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Markets & economy

Invest in stocks with dividends, but put stop losses in place

It is always a good time to invest, the question is where?

Now is a good time to invest, despite buoyant share prices and deep anxiety over the world’s uncertain political and economic outlook, says Todd Buchholz, a former US White House economic advisor who correctly predicted the plunge in oil prices, the downturn in commodity prices and the start of the US economic recovery.

This was because there were signs of a synchronised global recovery, which would continue as long as three important pillars – low interest rates, low inflation, and the absence of trade wars – remained in place, he said. Buchholz was in South Africa speaking at the Allan Gray Investment Summit.

Buchholz said that one of the factors which should sustain the pickup in US growth was that although President Donald Trump had sparked consternation with his proactive statements, he was not “picking on” industry and had allayed its fears over possible new taxes and regulations.

Global inflation would remain in check, allowing interest rates to stay low, which meant that business could afford to invest and retailers would continue to prosper, he maintained. Concerns that deepening tension over trade agreements would spark outright trade wars had so far been unfounded, and if that remained the case stocks would continue to rally, he added.

Buchholz also predicted that “the sun was setting” on China’s sustained economic outperformance in the global economy, largely because the effects of higher wages and unfavourable demographics in the country were starting to make themselves felt. “Over the next 12 months commodity prices could briefly spike but are likely to either plateau or fade back again.”

As South Africans were essentially already leveraged to commodity prices, it would make sense to diversify away from companies which relied on them, he advised. “In a world of uncertainty, in a world where stocks have gone up, I think it would make sense to have shares which pay dividends,” he said.

“It is also important to have stop-losses in place, so that if needs be, you can get out of the market before it starts punishing you,” he added. Defence stocks were appealing given all the sabre-rattling between the US and North Korea, he pointed out.

Buchholz said that Trump’s business achievements showed that he could get things done, even though opposition had made the legislative agenda in the US “moribund”.

However, he warned that industrialised countries should get to grips with high levels of debt, both in government budgets and households. Aging populations were also a prevalent challenge faced everywhere that poor countries became prosperous, he concluded.

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