Time to Stress Test Your Stock Portfolio


We can be thankful for one thing when it comes to the heavy volatility and selling we’ve seen in the last two weeks.

We can ‘stress test’ any stock we happen to be keeping an eye on.

I said last week that one such stock for me is a company called Phoslock Environmental Technologies [ASX:PET].

It was interesting to see it make a ‘higher bottom’ yesterday over the week before.

Check out what I mean here…

stock portfolio stress test PET shares

Source: Optuma

This suggests buying support in the stock — despite the scary headlines and all the rest of it.

I’m not saying it’s one to rush out and buy today.

But you might like to run your eye over the business case or stick it on a watchlist with a view to the long term.

That low point last week becomes a handy guide for future price action, too.

PET has had a good run this year already. But it has a big runway ahead as well. As I say, keep an eye on it.

This idea of a ‘stress test’ is not a bad one to consider for the stocks you own now, too.

How are they holding up?

Turn this volatility to your advantage

There was another stock I mentioned last week — one of my new cannabis recommendations.

Just this morning, it came out with very good news around a recent clinical trial that further validates its key product.

This is further proof that good stocks just get on with things.

The macro volatility is a distraction — or an opportunity, if you don’t own it.

The product relates to treating cancer pain. Do you really think anyone suffering at this level gives a rat’s about the US yield curve?

The demand for this treatment — unfortunately — is not going away anytime soon.

It’s early days yet.

The product is no sure thing to be a global success…nothing in the market is…but it has very good odds of becoming a profitable money spinner for the company.

And thanks to the recent selling, you can pick up the stock cheaper than you could two weeks ago — despite precisely zero changing around the opportunity.

Go here if you like the sound of turning this situation to your advantage.

I’ll add something else that’s important. All the headlines are speculating about a recession. Granted, it’s possible.

But that does mean opportunity in the stock market goes away.

You can look for sectors that benefit from uncertainty and fear — gold being a notable example this year.

You can consider buying an ETF that goes up when the market goes down.

Or you can look to acquire businesses you’d look to own over the long haul (as above).

And, of course, you can stay in cash and await developments.

If there’s nothing you like the look of today, tomorrow is a new day.

Opportunities are like planes at the airport — coming and going all the time.

It helps to keep the recent price action within the context of the entire year, too.

The ASX 200 (XJO) began the year at 5,646 points. It closed yesterday at 6,408. It’s still up 13% for the year as of now.

The surprise is how smooth the first half of 2019 was for the Aussie market relative to the last quarter of 2018.

All this is not to say I’m ignoring the global risks out there right now.

The bond market bubble will blow — but when?

I’m just not convinced the trigger for the next bear market is going to be splashed all over CNBC and The Australian Financial Review when it happens.

I do suspect it will relate to the global bond markets in some way. Central banks have inflated these beyond comprehension. There is now $US15 trillion in negative debt.

These markets are priced for low growth, low inflation and recessionary fears.

I worry what a world with so much negative-yielding debt looks like when or if inflation rears its ahead again.

It might seem remote now…but the world will shake like a tsunami going through town if all these bonds need to reprice in a big way.

But let’s stay positive. I could have said the above anytime since 2012 at least — and been wrong the whole time.

The one major kink in all the prognostications of doom is how the labour markets are travelling right now.

French unemployment just fell to a 10-year low. UK wages are growing too.

The US and Australia seem fairly solid on this front.

We’ll keep scanning the incoming data for you. But for now, I say the same thing: Hold steady.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch