Photo Credit: Kelly Sikkema
Note: This is a free sample of my premium post “Recession Investing” series. Subscribe below to receive premium off-grid income access. I give a deeper dive into what’s going on in the global macro, monetary policy, and geopolitical world. PLUS I add in some investing tips to navigate your money through it all.
Let’s get started!
As we all know the standard asset type that is easily accessible to most people in developed countries is the stock market.
This asset avenue has helped millions of people build wealth over time for generations. Stocks are a very key part of any wealth portfolio for various reasons.
Despite our current economic standing, you must seize on investment opportunities in order to reach your wealth-building goals.
Having the right stock investing plan to navigate any storm is vital to your financial well-being.
Without further delay, let’s begin this recession investing series…
Here’s what I’m thinking…
We are in a generational period of short-term recessions. This trend began in March of 2020 and it happened again in Q2 2022 with the full blast coming in 2023.
I believe in 2024 the real estate market will be in full-blown crash mode. During this time period stocks will descend lower as they did during The Great Recession of 07-08.
At a certain point during recessions, the fed will begin quantitative easing or printing money to provide liquidity in the global financial market.
Note: QE and QT or signals for buy and sell.
Once the fed restarts QE, stocks will begin another ascension to higher highs and the chances of making money in the stock market will increase. During this economic expansion period, I am contemplating constructing an aggressive stock allocation portfolio and holding it for at least 3-7 years.
I aim to hold my positions until we hit the next market peak. The peak is the highest point of the economy when everything is up. During a peak, stocks will continue to go up but at a slower rate.
At the midpoint(the period between the peak and trough) I will get ready to unwind(or start to slowly sell out of my positions) and cash out.
Once the Fed begins to tighten(QT) the party will be temporarily over. This is my sell signal. After I take profits I will transition those profits into other asset types(private wealth opportunities).
Note: The stock market is a good way to get quick cash (not overnight) to put into more longer-term asset types. Private wealth assets provide more longer-term value than stocks.
Let’s get into how I will construct this new portfolio.
My Portfolio Breakdown
For my aggressive stock portfolio, I will do a mix of more equities(income and growth stocks) than bonds while staying conservative in my retirement accounts.
My portfolio mix will consist of:
25% Large Cap stocks
20% Mid Cap
20% micro cap
15% International stock exposure
15% Emerging Market
5% Bonds
In a normal world (which we are no longer in) this type of stock allocation is for investors who:
are focused on above-average portfolio appreciation over time
expect high returns in the standard long-term time horizon
can be without this portion of capital for 15 years or more
On average after 7 years this type of portfolio can lose money because of:
market fatigue and you sell early
stocks losing steam as the market boom starts to moderate.
NOTE: being highly concentrated in equities is a bit risky. But without risk can you truly understand a reward?
The Experiment
Say your starting balance is about $30,000, with normal market conditions, under this plan you could cash out at around, $450,000 in 30 years.
BUT like we said above, the long term will more than likely mean cashing out in a shorter time frame. My goal is not the traditional long haul.
With the above example, your goal would be to make an additional $50,000 from your starting balance. After you reach your goal you will take those profits and invest those gains into fixed private equity & angel investing funds while keeping the starting balance in the stock market.
Why am I taking this approach?
I believe going forward our markets will operate differently. I believe that the “long term” will shrink in regards to the standard investing time horizon. The new standard will go from 20-30 years to a 7-15 year holding period(on average less than 10 years).
Constructing this type of portfolio is my way of testing out my investment thesis.
About that Investment Thesis…
I have to be brutally honest, the vast majority of investors don’t know how to properly invest. The US and most countries do a poor job of educating citizens about money. this miseducation translates into massive losses during economic downturns.
With this lack of knowledge, we usually enter into the money game and lose most of it.
As a retail investor, your typical investing mindset is based off of FOMO. You hear about a hot stock that is going up and you want to join in on the fun.
Basically, you are trying to buy $1 for $3 and hope it goes higher. This strategy is what I call uninformed momentum investing(UMI). Momentum is a strategy for frequent and career equity traders, not investors.
I get it, we like when things are moving and widely discussed. But as a seasoned investor, you have to mature and develop a level of patience, so you can benefit on the upside by buying when assets are undervalued and discounted.
Note: At the bottom of the market, stocks are undervalued and ripe for creating value for your portfolio over a period of time.
My investment thesis or how I see the world unfolding, through the Off-Grid Investor lens (macroeconomics, geopolitics, monetary policy), is we are in a new world reordering.
As society resets( shifts from one dominant country’s rule) and ushers in a collective of superpowers we must strike when we see opportunity and ride trends(aggressive public asset mixture) until it’s time to shift(take profits and reallocate to private markets). This is not an era of being a creature of too many habits.
Second, I am laser-focused on the buy and sell signal of QE for buying, and QT for selling equities.
When central banks stimulate an economy the easiest accessible assets (stocks) can create quicker value. Their actions push consumers to spend and signal to businesses to reinvest in the economy.
With that being said, I am looking for the type of industry that affects the most people, and that is energy.
For Example…
In regards to a large cap stock (stocks with a market capitalization of over $10 billion), EPD looks interesting to me.
Enterprise Products Partners LP (ticker EPD) is a midstream master limited partnership(MLP) that:
processes natural gas
transports natural gas liquids
transports crude oil
manufactures refined products
provides petrochemicals
EPD primarily operates in the Lower 48 states. Enterprise is a dominant force in the NGL market and is a leader in the hydrocarbon value chain.
Note: Oil will be used forever.
I have learned there are 3 things in every product ever made:
oil
water
oxygen
Energy is the most polarized use for oil and it’s how we power everything. In a very expansive investing space I like to focus on energy transportation and EPD fits that bill.
A tidbit on oil stocks…
The developed mindset about energy investing is, to buy cheap and sell expensive.
Wall Street investors’ buy/sell oil stock strategy is to buy oil stocks(and bonds) in large amounts when the price falls around $30 per barrel which gives them a true bargain. And they usually begin selling when the price goes above $80 per barrel.
According to the standards of the street, oil getting to an ideal price level to buy can take a long time during a crisis. This is why I focus on who is transporting the energy.
EPD is known for having resilient cash flows during energy pricing fluctuations. Their dividend yield is around 7% which the company grows slowly to provide the most value to shareholders.
Being one of the best ran energy pipeline companies, EPD has 25 years of consecutive increases in dividend payouts.
It’s all about the MOAT
EPD has a great competitive advantage or wide moat as they say. This consist of:
midstream asset quality
operations location
solid customer contracts
This company is well positioned to stay afloat during an economic reset. There are more frequent opportunities to gain value in up-and-down markets.
Financial analysts think EPD’s ROI (returns on investment) capital to go no higher than 9%-10% over the next five years. This estimate is well above their cost of capital of around 7%. Basically, EPD profit spread is well balanced, or they will profit more than it cost them to gain that profit.
Overall, I think EPD should be on your radar. Check it out and see if it fits within your investment thesis.
Let me know what you come up with!
NOTE: Always keep in mind, that this is in no way investment advice, I am simply sharing thoughts about what I’m thinking about doing with a portion of my wealth portfolio, in regards to the stock market. Please do further research and consult with a licensed professional before acquiring or selling any assets.
Part 2 of the Recession Investing series will do a deeper dive into the various parts of this aggressive stock portfolio mix. Going forward, this series will be behind a paywall. Subscribe below so you won’t miss out!
In the next free newsletter, we will begin talking about Geopolitics.
Until Next time,
Off-Grid Investor