Independent financial adviser Mick Heyman has seen a lot of ups and downs in financial markets during his 40-plus years in the investment business.
But his style hasn’t changed much from a conservative, long-term, diversification focus. Looking at investments now, he sees several bargains in the stock market following its decline this year. That includes Starbucks (SBUX) .
Heyman also thinks investors should have bonds in their portfolio and has recently purchased short-term paper.
TheStreet spoke with Heyman recently about investments.
TheStreet.com: What’s your overall investment philosophy?
Heyman: I have a long-term focus. That can be five, 10, 30 years for some stocks, but only six months on occasion [if a fundamental problem arises for a stock.]
I like balanced positions for my clients, with some bonds in addition to stocks. For myself, back in the 1990s, when interest rates were 6% to 8%, I had 60% to 70% in bonds, because I was working for a stock firm. If it went out of business [because stocks plunged], I didn’t want my outside wealth to go down too.
Now I’m 50% bonds-50% stocks. I’m 64 and with my lifestyle, I don’t need that much equity exposure.
In terms of returns, my goal is to keep up with the market in bull periods and to outperform in bear markets.
TheStreet.com: Where do you think stocks are headed from here?
Heyman: We’re in the midst of a bear market. It’s probably not over yet, but I think we’re close to the worst of it. We got down about 25% from record highs for the S&P 500 in recent weeks. Maybe we’ll get back there, or go to the high 20s. But I don’t think it will get worse than that, and we’ll get little rallies. So we’ll probably have a choppy market.
Things won’t get much better until inflation gets under control. But I’m not worried about the economy. I think any recession will be mild. I don’t think Fed rate increases will be that harmful to the economy. Hopefully, inflation will come under control in 2023, maybe 3% to 5% [compared to 8% now].
This isn’t like the 1970s, which marked 20 to 30 years of rising inflation. I think inflation now is just a spike.
Independent financial adviser Mick Heyman likes one- and two-year Treasuries.
Mick Heyman/TS
What are some of the stocks you’ve bought recently?
Cisco Systems (CSCO) , Cummins (CMI) , Starbucks, and UnitedHealth (UNH) .
They have good dividends for the most part, strong fundamentals, and their share prices are down only because of the market correction. Their earnings look good.
Cisco was ignored for many years. But it has steadied its earnings growth. I missed out on Starbucks’ big rise through the years. But that doesn’t mean you don’t make money buying it now. It still offers growth and stability.
With UnitedHealth, I also was late to the game, but the whole area [health insurance] is going great. UnitedHealth outperforms in down markets. It doesn’t have much yield [1.2%], but I feel like it’s just moving along long-term.
What’s your view of bonds?
I would still emphasize the role of bonds to protect capital and provide steady levels of income. People tend to forget that. Some investors are scraping for high yield. I don’t believe in that. If you want to take risk, go into stocks. Don’t take risk in your bond portfolio.
I would encourage people to buy individual bonds, rather than bond funds. It’s easy to buy one-to two-year Treasuries, where you’re now getting a 4.5% yield. If you hold them until maturity, you’ll get your money back. With a bond fund, you don’t know what they own and their maturities, and share prices will go down if rates rise.
What bonds are you buying now?
Mostly one- to two-year bonds and mostly Treasuries. The yield premium of brokered CDs and highly-rated corporate bonds compared to Treasuries isn’t high enough to justify the risk.