No. We are not talking about your ability to suffer. We are talking about your portfolio’s ability. But how can we use the word ‘suffer’ for investments? Are these alive?
How is your portfolio’s ability to suffer and survive?
Just assume that you had to hire some bodyguards for your security. Whom would you hire? Someone who is flashy and reckless and volatile? Or someone who is stable, secure, solid and can suffer for you during hard times? You would definitely go for the latter. After all, it’s your life that is at stake. Isn’t it?
Now consider your investments. Every now and then, markets would crash and economy would take a dive. So during such tough times, where would you park your money? As far as we are concerned, we would choose instruments / stocks which are like the second type of bodyguards discussed above. Now if we want to invest in shares, we would choose companies which have the ability to suffer and survive the downturns. These companies would not become financial dinosaurs (extinct) during tough times. These would lay low and wait for the storm to pass. These would not try to do anything heroic and would focus more on survival during such times. And as soon as the bad times start to recede, these companies would spread their wings and come out leaner and stronger.
So when economy is slowing down and markets have not done anything for last 5+ years, wouldn’t it make sense to put your money in companies which can survive the downturn? Companies which have seen such downturns in the past and have come out stronger?
Companies like GE, Exxon Mobil (in American markets) have survived depressions, recessions and downturns for a reason. And the reason is their ability to suffer (& survive). Even in India, there are companies which have proved their mettle every now and then. But even then, we look for potential multibaggers; which 49 times out of 50, would not survive the next big crash.
Always remember, more wealth has been created in markets because of ‘Compounding’ and not because of ‘Multibaggers.’
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