The stock market has been in a wild swing lately, with the DOW dropping a whopping 1,000 points following a 580 point drop the previous trading day. The recent stock market “correction” has wiped out a tremendous amount of wealth and market cap.
It’s is very important to proceed very cautious lately. I think it’s also a good opportunity to pick up some good solid companies that will do very well in the long run. I look for companies with a solid business that can weather this storm and will eventually come out victorious. The short term noise can present very good prices to pick them up in a long dividend growth portfolio, such as my DGI Portfolio.
I have learned a valuable lesson about taking on too much risk and losing all my principal capital. Therefore, now when I invest for the long term, I analyze the stock to see if they can outperform the market in the long term. Also I look for companies that do not have big swings, which is indicated by the beta. Beta is the measure of volatility in the stock market. A beta of one means that the stock moves with the market, a beta that is higher than one means that the stock moves more than the market and a beta that is lower than one means that the stock moves less than the market. I prefer companies that have a beta lower than one. Most of the stocks in my DGI Portfolio have a relatively low beta. This is by design, because I do not want to see my portfolio drop too much in a down market. Fortunately, the low beta did help mitigate the swings from the huge drops in the stock market.
I also took advantage of the huge drops to pick up some good names like OHI and ED. ED has such a low beta of -0.01, which means it is not affected by the movements. ED is a utility stock, they will always make money in any type of market, because everyone needs to use their utilities regardless if the market is good or bad. Therefore, ED is a very good long term stock. It moves very slowly but progressively up. Don’t expect to be rich with this stock, it’s not going to be the next Google or Facebook, but it is going to be a great long term holding that will build you lots of passive income.
In this market, it’s important to buy companies that generate growing revenue and earnings. Because the companies that make money are the ones that will survive this market turmoil.