The Prudent Investor

Defending Against Volitility – Part 1
March 29, 2007, 7:15 am
Filed under: Consumer Goods

The Prudent Investor portfolio is designed to be safe, that is, safe relative to a more aggressive portfolio. The idea is not to find quick growing companies and capitalize on short term gains, but one where established companies will provide better than average returns over the long haul.

The current downturn in the Market has reinforced the importance of this type of portfolio, and it is in this context that I will look at the performance of each company still in the running in relation to the overall Market.

There have been two days where the DOW has dropped substantially over the past month, 27 February and 13 March. On these dates the S&P 500 dropped a total of 5.5% and the DOW dropped a total of 5.1%. Many things happen during days of large declines, two are notable in this current discussion.

The first is that speculative companies oftentimes take the hardest hit. As volitility is their nature, it makes sense that while the investor gains nicely on the up side, they also lose big on the down side.

The second is that quality companies go on sale and investors move towards the tried and true in an attempt to pick up bargains. As I am seeking to establish a conservative portfolio, I want to remove any companies that have greater losses than the Market on days when things turn sour. Let’s look at the comparisons.

  13-Mar-07   27-Feb-07   Combined
  Open Close Loss Open Close Loss
S&P $1,406.23 $1,377.95 -2.0% $1,449.25 $1,399.04 -3.5% -5.5%
DJI $12,307.49 $12,075.96 -1.9% $12,628.90 $12,216.24 -3.3% -5.1%
McCormick & Co. Inc. (MKC) $38.01 $37.54 -1.2% $39.52 $38.11 -3.6% -4.8%
Pepsico, Inc. (PEP) $63.49 $62.16 -2.1% $64.39 $62.76 -2.5% -4.6%
ConAgra Foods Inc. (CAG) $24.91 $24.33 2.3% $25.26 $24.99 -1.1% -3.4%
Corn Products International Inc. (CPO) $32.34 $32.35 0.0% $32.35 $31.42 -2.9% -2.8%
Unilever NV (UN) $26.31 $26.10 -0.8% $26.55 $26.04 -1.9% -2.7%
Flowers Foods Inc. (FLO) $29.15 $28.46 -2.4% $29.44 $29.35 -0.3% -2.7%
The J. M. Smucker Company (SJM) $50.02 $49.60 -0.8% $50.10 $49.71 -0.8% -1.6%

As can be seen, none of the companies lost more on the combination of the two days than the Market as a whole. I do note that on 27 February McCormick did gain this honor, and more recently on 13 March this was the case for Pepsico, ConAgra, and Flowers.

A single day should not make for a decision, as it is certainly possible that other factors were involved, and I have yet to seriously begin examination of the companies. So this begs the question, “How about any other down days – how did these companies fare?”

In my next post I will look at other down days over the past five quarters to see how each company has done.


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