With the beginning of quantitative tapering (QT), the market continues to decline with occasional bear market rips (sudden movement to the upside while the primary trend remains negative).
Many high flying, CASH BURNING growth stocks have been getting destroyed – given significant exposure of growth stocks to overall stock portfolio, many investors are currently feeling extreme pain and they are selling out of stock portfolio FAST.
It could be a good idea to get out of high growth, cash burning stocks in front of a recession, but what gets sold with the overall stock portfolio is the strong, resilient, CASH FLOWING, BUSINESSES that also were part of that portfolio
I HAVE TWO MAIN OBJECTIVES DURING A SIGNIFICANT MARKET CORRECTION
- I NEED TO MAKE SURE I SURVIVE THIS DOWNTURN
- I NEED TO PREPARE FOR THE NEXT BULL MARKET
In order to find investment opportunities that fit both criteria, I screened investment products and I came across $DIVB – iShares US Dividend and Buyback ETF
$DIVB invests in US companies that return capital to investors through dividend and/or buyback
Dividend
Dividend is critical because it gives me cash flow from the ETF to stay liquid for other investments that are leveraged. For example, I have significant mortgage payment that has monthly payment obligation. Cash flow from holding this ETF can help fund holding my real estate portfolio.
Dividend helps me stay solvent through crisis, so that I can survive to fight another day
Buyback
Buyback is preparation for the future. With resilient business model comes stable cash flow. Strong cash flow allows companies to use fixed amount of capital to buy back shares. During recession, they can buy back more shares with the same amount of capital. When the bear market is finally over and bull market comes, investors will scramble to own stocks. There will be significant amount of capital chasing smaller number of shares – resulting in significant price appreciation (this is simple supply and demand dynamics in share price).
Companies with significant cash flow to fund buyback during bear market will reward investors when the bull market returns.
Buyback helps me prepare for the future – things will be better and stock market will return to growth!
HOLDINGS
Perhaps not surprisingly, key holdings of $DIVB are household names like Apple, Microsoft, Meta, JPM, Berkshire Hathaway, P&G, Google, Bank of America, etc.
Sector exposure is heavily tilted towards IT, financials, and healthcare – largely essential goods or infrastruture-like business models that are highly resilient.
This is difficult time for all of us. However, I remain bullish on American economy to continue to lead innovation and global growth – capturing outsized portion of global value creation and stocks of American companies are the best investment vehicles to ride that wave.
However, I am trying to balance my survival and opportunity to capture capital growth – which is why I am investing in $DIVB.
Do you own due diligence before investing and make sure you have sufficient financial cushion to weather the storm – remember, survival is #1 priority!
*not investment advice
