How I aim for great investment returns in uncertain stock markets

There are times when my stock investing portfolio looks just awful. Like today. A lot of it is in the red as the stock market continues to remain uncertain. The FTSE 100 index is trading at sub-7,200 levels as I write. This raises the following question for me. What should my stock picking strategy be now? 

I would be careful not to risk losing more of my capital in stocks that could take a really long time to recover. Instead, I would invest in safer stocks that could hold me in good stead if the pandemic were to continue.

Where not to invest

First, let me talk about where I’d not invest. Many of my investments are in FTSE 100 and FTSE 250 stocks. Typically, these offer me a margin of safety since they tend to be large, well-established companies. However, these are not typical times. Even high-performing companies have been brought to their knees if they happen to be part of affected sectors like travel.

As examples, consider aviation stocks like International Consolidated Airlines Group (IAG) and easyJet, which are both part of my portfolio. I bought them at low levels, keeping a long-term recovery in mind. And so far, there has been intermittent recovery only. Their share prices keep falling routinely whenever there is bad news around on the pandemic. Even today, IAG is one of the biggest losers among FTSE 100 stocks.  

I would avoid making any further investments in these stocks for now until the situation stabilises a bit. Right now there is just too much uncertainty in buying them in my view.

Where to invest in the current stock markets

Instead, I could consider increasing my exposure to safer stocks that also offer sustained growth during more normal times. One example from my portfolio is Rentokil Initial, the FTSE 100 hygienist and pest control services provider. The stock’s demand rises during such times because its hygiene services could benefit from another lockdown and the stress on cleaning that follows.  

Another example is a utility stock like SSE, the power producer. Its stock price is weak right now, which would have made a great buying opportunity for me if I had not bought the stock already. It recently reported healthy earnings, it pays good dividends, and as a green energy producer, I reckon its future is bright. Also, as a utility, there is only so much decline that its demand will have during an economic slowdown. 

A point to note

It goes without saying that all investments carry risk. We never really know what might be around the corner that could disturb the best laid plans. But, we can use the past to guide us. And we can still make careful decisions that minimise the loss of capital and maximise gains. That is what I am aiming for right now in these uncertain stock markets.