Today shows the value of being diversified. You want to catch a rally, but you don't want to have too much risk on -- meaning you don't want to have only stocks that go up when the economy is strong; you also want companies that have good dividends and companies that do well in a slowdown.
Why do you want all three? Pretty simple: On down days you lose less money, and on up day you do just fine. In a market with a bias to the downside, you have to be worried about both.
So, consider a portfolio that owns a good pastiche of all of them, one that has Procter & Gamble (PG) and Johnson & Johnson (JNJ) on the soft side, Eaton (ETN) and DuPont (DD) on the cyclical side and AT&T (T) and Kinder Morgan Energy Partners (KMP) on the utility side.
Last week you would have been crushed by Eaton and DuPont but eventually they got to or near 4% yield, and the cushion of these accidental high yielders broke the fall. That's why you need yield and cyclicality, not just one of those.
Procter and J&J? Johnson & Johnson got downgraded last week by a major brokerage house. It didn't even get grazed. It holds up terrifically. Procter also got downgraded -- not once but twice -- and it held its own. P&G is a best-of-breed company that has underperformed, meaning it hasn't been doing as well as its peers. Sure enough the Financial Times announces this morning that there could be a big restricting coming that will boost returns.
Of course you could have gone with the monster winner of General Mills (GIS), which I like so much and which has good yield support. Or you could take advantage of Carl Icahn's exit and buy Clorox (CLX) with an almost 4% yield knowing that dividend's going up. That's terrific.
The utilities? With the Dow down 6%, these didn't even go down. You could do with it master limited partnerships, and you know I like Kinder Morgan -- it just held in perfectly. Same with Verizon (VZ). Those who want a little more risk can go for an Enterprise Product Partners (EPD) or Boardwalk Pipeline (BWP) or a Windstream (WIN).
Now, why not all yield? Because you will not be able to keep up with the averages on up day. You will fall behind. Why not all cyclicals? Because there are far fewer up days than down these days, and when we have down days they are just brutal -- so brutal it is difficult to stay in the game.
Diversification. Yield. Best of breed. The touchstones that allow you to handle even this, the most difficult of markets since the rout of 2008-2009.