The first thing that comes to mind is to be liquid to avoid losses that have to do with large corrections. But, for example, being liquid in dollars, the investor loses 8.5% in a year (inflation corrodes purchasing power).
Now we could invest in Treasuries at 4.3% per year. In theory, US Treasury bonds are taken as risk-free assets since the US central bank never defaulted. But this return falls short since expected inflation is higher, so another option to be crazy with low risk is the famous TIPS (Treasury Inflation-Protected Securities), Treasury bills that adjust capital by CPI. Yield between 0.5 and 2% above inflation depending on maturity.
Following in fixed income instruments, there are corporate bonds that pay good annual interest. For example, a bonus Ford Motor Company that pays an annual coupon of 4.35% maturing in August 2026 yields 6%. JP Morgan Chase offers a bond to January 2026 with a 3.3% annual coupon that yields 5.2%. There are many options and for each risk profile.
What to evaluate when investing?
Whoever wants to incorporate actions must consider several points.
First you should think about your objective and your investment horizon and choose value companies (rather than growth). The main thing is that the investor chooses companies in which he would like to be a shareholder.
Value stocks tend to be from established companies, with a history in their sector and high barriers to entry. Their operating cash flow is stable over time and they usually pay dividends (for example, Coca Cola has been paying dividends since 1963). On the stock market, shares are usually less volatile. In this category we find companies in the electricity sector or dedicated to non-cyclical consumption (food, hygiene products, medicines).
Warren Buffett’s Strategy
The strategy value investing It is characterized by investing in companies that have a valuation lower than their intrinsic (real) value and that therefore have an upside potential that the investor can take advantage of by investing with a long-term time horizon, hoping that the price is close to the value. actual action. It is the strategy that follows Warren Buffet.
On the other hand, the growth shares They are young, growing, who tend to operate in changing markets with a lot of competition, such as the technology sector. They are more volatile. A typical example is Tesla.
defensive investments
Another way to build a defensive portfolio is to look at low beta stocks. The beta measures how the share price changes when the market in which it operates rises or falls by one unit. For example, Coke It has a beta of 0.58, which means that when the market goes up 1 point, the stock goes up 0.58.
The same when it goes down, if the market falls by 1%, Coca Cola falls less, 0.58%. So moving less than the market is considered to be defensive and useful for correcting markets (as long as the investor wants to be in stocks). In contrast, Tesla has a high beta of 2, meaning that when the market falls one point, Tesla goes back 2 points.
The fundamental principle of risk management establishes that every portfolio must be diversified, that is, assets must be chosen that are not correlated with each other, or that their correlation is low. The investor can put together a diversified portfolio for his account or can invest in ETFs or funds, which are managed by professionals.
Also with the use of derivatives we can mitigate or reduce the risk. For example, we may hedge our portfolio consisting of Manzana, by purchasing a put at a certain date, paying a premium.
The put plays like a downside insurance, if Apple goes down, the put pays me this difference. For example, we have bought Apple shares at $138.75 and at the same time we bought a put with strike 138 to December paying $3.4. We are buying the right to sell Apple at 138.
So, if Apple is trading below 138 in December, for example, 125 (which represents a fall of 11%), we sell Apple at 138. With this we limit the losses to USD 4.15 (+138 – 138.75 – 3.4) . It’s the same as saying that Apple’s sales floor will be $134.6. Of course, we can buy puts with higher strikes, they will be more expensive.
Although we have focused the analysis on foreign instruments, many of these are available in the local market.
Source: Ambito
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