ON August 21, 2013, the subject of 'Surviving the Times' penned by yours truly spoke to strategies for investors to consider regarding the 'times' they currently face. These in short are best described as treacherous but again, fraught with opportunity. While the theme is well known and repeated -- to the point of ad nauseum, one could say -- consistently, it is illustrated appropriately through the imagery of a grocery basket.
In 'Understanding the Consumer Price Index' published by the Statistical Institute of Jamaica (Statin), the Consumer Price Index (CPI) "measures changes in the general level of prices of consumer goods and services purchased by private households. It is the best economic instrument to use when determining the effect of changes in retail prices on household budgets and expenditure. Additionally, the CPI is the single most widely used current measure of inflation in Jamaica." It goes further to state that "the Consumer Price Index measures price movements of a given quantity of consumer goods and services. The goods and services included within the scope of the index can be figuratively thought of as a "basket".
In following-up from 'Surviving the Times', the cumulative price of the basket of goods has increased, and will continue to do so as our beloved Jamaican dollar (JMD) loses value relative to the United States Dollar (USD) and our nation's balance of payments continues to be unbalanced towards imports expenditure relative to earnings from exports. This is therefore sufficient grounds to conclude that if an investor's 'basket' was comprised of JMD fixed income instruments only, said 'basket' would be shrinking daily, or filled with holes. You be the judge.
The question of the steps one should take to protect the size of this 'basket', and indeed grow it, is answered via placing in it goods that will increase over time. If in 2010, one placed in their basket, some milk products (Lasco Manufacturing - LASM), beer (for those who are so inclined; Desnoes & Geddes -- DG), soap (Blue Power -- BPOW), tea (Jamaican Teas -- JAMT), and chicken (Jamaica Broilers Group -- JBG) this basket of goods would have retained and even increased in value relative to inflation and JMD devaluation. This also reflects the benefits of holding diverse goods in a basket, for while LASM and BPOW have provided aggressive capital appreciation, DG (and JBG, to a lesser extent) has paid dividends and supplemented the basket holder's cash flow. Further, up until recently, dividends declared by publicly traded companies were not subject to taxes for local shareholders and as such, this trumped the rate of return of fixed income.
It is also worth noting that most of the companies listed above earn revenue outside of Jamaica, and as such are adequately diversified to survive even the toughest of times. Note that JAMT, whose corporate bond recently opened, earned 52 per cent of its manufacturing revenues outside of Jamaica in their results for the third quarter ended June 30, 2013. The inner lesson is that even in an economy which may be having difficulties, the 'shopper' seeking value will be able to assess and determine consistent performers with the means to withstand the 'times'.
In addition, the 'times' will be survived by the proactive basket holder who is prepared to place his goods in a few baskets and watch them carefully. SSL's equity picks listed on the New York Stock Exchange (NYSE) and the NASDAQ have outperformed many metrics in the past 12 months, and the investor who placed Nike (NKE) in their basket subsequent to the 'Surviving the Times' submission of August 21, 2013, would be up 18.4 per cent as it has appreciated from US$64.18 to US$75.93 as at October 22, 2013. The assumption that humans will continue to wear shoes and exercise apparel for the foreseeable future is sound, and again, justifies NKE's place in any investor's basket, or shopping cart, if you will.
Interesting anecdotes for basket holders is that just as one wouldn't go to the supermarket and buy solely cosmetic products since one can't reasonably or healthily consume same, it figures that balance for the investor is also critical as while the temptation to buy foreign-exchange denominated securities looms large in light of Jamaica's challenges at this time, being overweight in USD could have adverse effects. This point
is supported by the
recent challenges stateside concerning the Government shutdown and whether or not the debt ceiling will be raised. It appears clear that issues of governance are not limited to the Caribbean or Developing Markets.
Speaking of which, Emerging Markets also deserve a closer look. Of the BRIC (Brazil, Russia, India, China), Brazil has had to contend with devaluation of their REAL (re-al) currency, India has infrastructural challenges and China's Gross Domestic Product (GDP) was reported to have grown for the first time in three quarters. The moral of the story is that just as we will purchase goods and commodities for the duration of our lives as earthlings, investors will continue to place funds with an eye to capital gain. With this established, the necessary care and due diligence must be taken to ensure that balance is achieved in every selection. There remain gains to be had, but kindly give a discerning eye to the nutritional facts to manage the calorie count accordingly to ensure it is healthy weight gain.
Ryan Strachan is the Manager, Corporate Solutions & Wealth Management at Stocks & Securities Limited and may be contacted via email@example.com