Yet, you’ll find a common thread in each of the Boom & Bust positions we enter. There IS a method to our madness.
Basically, when we hunt for investment opportunities for subscribers to take advantage of, we look for three things:
1) Winter Season Shakeout Winners – These are the companies with significant market share and strong balance sheets. Both are necessary for companies to survive these tough times of slow to negative growth that’s driving all but the best out of business.
2) Demographic Trend Followers – Companies that serve the needs and wants of our largest and most powerful generation of peak spenders – the Baby Boomers – naturally enjoy their demand-driven tailwind.
3) Income Producers – Companies that reward shareholders with monthly or quarterly dividend payments are in high demand. With Treasury bonds paying practically nothing, income investors have turned to dividend-paying stocks for yield.
Now, of the 5,000+ stocks that trade on U.S. exchanges, very few of them meet each of these three criteria. There’s always a trade-off…
That said, in our upcoming issue of Boom & Bust, due out in June, I have found a company that fits the bill in all three categories. More often than not though, we find companies that meet just two of my criteria… even in the best companies.
And that’s why diversification is so important.
If you’re invested in a company that has the balance sheet of a Shakeout Winner, and is also catering to the Baby Boomer market, you may need to get your dividend income somewhere else.
Likewise, if you find a Shakeout Winner that pays 6% in annual yield, you might be missing out on some of the strongest consumer-driven trends, as Baby Boomers are a force not to be ignored.
And, if you’re putting all of your eggs in one basket, you’re taking far more risk than you need to. Just take a look at how you’d have done if you’d held any one of ten gold mining stocks since the start of the year:
Clearly, it’s pretty difficult to meet all of your investing goals with just a few stocks. That’s why building a diversified portfolio is always a better option.
Just think about Rodney’s “go-bag.” It doesn’t have only flashlights. It’s not solely stocked with cans of Spam! It has a little of everything… and if any one element turns stale, or is broken, it doesn’t ruin Rodney’s entire survival plan.
The same theory applies to our investment portfolio.
And hey – I get it! – having a diversified portfolio isn’t the sexist thing you can do… neither is having a “go-bag”… but both are invaluable.