but have a hard time articulating which they prefer.
And this can be a subtle but important distinction. So, let’s simplify. If the prospect of scoring huge gains in a hyper growth field excites you, then you are by far more growth than income oriented.
On the other hand, if you’re willing to accept mediocre gains for the chance to have stable cash flow, then you really should focus on stocks with good yields.
Tech Investor Personality No. 4: Momentum
This approach really appeals to investors who are looking for action. They tend to focus on stocks that are on the move, often without regard to any underlying fundamentals favoring the company or its industry.
At it’s most basic, this approach appeals to investors who avoid even the semblance of brand loyalty. All that matters is that a tech stock is headed up, offering the chance to buy a fast-mover for a quick profit.
You could sum this up as “buy high and sell higher.” Indeed, momentum investors are far more likely to go long on the way up, but then turn right around and short stocks once they top out.
Momentum investors tend to be very active, and to rack up a lot of brokerage fees. The big risk here is you close out all of your positions when the economy turns south, and then miss a rally because of how hard it is to start all over again from scratch.
Tech Investing Personality No. 5: Opportunistic
This is a personality type I know well. See, each summer I sail twice a month with my tech investing friends.
One of them is Bob, a retired engineer. It’s not unusual in a single two-hour sail for him and me to discuss turnaround stocks, initial public offerings, dividend plays, and small-cap biotech firms that may report progress on a block buster drug.
Though each of these plays are very different, they all make sense to Bob. Then again, he’s a long-time investor with a large portfolio that he has the time to work on every day.
So, he’s always on the lookout for a great opportunity that can cover growth, income, momentum, IPOs, workouts, spinoffs, etc. You name it, if the investment makes sense, he’s interested.
When times are good, you can jump on lots of opportunities. But when the market takes a beating, you have to check your adrenalin at the door.
I say that because when the economy weakens, by definition, so do a lot of “hot” opportunities.
That’s when it pays to calmly look for one main thing – oversold stocks with enormous upside. And the market will be filled with them.
As you reflect on what we’ve been discussing here, remember there are no wrong answers and no bad investor personalities. It’s all about making sure you understand your true motivations.
This gives you a powerful tool that will help you calmly and confidently make money no matter what the market throws your way.
And be sure to check back here soon as I plan to show you yet again how I’ve used these investing principals on my soaring cannabis plays.
Cheers and good investing,
Michael A. Robinson