If it’s not painfully obvious yet, it will be soon—2020 is an election year, so get ready to be inundated with political ads, media fearmongering and probably a lot more market volatility, particularly in some areas of the market more than others. So what can an investor do to prepare? Two things in particular stand out…
So what are the two things you can do, as an investor, to prepare from the inevitable election-year fearmongering and volatility?... One, be opportunistic, and two, stick to your plan.
Be Opportunistic. Two outstanding investment opportunities that currently exist in the market are “For-Profit” Prisons and Energy Stocks. Regarding the for Private Prisons, there’s been a lot of political hot air dramatically driving down the share prices (and bond prices) of Core Civic (CXW) and The GEO Group (GEO). Basically, a lot of politicians have been “talking big” about banning private prisons because they are immoral. Morality issues aside, no sane politician or citizen is just going to open the gates of these detention facilities, and just let the populations walk into the streets. Similarly, if private prisons are banned, the government doesn’t have the facilities to handle the prison population, and they’ll be forced to buy or lease private prison facilities (and staff) from these companies anyway. Not to mention the existing multi-year legal contracts already in place with GEO and CXW that cannot be canceled. For a specific example, we put together a detailed report on Core Civic just this past week and you can access it here: Core Civic Report.
And if those stocks are too volatile, The GEO Group has some very attractive high-income 2026 bonds worth considering too.
The second outstanding investment opportunity that has been created by media and political fearmongering is simply Energy Stocks and the big safe yields that many of them are offering. It is true that from 2014-2015 energy prices declined significantly as a result of technological advances and significant supply. However, many energy stocks have fallen further than they should have, and they have not yet recovered, and the reason has a lot to due with fossil fuel divestment by massive public and private pension plans. Asset owners with trillions of dollars in assets under management have been dumping their fossil fuel stocks and bonds. These politically driven actions have put significant downward pressure on prices, but they’ve done very little (practically negligible) to actually hurt these energy businesses. And as such, energy companies like BP RDS.B and XOM have seen their very safe dividend yields rise mathematically as their stock prices have inappropriately fallen from the political divestment decisions that are extremely different from investment decisions. As such, energy stocks currently provide extremely attractive long-term buying opportunities for income-focused investors. We like XOM, BP, RDS.B and Energy Transfer (ET), as we have written about them in detail in the recent past.
Stay Focused—Stick to Your Plan. The second thing you can do as an investor, to prepare for the coming election-year fearmongering and volatility is to stay-focused. One of the saddest yet most common investing mistakes is when people are inappropriately influenced by the fearmongering news flow, and sell their perfectly good investment out of fear (only to miss out on subsequent returns), and purchase totally inappropriate investments on a hot stock tip from the media (or simply because they are chasing past returns or inappropriate yields). For goodness sake, please know your investment goals and stick to investment strategies that meet your goals. We say it frequently because it is true, but disciplined, prudently-diversified, goal-focused investing has proven to be a winning strategy over and over again throughout history. If you’re an income-focused investor, don’t put your entire nest egg into hot penny stocks and growth stocks. Know your goals, stick to your plan.
Undoubtedly there will be more fearmongering, politicking and volatility as we approach the 2020 elections in the US. Stay opportunistic and stay focused.
Portfolio Tracker Tool.