2024-06-12 07:35:00 ET
Summary
- We accumulate cash-producing assets from defensive sectors with the intent to hold them forever.
- Market fears and price volatility present buying opportunities.
- Two monthly pay CEFs to strengthen your financial flexibility in retirement - RNP and UTF.
Co-authored with Hidden Opportunities.
As a Do-It-Yourself investor, it is likely that you hold certain investments for a while and sell them to redeploy your proceeds into better opportunities. No matter how firmly you consider yourself a long-term investor, from time to time, you have certainly traded in and out of your holdings to seize bargains. But certain holdings make it to your portfolio and never leave. These are probably ones you picked up at dirt-cheap prices during a bear market or some irrational sell-off. Or those where you were an early investor in a growing business, or perhaps one that you have in-depth knowledge about their business model and believe in their mission and vision. But in general, to hold something for the foreseeable future (or forever), the investment must satisfy a few criteria:
-
Economic Resilience: The business (or security) must focus on providing services that are resilient to economic downturns. No matter how bad the economy is, people will still consume and pay for utilities. Similarly, consumer staples and healthcare businesses often maintain their performance during recessions, as they provide essential goods and services.
-
Reasonable Valuations : It is great to buy a wonderful company at a fair price, but buying at discounted valuations always improves your margin of safety. This is especially true when the business owns and operates tangible assets. Overpaying for assets often leads to reduced total returns over the long term. For diversified funds, look for the relative valuation of the sector in focus, and examine the price of the fund relative to its NAV (Net Asset Value). Buying discounted provides an additional margin of safety.
-
Stable Cash Flows: Companies with robust business models and predictably recurring cash flows make terrific long-term investments. Cash flow stability protects shareholder dividends through tough economic conditions.
- Competitive Strength: Companies that can easily keep competition at bay are better positioned to deliver long-term value to shareholders. Competitive strength is easily protected in industries like REITs, pipelines, utilities, and telecommunications due to significant investments in establishing mission-critical assets or regulatory frameworks, providing revenue stability and pricing power to combat inflationary pressures.
Read the full article on Seeking Alpha
For further details see:
2 Bargain +8% Yields For A Defensive Retirement