How to Survive the Next Market Crash: Johnson & Johnson (JNJ), 3M Co (MMM)

Page 1 of 2

Johnson & Johnson (NYSE:JNJ)Recently there have been a wide variety of reports and opinions regarding where the stock market is heading next. Some analysts have predicted a severe market crash worse than the one that occurred during the Great Recession and others have predicted a completely opposite scenario resulting in a continued bull market that will take the Dow Jones Industrial Average (Dow) to over 20,000. I typically ignore these market predictions, because, while the market is nearly impossible to predict over the short term, over the long term, it always goes up.

Historically, there have been countless recessions and market crashes in the U.S. A prime example is the market crash during the recent Great Recession which resulted in the Dow dropping from its all time high of over 14,000 to below 6,500. I held on to all of my stocks during this crash. Why didn’t I just sell everything at 14,000 and get back into the market at 6,500? Believe me, this is easier said than done! By the time that I realized that a market crash may be occuring, the Dow had already dropped quickly to below 12,000 and it was difficult to know for sure if this was a typical market correction or a major crash. In addition, it was difficult to know when the market would bottom. At the Dow 6,500 level, some analysts predicted that it would keep declining well below 5,000. The bottom line is that timing the market is extremely difficult and most investing professionals discourage it.

Positioning your portfolio for the next market crash

It has been four years since the Dow bottomed at 6500 and it recently broke through its all-time highs, closing at over 14,400 today. This is a reminder that the U.S. stock market has always recovered after a market crash. The recent recovery has been truly remarkable! However, I have been through two significant market crashes since I began investing in 2002 and I am positive that there will be many more. When will the next market crash happen? The truth is nobody knows. There could one next week or it could be many years or over a decade before the next one occurs. I have learned to manage my portfolio appropriately in anticipation of future market crashes and am providing the following suggestions:

1.) Allocate a portion of your portfolio to companies that provide products and/or services that consumers will need regardless of the state of the economy. Make sure that a majority of these companies pay a consistent, growing dividend. If a company has increased its dividend each year for decades even through tough times such as the Great Recession, it is worthy of consideration for your portfolio. Also, well-known, dividend paying companies typically hold up better than non-dividend paying growth companies during tough times.

2.) Invest in these companies regularly over time (such as monthly) regardless of whether the market is up or down. This will help you to keep from trying to time the market and will also ensure that you take advantage of periods when the market is down. For example, during the great recession there was a 9 month time period when the Dow traded between 6,500 and 9,000. If you were fully invested before this period without any available funds, you would have missed out on this opportunity.

3.) Reinvest the dividends. By reinvesting your dividends, you will automatically be purchasing shares at rock-bottom prices during market crashes. This strategy will allow your investments to compound significantly over time. After 11 years of investing, I am experiencing the benefits of dividend reinvestment first hand and highly recommend it, especially if you have a long period of time before the money will be needed.

Two stocks to own regardless of the state of the economy

The following two companies are among my favorite long term investment opportunities and will help you to position your portfolio for good times as well as the next market crash:

ohnson & Johnson (NYSE:JNJ) is the most diverse healthcare company in the world with 2011 sales of $65 billion. Net earnings grew impressively from 2003 to 2010, increasing from $6.3 billion to $13.3 billion. Net earnings in 2011 were adversely affected by acquisitions and litigation costs due to product recalls. I believe that Johnson & Johnson has taken the appropriate actions to minimize product recalls in the future.

Johnson & Johnson’s business segments include pharmaceuticals, medical devices and consumer products. The following is a breakdown of each individual business segment:

Johnson & Johnson (NYSE:JNJ)’s pharmaceutical segment had sales of $24.4 billion in 2011, an 8.8% increase over 2010. The company’s most successful pharmaceutical product is Remicade, which treats inflamatory diseases. Remicade’s 2011 sales of $5.5 billion were 19% higher than those of the previous year. Additional products that experienced impressive growth recently include Velcade (multiple myeloma) and Prezista (HIV). A large number of recent approvals and an impressive pipeline will help this business segment perform well in upcoming years.

The medical device and diagnostics segment also performed well in 2011 with sales of $25.8 billion and a sales growth of 4.8%. JNJ’s medical device business is the largest in the world and consists of orthopaedics, diabetes care, surgical products, vision care, and cardiovascular care products. JNJ’s 2011 acquisition of Synthes created the largest and most comprehensive orthopaedics business in the world. Synthes is the largest acquisition in JNJ’s history.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!