ATLANTA--(BUSINESS WIRE)--As Wall Street fell back again this week after reports that more financial institutions may continue to post losses, one locally based investment firm reports that a key to maintaining investor confidence is to stay focused on broad diversification in high quality stocks.
In its second quarter report to investors, Eads & Heald Investment Counsel outlined how a strategy for investing in common stocks can continue to succeed. The firm’s portfolios have tended to perform meaningfully better than the stock market indices in down markets. Since the big market top that heralded the end of the technology bubble in 2000, the firm reports its average stock portfolios have an average annual compound return which is 2.9 percent greater than the Standard & Poor’s 500 stock index. And as of August 7, Eads & Heald is ahead of the S&P 500 by approximately 5.7 percent.
“Expected return must be balanced with the risk taken. With short-term interest rates low and the stock market having suffered significant declines, it would seem that looking out five years or more, a diversified portfolio of strong, quality stocks will be the best place to be positioned,” said the firm’s co-founder Stewart Eads.
The report points out that if inflation remains an issue, it will be necessary to invest more in stocks that tend to do relatively better in an inflationary environment.
“Many investors are not aware as to how or why some stocks tend to flourish in times of high inflation while others languish,” said co-founder Tom Heald. “The impact of rising inflation on the overall stock market will be negative as price earnings (P/E) ratios will continue to compress. Investors should turn to higher dividend paying companies during periods of rising inflation and declining P/E ratios.”
Both Eads and Heald agree that continued losses in the financial sector, rising gas and oil prices, weakness of the U.S. dollar and the home foreclosure crisis are the top reasons for the reduced investor confidence.
About Eads & Heald Investment Counsel
Eads & Heald Investment Counsel (www.eadsheald.com) is a boutique investment advisory firm established in 1987.