The stock market rallied a bit last week making up for lost ground since late last fall. As usual some stocks rallied and some did not. That sounds so simple as to be dumb, but it is the crux of smart long term investing.
The question we pose is which stocks, which stock market sectors, which technologies will not only recover lost ground but will prosper as the world wide economy rights itself. For that matter if we are in for a long term depression the same questions apply.
Growth, Earnings, and Expectations
It may be hard to envision now but in a few years we will have another market surge with another set of reasons given as to why, this time, the bull market will go on forever. Then, of course, we will get another correction.
The market moves based on short and medium term expectations. Stable, slow growing stocks tend not to do as well in bull markets as those expected to grow dramatically over the next months. However, the more stable companies tend to weather the storm better. They tend not to lose all of their value when the market collapses. Now we need to ask ourselves which long term investment stocks will grow over the long term?
Oil and Supporting Businesses
According a New York Times article, “The Great American Drilling Boom,” is over. As the price of oil has dropped people have quit drilling for new oil In fact many with newly found oil are capping the wells, waiting for prices to go up, before they pump again.
Smart shorter term investors got out of the stocks of companies that drill for oil or make the equipment needed for drilling. They got out as oil prices started to drop.
For the long term we have to ask ourselves if oil prices will stay low and if the industrialization of China and India will go away. It seems unlikely that the two big Asian economies are going to decide to go back to a quieter, less prosperous life. Thus, as India and China deal with their own credit problems, create their own stimulus packages, etc. we will likely see their usage of raw materials go up again. Then the mining will restart in Australia and global demand for oil will go up again.
Maybe big oil will find its profits cut but that never seems to happen. There will always be charges to be made for finding, drilling for, transporting, refining, and selling oil products.
Now that prices are down the smart long term investor will look at who has all of those capped wells and look for deals in companies who drill for and/or transport oil and natural gas.
The other matter is all of those foreclosed mortgages. People need places to live. There is going to be an increasing glut of repossessed homes. Since real estate is location, location, location buying property or stock in companies that buy property in prime locations, renting for the time being, and, then selling as the market moves up in a year or so, looks attractive.
In general very long term investing tends to look at companies that cater to long term human needs, such as food, medicine, fuel, communication and the like. Good or bad times companies dealing in these areas do not disappear and right now probably are selling at a discount.