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Tags: Strategies | growth | Immature | Market

Grow Up: Solid Strategies for an Immature Market

By    |   Monday, 12 December 2011 01:05 PM EST

The market behaves like a child.

I remember dealing with my son as a little boy. Occasionally, I would make a deal with him ("You can stay up later tonight but you have to be in bed by 9 p.m. during the school week" or "You can play with your friends today but tomorrow you'll have to rake the leaves and do your homework.")

There was always a common thread in the manner with which he negotiated or chose his options. The deal he always wanted was the one that had the advantage right now. Whatever deal was good for this afternoon he would take. I didn't matter if tomorrow would be twice as hard. He managed his affairs with the only goal of getting the most favorable terms in the immediate future.

The market acts the same way.

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Last week, the market was salivating at the prospect of any deal out of Europe that would avoid the possibility of a crisis over the next several weeks or months.

The market didn’t seem to really care if the solution would cause the major issues to be revisited a few months down the road.

All that mattered to the market was that potential for a real crisis erupting would be eliminated from the immediate future.

This is the nature and mentality of this wildly up and down market. It's impossible to predict the week-to-week, or even day-to-day, gyrations. It's a great market for traders, but it spooks most individual investors.

Despite this environment, individual investors can't let the short term volatility scare them away from the market. There's no place else to earn a decent return.

There are two basic ways to play this market with a reasonable chance of being able to sleep at night.

First, stay with the defensive stocks that pay dividends. The best performing sectors of the market in this tumultuous year have been healthcare, consumer staples and utilities.

Companies in these sectors tend to earn more reliable revenues regardless of the state of the economy. As well, dividends counter the effect of losses in the market. In fact, several of these defensive dividend payers have posted impressive returns for 2011. Next year promises to be one of unusual uncertainty also.

Second, longer-term investors can focus on the trends. That is, invest in accordance with powerful trends within society that promise to continue in the years ahead rather than relying on the unpredictable fortunes of the general economy.

Here are some powerful trends to consider.

• Aging

The fastest growing segment of the population is age 65 and older. In fact, an average of 10,000 baby boomers will turn 65 each and every day for the next 17 years. This societal trend promises to exponentially increase the demand for health care. Strong pharmaceutical and health care provider companies and well as health care REITs should be excellent performers over the next decade.

• Oil

Worldwide demand for oil is increasing and the supply of oil is finite.

While oil prices can bounce around in the near term, the odds are good that oil prices should trend higher, and possibly significantly higher, over the next five years. As well, oil is a great place to invest for dividends.

Master limited partnerships, composed primarily of oil and gas companies, have posted an astounding average annual return of better than 16 percent per year over the last ten years while the market has gone nowhere. These MLP are among the best dividend paying sectors of the market. As well; integrated oil companies, energy service companies, and royalty trusts pay solid dividends.

• Food

The world's rising populations are demanding more and more food. In addition, rising living standards in emerging markets are increasing demand for a wider variety of food. As a result, the World Bank is projecting that worldwide demand for food will increase by a staggering 50 percent over the next 20 years.

Companies involved in the production of food should continue to have a strong demand in the years ahead. Major players in the engineering of superior seeds like Monsanto (NYSE: MON) as well as companies that support farming like equipment manufacturer Deere & Co. (NYSE: DE) should also perform well over time.

About the Author: Tom Hutchinson

Tom Hutchinson is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of The High Income Factor. Discover more by Clicking Here Now.

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The market behaves like a child. I remember dealing with my son as a little boy.Occasionally, I would make a deal with him ( You can stay up later tonight but you have to be in bed by 9 p.m. during the school week or You can play with your friends today but tomorrow...
Monday, 12 December 2011 01:05 PM
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