Follow your own spending for stock market gains instead of risky bets by investing gurus
Seven years after the end of the financial crisis and the stock market has jumped 211% with many stocks seeing all-time highs. Unending monetary stimulus from the central bank has boosted asset prices with little effect on the economy, making the owners of those assets wealthier while the rest of us go nowhere.
But things aren’t quite as rosy for the middle class. Wages have barely budged since the end of the recession and unemployment is only down to pre-recession levels because so many have dropped out of the labor force. In fact, more than 25% of the unemployed have been so for more than 27 weeks compared to an average of just 10% long-term unemployed before 2000.
In this kind of environment, the next stock market crash is just an economic data point away. All it takes is for weakening retail sales or a disappointing employment report to send investor favorites tumbling lower.
While the rest of the market is investing in the popular stock du jour, only one group of stocks will be safe when Wall Street worries mount.
Investing Gurus versus a Safer Investing Theme
Investing tips and ideas following stock market gurus is nothing new but it seems attention to activist investors and billionaires has never been stronger. Turn on the TV any particular day and you’re met with dozens of stock picks to follow the strategies of people like Icahn, Ackman and Buffett.
Investors are at no loss for easy ways to follow these investing gurus into their risky hit-or-miss bets. The Global X Guru (GURU) is an exchange traded fund that invests in 47 of the stocks most followed by Hedge Funds and billionaire investors. Among top holdings are Sears Holding Corporation struggling against bankruptcy and Cheniere Energy, a risky bet on exporting liquefied natural gas, both of which are down 55% over the past year.
The problem with these investing guru picks is that they depend on a hot stock market or a turnaround at the specific company. Either can be a tough hurdle in a sluggish economy or if investors get skittish about stocks.
The investing gurus fund charges a management fee of 0.75%, well over that charged on most ETFs. Stocks in the fund are priced at more than 47 times company profits, nearly twice the price of stocks in the S&P 500 which is also relatively expensive given historical data. Besides the high fee and expensive stocks, the fund has lost 16.7% of its value over the last year.
Clearly the investing gurus are not the way to go in investing!
Instead of betting with the billionaire stock gurus, invest in things that everyone needs. These are companies in sectors like consumer staples and utilities, companies that sell things people can’t live without.
Unfortunately, low interest rates in bonds have driven investors into these dividend stocks and bid up the prices. There are still some good investments to be had and these companies will still do relatively well if the rest of the market tumbles.
Not all consumer staples stocks have seen their prices jump on the search for dividend yield. Shares of Procter & Gamble (PG) and Wal-Mart Stores (WMT) are still attractively-priced and provide dividends of 2.8% or higher.
One Motif Investing fund holds 20 stocks within the discount retail space, companies selling apparel and consumer staples to the price-conscious public. The fund invests in off-price retailers, warehouse clubs like Costco and dollar stores.
What I like about the fund, besides its position in stocks that could do well even if the market doesn’t, is the fact that you can buy all 20 stocks for just one commission. I invest in four stock funds on Motif across different themes for just this reason.
Stocks of consumer staples companies and other products real people live on won’t guarantee you avoid the next stock market crash but they should beat the investing gurus and their roll-off-the-dice picks. As the bull market heads into its seventh year, look for value stocks and those relatively safe from the next market tumble.