DOLLARS & SENSE

Investments in 2009: Back to Basics
By Francisco Suárez, Head of Equity Research at Actinver • Photos by Jesús de Avila
• February 2009

The month started off with hopes for change and a brighter future. Humans have a tendency to disregard the bad and go on with their lives. But instead of just ‘going on with our lives’ we should actually target a greater challenge: taking this opportunity to double-check our portfolios. Well-planned actions taken today will pay off tomorrow. Hope helps us to survive bad times and drives us to pursue our dreams. That is how our ancestors survived; it certainly helped anyone who ever left his country in search of a fresh start and, in turn, contributed to the creation of stronger societies. Hope motivates us to act, but when investing it is crucial to maintain a disciplined application of basic principles to generate and protect wealth. The recession has arrived, but this is precisely the moment to take positive action on our investments. My advice in these difficult times is to get back to financial planning basics, beginning with maintaining strong communication with your financial advisor. Ask him to explain the bigger picture and what types of investment are best suited to your needs - and your ability to sleep at night.

You should embrace some basic investing principles, and in case you have forgotten I will list a few that you should review with your financial advisor.

The first is making sure that you are properly insured, with car, life and, of course, health care insurance. When investing in stocks, look for companies with sound balance sheets that have attractive dividend yields. If these companies are part of industries that are resilient in recessionary scenarios, even better. Don’t forget to look for franchise value, a proven management track record, and of course, market share and the likelihood of keeping it. Looking for bonds? Investors can bet on longer duration issues now that interest rates are going south. But perhaps an investor will be better off by investing in high-quality issuers paying hefty spreads, before seeking the attractive but riskier returns of doubtful, long-term issuers. Excessively oversold assets exist amongst stocks and bonds, and you can allot a small proportion of your portfolio to such assets, but only as long as they fit your risk profile and return needs. Geographic and currency diversification are crucial, but do not ignore secular trends. Once fear scales back, the US Dollar may weaken, and the Canadian Dollar and the Mexican Peso are likely to benefit. The good news is that if you are a disciplined investor with a fixed amount of US Dollars to invest, you can now buy more Pesos with that same amount; Pesos that will yield higher returns. If you believe that Mexican residential real estate prices may fall, don’t forget that the Peso’s recent devaluation means that they already have. Projects in certain regions may be more prone to falling prices, particularly since credit remains scarce, but peso-denominated assets may not be as universally affected as has occurred in the US real estate market, since Mexico did not experience a major housing bubble.

To a greater or lesser degree, the government stimulus packages of the US, Europe, Asia and the rest of the Americas are expected to push us away from recession. But investors should also consider the possibility that the recovery could take longer than expected. These basic principles can guide you to ride things out, even if times get more difficult.

Another principle: time, not timing, makes the difference in investing. It is precisely in these times when opportunities must be seized. Remember that deviation from sound basic principles and reliance solely on hope was the formula that produced the current economic difficulties.

Francisco Suárez Savin
E-mail: fsuarez@actinver.com.mx

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• Francisco Suarez is the Head of Equity Research at Actinver. Before joining Actinver in September 2008, he rated financial institutions at Standard & Poor’s for four years and prior to that was an equity analyst at Banorte for eight years.

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