Investing is hard. We need to find stocks at a relatively low price that are poised to grow over time – and in many cases - pay us a dividend while we wait. The lower the price you pay for a stock the better the long-term results.

 

The conundrum is that when a stock is cheap there’s usually a reason. If all the news looked great for a company, why would the stock price go down in the first place? Investors need to find some rules to look past the current headlines to see whether they feel there is a path to a brighter future.

 

My approach is to ask the question – is this company a “survivor”? Is it a company that I believe has a strong likelihood of making it through the tough times and coming out the other side stronger than ever? This doesn’t guarantee results, but it provides a framework for deciding which stocks are worth the risk.

 

Another rule I use when deciding whether a company is a “survivor” is to look to the RBC Dominion Securities Portfolio Advisory Group (PAG). The PAG Team has several “best ideas” lists, and I consider any company on one of these lists to be a high-quality stock. Once again, there are no guarantees, however I view the companies that make these lists to be the “cream that has risen to the top”.

 

Lastly, to reduce risk we diversify. We can’t be sure which – if any – stocks that are down are going to rebound. The best approach is to buy a handful of these stocks to spread the risk. There may be several stocks that are down at the same time, or there may only be one. By setting an amount per stock that allows for you to build a solid portfolio over time, you will be able to take a calculated risk and buy a stock when it’s down.

 

If you’re interested in a second opinion about your current investments or what stocks I feel are survivors, please feel free to reach out to me directly at 416.231.6528 or by e-mail at jeff.ker@rbc.com .