Week 382 - Steady Eddies

Situation: Some high-quality companies don’t pay good and growing dividends, don’t have high sustainability (ESG) scores, and aren’t blue chips, but do hold up well in bear markets. In theory, a hedge fund will take long positions in such companies (until retail investors take notice and the shares become overpriced). After reading this preamble, you’ll have figured out that we’re mostly talking about utilities. But that’s OK. You can still dollar-average into the non-utilities and do well, even though they’re often overpriced.

Mission: Run our Standard Spreadsheet on companies with A- or better S&P bond ratings and B+/L or better S&P stock ratings. Exclude companies in popular categories: “The 2 and 8 Club” (see Week 380), Blue Chips (see Week 379), the Dow Jones Industrial Average (see Week 378), and Sustainability Leaders (see Week 377). Also exclude companies that don’t do well in Bear Markets (see Column D in any of our Tables).

Execution: see Table.

Administration: This is a work in progress. The 7 examples in the Table are well-known to me; no doubt there are others in the S&P Index. 

Bottom Line: A smart investor knows that a Bear Market in a particular S&P industry will usually begin with little or no warning. By the time she starts to think about selling shares, it’s too late. Some kind of insurance will have to be in place before that happens. Warren Buffett’s well-known recommendation is that you dollar-average your stock investments and back those up with a short-term investment-grade bond fund. (He also recommends that you avoid the two habits that in his experience are likely to derail investors: drinking alcohol and borrowing money.) Here we add a third option, which is to find stocks that “fly under the radar” and hold up well in a Bear Market.

Risk Rating: 4 (where 10-Yr US Treasury Notes = 1, S&P 500 Index = 5, and gold bullion = 10)

Full Disclosure: I own shares of HRL.

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