It sounds a little like an old Johnny Carson bit, but you know things are really getting slow when burger and beer sales start to disappoint. With the U.S., Europe, and Asia all trying to juice their ailing economies, it's clear that the era of slow growth is more than a passing trend, despite the fact that corporate profits continue to come in at or near record levels.
It's a predicament that investors of all sizes must contend with, and for our next installment of Investing 101, we've brought in Jerry Webman, chief economist at Oppenheimer Funds and author of the new book MoneyShift, to take a closer look at how you can prosper under these circumstances. We've compiled a list of five key things you need to remember to make money in a slow growth environment.
Know Your Needs: At one point in your life, you may have teased little old ladies who dipped their toe in the pool before taking the plunge. However, Webman says investors should do the same thing, no matter their age or the water temperature.
"Start thinking about your needs and objectives before you invest," Webman says in the attached video, adding that you need to know how much money you are able to put at risk before dipping that proverbial toe in the water.
Invest in Yourself First: "The most important asset most of us own is between our ears or at the end of our wrists," Webman says. "It's our ability to earn some money." Webman says identifying your own skills and earning capacity (or what he calls your "human capital") will not only put you in a position to invest, but it will give you skills you can use again when it's time to invest. "Apply the same criteria to yourself as you would to your investments," he says. This should allow you to begin putting money into "other people's ventures"—which he says is ''when investing really gets fun."
Accept That Things Change: There's an old adage that goes, "the only constant is that things are always changing." However, Webman says that, while that remains true, the financial crisis of 2007—2008 was a monumental shift that ''brought us into a new economic era." Not only are we in a more volatile environment with slower growth rates and global de-leveraging, but we are in a global economy where events in places like Greece cannot be ignored, as they have "implications for us as workers, citizens, and investors." At the same time, he says it is important to acknowledge that what may have worked in the past may not work again in the future; embrace "situations you can't control" rather than fighting them. Two examples cited in his book are the growing clout of emerging economies and the aging population—both of which offer great investment potential and need to be a part of your thinking.
Money Is Still Being Made: No matter how tough it gets out there, or how slow growth becomes, Webman points out that there are always "companies that can make money in a difficult environment." He goes on to say great opportunity exists by identifying the kinds of businesses that thrive when the going gets tough. "Investing is about looking for an edge," he writes, "a distinctive advantage in technology, or branding, or market access, or productivity." As much as we are consumed with the pace of our own growth, Webman says other issues, like debt levels, can play a pivotal role.
Trendy or Cool ≠ Cheap: As we discussed, there are always some businesses that are making money, and Webman says that while finding "cool companies can be a great opportunity, overpaying is always a mistake." If you've seen a lot of stories about some great business, chances are "you're probably going to be late." That said, Websman suggests buying stocks that have a reputation for quality, have the ability to charge a premium price, and are very difficult to compete with—as long as they are not overpriced.