2023 Plan and Outlook

 2023: The Year of The Unknown

   Happy New Year Stock Talkers!

         2023 is going to be a year of the unknown. As investors, we all want to know what is going to happen in the future. Analysts spend their lifetimes and careers trying to predict the market, and not a single one has a 100% accuracy rate in doing so. The overall theme of the beginning part of this year, is that a recession is on the verge. I can in fact see this falling into the place, given the current state of the interest rates and the housing market. Consumers discretionary income is going to be falling, with the rise in prices of a lot of necessities. This is going to cause the companies earnings to slow down, which could be a misleading factor to some of the companies. The recession makes the average investor fearful, but I have a different perspective on this whole ordeal. 

        I want to give a quick heads up, I have a long-term mindset. Most of this article pertains to an individual with a long-term mindset in the stock market. This is the year for long-term investors. The recessions in the past have proved to be wealth generators for long-term investors. I am going to lay out some of the rules that I am following for my investments this year. I look to diversify my portfolio a little bit, because as of right now, I am a little bit to tech heavy. I love some of these valuations of these companies, so I am going to take advantage of the low valuations throughout 2023. I would hold off some of the newer and growth stocks in the first quarter or two of 2023. I can see some lower downfall with most of the growth stocks, and even the valuations are cheap, they can go even lower. 

Here are the 3 things I'm looking for in companies in 2023:

1. Competitive Advantage (Wide Moat)

2. Solid Business Models

3. Low Debt (High Cash Flow)

        I am going to dive deep into many of these categories and lay them out more in detail. Long-term investors pray for times like these to build some generational wealth, so it is important to nail down the coffin and find some absolute gems of stocks. I do some thorough research to find these 3 main components of investing for 2023. I am following the likes of some top investors and am resorting to their styles of investing. This should help me personally in my diversification of my stock portfolio.

        Our first component is a companies competitive advantage. Having a competitive advantage is huge for companies to outperform their peers and gain share in the market. A competitive advantage is where a company can produce better or cheaper than the competitors. Another term that is used with competitive advantage is moat. Every company wants to have a wide moat, in which they are able to keep their competitive advantage for a long period of time. A prime example would be the companies on the top of the industries. We look at Coca-Cola, Altria, Amazon, Google. A lot of the companies that have a competitive advantage are established a wide moat already. 

        Our second component is looking for companies with solid business models. A solid business model has proven to be a sign of growth for many companies like Amazon and Google. They have invested their way into so many different markets, that they have diversified their businesses to cover many of the different sectors. We can also see solid business models like Coca-Cola, they have been able to effectively raise the prices of their products without affecting the sales. Companies that have inelastic products can be seen as having a solid business model, as well as a competitive advantage. I would throw oil companies into this, but their product is regulated heavily by the government and the price can be dictated. Therefore, they can't charge unreasonable amounts to grow the companies. However, keep an eye on those diversified businesses and the companies with inelastic products and exceptional production. 

        The last component we are looking at is companies with low debt ratios. Debt is not always a bad thing for companies, as most profitable companies use it to gain assets and grow revenues. However, now is not a wonderful time to take out debt. The interest rates are really high and it can be costly for a company to borrow money. This is why I think companies who are in the early stages of its life cycle will struggle this year. In reverse, companies with high cash reserves and high cash flows will be able to thrive and use this to continue to grow their companies without diving into expensive debt. When researching companies, it is important to find cash flow kings, but make sure they are allocating their cash effectively. Some companies have a really high cash flow, but that cash goes to questionable areas, where it could be going to other components of the business and help drive growth higher. 

        Investing is a hard thing to do. However, it can be made a lot easier with index funds. I am a heavy investor in $VOO, which covers the whole stock market. This is a good place to base your retirement on. Instead of going into a frenzy on which stocks to pick, you can simply put money into a certain index fund to diversify your investment. Although the returns are limited in certain instances, it is a lot safer investment than putting it all into one stock and relying on that. I also would look at dividend stocks, as most of these companies are established and return some capital to shareholders. Keep an eye out for payout ratios and dividend yields to find optimal investments when looking at dividend stocks.

        I am dedicated to continuing this blog, however I will be working full time and attending school. I plan to try and get out weekly articles to cap off earnings reports and news that happened in the past week. Happy 2023, and cheers to another year of investing. Best of luck to all my readers!