As an investor with a top-down macro approach, I find stock picking easier when there’s directional clarity in the broader markets than when they are moving sideways. To build from ace investor Warren Buffett’s thoughts, sideways movements don’t lend themselves to either “selling greed” or “buying fear” because there’s a bit of both going on. Like right now. The FTSE 100 index has hovered around the 7,300 mark for the past two weeks.
This makes it an opportune time for me to draw inspiration from the Oracle of Omaha’s other pieces of advice. Two of them strike me as particularly apt these days.
One, “The best thing that happens to us is when a great company gets into temporary trouble…” and two, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” It so happens that each of these applies perfectly to at least one FTSE 100 company at present.
Temporary trouble, lasting gains
FTSE 100 share Smith & Nephew (LSE: SN) is an example of a great company in temporary trouble. I last wrote about it a few weeks ago, when CEO Namal Nawana resigned unexpectedly. Despite his having been replaced, the share price continues to slide. It’s now down by over 9.5% from the time the news first broke.
I want to highlight SN again because of its sheer worthiness. It’s a fundamentally sound company in the defensive healthcare sector, which is compelling given the rising probability of economic recession, and it has given great capital gains overtime.
By the way, for just the last reason, it also ticks the Warren Buffett box of a share that can be owned for ten years (or longer). I reckon it will bounce back fast enough, leaving investors feeling “smarter, happier, and richer” for having made the investment, the exact outcome we like at the Motley Fool.
Slow and steady
The Anglo-Dutch consumer goods’ giant Unilever (LSE: ULVR) is another example of a FTSE 100 share that can be held safely for long periods of time. I first wrote about it a little over a year ago, since which time the share price has risen by 16.5%.
And that’s not even the best possible outcome from investing in the share in the past year. ULVR share price touched an all-time high in September as a dependable defensive share, while the FTSE 100 remained uncertain on the unpredictability of broader macros. Selling at these levels would have yielded 34% gains. And this is just in the last one year. Investing in the share at the average price 10 years ago, would have given me over 300% returns today.
If I had to make a choice between SN and ULVR, though, I’d go for the former only because of its price drop. ULVR is a great share to buy too, but on the next dip.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019