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DataDrivenInvestor
Oct 21
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Take a look at the luxury sector
you want to buy assets when few people want them; that is the secret of my success in both the stock and property markets. I don’t follow the crowd, I go the other way …
I’ve been in the markets since I was a kid, worked professionally at several Investment Banks, and have participated in many economic cycles, including a few full on market crashes. Presently we’re seeing significant market volatility, driven by high inflation and what we call “mean reversion” of interest rates, or a return to a long term average. With the
central banks globally pushed interest rates down to record lows. Unfortunately, both the markets and consumers got used to ultra low interest rates. The price of assets such as property, as well as stock markets soared, as did both consumer and government debt. But as Central Banks began increasing interest rates we’re seeing corrections in share prices; a painful, but oh so necessary process. The chart below shows the year to date, 2022 performance of three series
The Consumer Staples Select Fund (XLP), the S&P 500 (SPX) and the S&P 500 Textiles, Apparel and Luxury Goods Index (GSPTAL.G). As
Consumer Staples Select is outperforming both the market as well as luxury goods. This fund holds stocks of items people need for their daily lives. On the other side, The Luxury Goods Index is under performing both the market as a whole, as well as the Consumer Staples Segment. And
because where there is an economic recovery, we tend to see Luxury Goods not only bouncing back first, but also outperforming. There is a very good reason for this: it is well documented the mood of
according to people’s feelings about their economic future. Once people start to feel good again, they will migrate to luxury goods. And likely overbuy, simply because your average American consumer is a very, very poor financial planner. After leaving Investment Banking I started teaching Finance and Fintech in London, and often tell students it’s easy to understand the American consumer
and when times are good they over borrow and overspend. It’s really that simple. So if you’re a long term investor, now is the time to pick up luxury goods companies, cheaply. Oh and me you ask? Well, I tend to hold only stocks that pay dividends.
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and preferably monthly payers, because I like getting paid every month.
Regular cash flow; now that’s a luxury.
I hope you enjoyed this article. If you are interested in Financial Independence, Finance, cryptocurrencies and the markets, please considering sponsoring me, at no cost to you, here
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Retired Investment Banker, Deutsche Bank, ABN AMRO, Moodys, now University Lecturer in London. Financially independent student of markets. American / British.
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