There are decades when nothing happens, and then there are weeks when decades happen. For many readers, this rather neatly encapsulates recent market antics. With tariff policies still stuck in a revolving door and markets convulsing like a toddler denied ice cream, it may be wise to take a step back, breathe deeply, and remember that panic rarely built fortunes.
And no – this isn’t another speculative piece about what on earth former President Trump might tweet next. Frankly, we suspect even his advisors are playing catch-up. Attempting to predict the next pivot in policy is akin to trying to do quantum physics in a bouncy castle. Hope springs eternal for “The Art of the Deal,” but investors would do well to steer clear of trying to game political whims.
So what’s a prudent investor to do?
Let’s begin by sketching out a pragmatic framework, underpinned by three high-probability assumptions (note: probabilities, not certainties):
- Volatility is likely to remain elevated.
- Interest rates and yields will trend lower.
- Inflation will stick around (whether transitory or persistent remains to be seen).
A side note on the third point: if prices keep rising and people simply stop buying, we could very well lurch into deflation territory. Yes, it’s possible to have too much of a bad thing.
But rather than clutch pearls, let’s channel our inner Benjamin Graham and revisit the playbook for the “defensive investor” – that ever-patient, quietly compounding character who tends to win in the long run.
Five Timeless Rules for the Defensive Investor
1. Stay Defensive: Focus on Value and Capital Preservation
In uncertain economic times – when inflation runs hot and bond yields sulk – the number one job of a defensive investor is to not lose money. Yes, this sounds simple. No, it is not.
2. Equities Still Hedge Against Inflation
In the long run, equities tend to outpace inflation – unlike most fixed-income instruments, which can be the financial equivalent of watching paint dry while it erodes your purchasing power. Caveat: in a deflationary environment, fixed income may momentarily become your new best friend.
Warning label: Not all equities are created equal. Buying overpriced tech stocks on the dip because yields dropped (again) is not a strategy – it’s a hopeful shrug dressed up as one.
3. Prioritise Dividend-Paying, High-Quality Companies
Seek out businesses with the following attributes:
- Robust balance sheets
- Long-standing dividend histories (ideally 20+ years)
- Low P/E and P/B ratios
- Defensive sectors – think necessities, not novelties
4. Insist on a Margin of Safety
Graham’s crowning jewel: only buy when there’s a meaningful gap between a company’s intrinsic value and its share price. In periods of inflation, pinning down intrinsic value becomes murkier – so build in a healthy buffer.
5. Avoid Speculation
In environments where economic signals are distorted (low rates, contradictory policies, algorithmic overreach), resist the urge to chase “the next big thing.” Stick to fundamentals. Repeat after me: you are not George Soros.
Two Sectors to Watch: Infrastructure & Consumer Staples
Two sectors currently stand out as quintessential havens for the defensive investor.
1. Infrastructure
Infrastructure assets – particularly public utilities – offer reliable cash flow and benefit from falling yields (i.e., lower cost of capital). They may also enjoy a tailwind from fiscal expansion. Bonus: people tend to still need electricity during recessions.
Fancy a closer look? We suggest exploring the sorry state of global infrastructure (read: opportunity knocks) at infrastructurereportcard.org.
2. Consumer Staples
These are your household essentials – soap, toothpaste, pasta sauce – the things you’ll buy even if Armageddon is trending on Twitter. Crucially, many of these businesses can pass on rising costs to consumers (wants vs. needs, remember?).
Healthcare would normally slot nicely into this mix, though recent years have seen an uptick in regulatory interference – particularly around the Australian PBS scheme.
Two Ideas from the Land of the Rising Sun
Tokyo Gas (TSE: 9531)
Japan’s largest natural gas provider, Tokyo Gas services key population centres including Tokyo and Kanagawa. Despite the backdrop of global energy volatility, management has remained measured – pursuing well-structured acquisitions and clear growth pathways.
Recent moves include:
- 70% stake in Chevron’s East Texas assets for $575m
- $2.3bn acquisition of Rockcliff Energy
- Expansion into Vietnam, targeting production by 2029
The company is also investing heavily in E-Methane and hydrogen supply chains, cleverly using existing infrastructure to service Japan. A quadrupling of renewables capacity (from 1.4 GW to 6 GW) is on the agenda.
Financially:
- Forward P/E: 16.3x
- Trailing P/E: 20x
- Forecasted NPAT to double to ¥131bn
- Dividend maintained
Oh – and Elliott Management (yes, that Elliott) has taken a 5% stake, urging monetisation of the firm’s $9.7bn real estate holdings. Watch this space.
Kao Corporation (TSE: 4452)
A stalwart of Japanese consumer staples, Kao makes everything from Biore skincare to Jergens moisturiser and industrial cleaning chemicals. Hardly the most glamorous portfolio, but that’s the point – boring is beautiful when the world’s on fire.
Kao is:
- Growing earnings through cost control and top-line growth
- Riding emerging market middle-class demand, particularly in Southeast Asia and China
- Pouring 4% of revenue into R&D
- Sitting on a net cash position of ¥108bn (USD $758m)
Valuation:
- Forward P/E: 25.1x
- Dividend yield: 2.4%
- Return on Invested Capital: 10.5%
In short: not cheap, but increasingly compelling.
The Tamim Takeaway: Actions for the Astute Investor
In a world buffeted by volatility and erratic policymaking, the wise investor returns to the bedrock of timeless principles. Here’s what you can do today:
- Review your portfolio for resilience. Are your holdings built for all-weather conditions or just the sunny days?
- Prioritise capital preservation. Seek dividend-paying businesses with strong balance sheets and pricing power.
- Look abroad. Japanese corporates like Tokyo Gas and Kao offer compelling value with global relevance.
- Avoid the siren song of speculation. Leave the trend-chasing to TikTok influencers.
- Remember: boring is the new brilliant. Infrastructure and consumer staples may not headline the next fintech conference but they might just help you sleep at night.
In investing, as in life, it often pays to be both patient and prepared. Or, as Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.” Right now, we’d suggest a stiff upper lip and a defensively constructed portfolio.
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Disclaimer: Tokyo Gas (TSE: 9531) and Kao Corporation (TSE: 4452) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.