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Airtel Africa 

What it does: Airtel Africa provides telecommunications and mobile money services in 14 African countries. 

By Royston Wild. Airtel Africa’s (LSE: AAF) share price has slumped in recent weeks. I’d use this as an opportunity to buy a top growth stock at a discount. 

Today the telecoms business trades on a forward price-to-earnings (P/E) ratio of 6.5 times. This is far below what, say, FTSE 100 rival Vodafone trades on (the earnings multiple here sits at 10.8 times).

City analysts think Airtel’s annual earnings will rise 12% in this financial year. They are tipped to increase 11% next year, too. 

I’d buy the business to capitalise on soaring demand for telecoms and financial services products in Africa. It is the second-largest telecoms provider on the continent, and has been growing revenues and earnings by double-digit percentages for the past 17 quarters. 

Product penetration across Airtel’s portfolio remains quite low. Meanwhile, personal wealth levels in its markets are increasing sharply. I think this perfect blend should deliver excellent long-term earnings growth at the company. 

Royston Wild does not own shares in Airtel Africa. 

Somero Enterprises

What it does: Somero Enterprises designs and sells concrete levelling equipment used by construction companies worldwide.

By Zaven Boyrazian. Somero Enterprises (LSE:SOM) is a designer and manufacturer of laser-guided concrete-laying screed machines. It’s hardly the most exciting business out there, but it plays a pivotal role in the US construction industry.

With the American congress recently passing a $1trn infrastructure investment bill, management has had little trouble finding customers for its products. So, it’s hardly surprising that the group recently hit record revenues.

Despite this, Somero shares have tumbled more than 20% over the last 12 months. It seems investors are getting increasingly agitated about supply chain disruptions, which are having a significant impact on its non-US operations.

However, while frustrating, this is ultimately a short-term problem. And seeing a solid high-growth company trading at a P/E ratio of 7.3 looks too cheap in my eyes. That’s why I’m tempted to bolster my existing position by buying more at today’s stock price.

Zaven Boyrazian owns shares in Somero Enterprises.

Chemring Group

What it does: Chemring Group designs, develops, and manufactures advanced technologies for the defence industry.

By Charlie Carman. China’s rise and the Russo-Ukrainian war have boosted demand for products developed by Chemring Group (LSE: CHG). Defence budgets are expected to increase across its four home markets: the UK, the US, Norway, and Australia.

The group’s order book reached £678m in September, covering expected full-year 2022 revenues. New contracts with NATO members for the company’s countermeasures and energetics business indicate a robust manufacturing pipeline for 2023 and beyond.

Chemring’s other main arm focused on sensors and information also looks healthy. In H1 2022, this division generated 21% revenue growth and a 27% hike in operating profit.

Granted, net debt is currently £18.5m, which could limit future growth prospects. However, a 52% reduction in this figure since H1 2021 shows a positive trajectory.

In my view, significant barriers to entry in the sector contribute to the defence stock’s long-term potential, provided it remains at the forefront of developing state-of-the-art technologies.

Charlie Carman does not own shares in Chemring Group. 

Darktrace

What it does: Darktrace is a cybersecurity company, and uses AI to develop autonomous detection of cyber threats.

By Alan Oscroft. A couple of brokers have price targets on Darktrace (LSE: DARK) of around twice the current share price. I’d never buy the stock based on that, but it’s inspired me to re-examine the company.

The shares got a little overheated last year, but then crashed after some negative reports. Over 12 months, Darktrace shares have now lost around 60% of their value.

Darktrace recently reported a 46% rise in full-year revenue, with a small net profit of $1.5m. It also confirmed 2023 guidance for a 31-34% increase in annual recurring revenue. Predicted adjusted EBITDA margin is in the 15-18% range.

The company has since reported a 29% year-on-year increase in net new customers in its first quarter, reiterating its full-year guidance.

We’re looking at a forecast P/E multiple of 130 as far out as 2024. So there’s definitely valuation risk there. But I think it could be the start of sustainable growth.

Alan Oscroft does not own Darktrace shares.

Marks and Spencer

What it does: M&S is one of the UK’s biggest retailers. It specialises in selling clothing, beauty, home products, and food products. 

By John Choong. Marks and Spencer (LSE: MKS) shares are currently trading at a P/E ratio of 7. Despite the grocery industry being known for its low margins, I think M&S could be an exception and be an excellent growth stock for the long term.

It’s no secret that Marks and Spencer’s products are priced on the higher side. Therefore, it may seem contradictive to buy its stock when consumers are ‘down trading’. However, I believe that the retailer’s target market (middle and upper class) isn’t necessarily trading down in groceries. Instead, they’re trading down in eating out, and choosing to seek value in purchasing M&S’ great-tasting packaged meals. After all, Tesco indicated this trend in consumer behaviour.

With the grocer’s latest cost-savings plan and exciting lines of clothing to be launched, I think the company’s top and bottom lines should benefit over the long term as it continues to fulfil its growth plans. As such, I think M&S shares have the potential to head higher from their current levels.

John Choong has positions in Marks and Spencer.

Safestore

What it does: Safestore is a leading supplier of self-storage services in the UK and continental Europe

By Christopher Ruane. The Safestore (LSE: SAFE) share price over the past year might not suggest a compelling growth story. The shares are down 25% in 12 months.

But I think that offers an attractive buying opportunity for me to increase my stake and would consider doing so if I had spare money to invest.

In the most recent quarter, revenue grew 15% compared to the same period last year. That is part of a pattern of long-term growth I expect to continue. Self-storage continues to see growing demand in the UK. Safestore’s well-established brand can help it benefit from that. The company is developing a pipeline of new properties equivalent to around 14% of its current floor space.

A worsening economy could lead some tenants to try and cut their costs by reducing storage space. That might hurt profits. But I am upbeat about the company’s prospects and see strong growth opportunities ahead.

Christopher Ruane owns shares in Safestore.

Rightmove

What it does: Rightmove is the UK’s most popular property portal, providing advertising services to new home developers and estate agents.

By Paul Summers: Shares in property site Rightmove (LSE: RMV) have tumbled nearly 40% in 2022 as investors have become increasingly skittish over the impact of higher interest rates on the UK housing market. I regard this as an opportunity.

At face value, a P/E ratio of 21 doesn’t seem like a bargain. However, it’s far less than the five-year average of 32. This presents as an even better deal when Rightmove’s massive market share, healthy financial position, and staggeringly high margins are taken into account. 

A recovery won’t happen overnight and things could easily get worse for the stock depending on what the Bank of England decides to do about rates in early November. But it does feel like a lot of fear is already priced in.

And let’s not forget that Rightmove makes money even if the properties it lists fail to attract buyers or renters.

Paul Summers has no position in Rightmove.

Rightmove

What it does: Rightmove makes money by listing estate agents on its website and selling additional advertising products.

By Stephen Wright. My Best British growth stock to buy in November is Rightmove (LSE:RMV). I think that now could be a terrific time to add to my investment in this stock.

Right now, the UK property market is under pressure. Rising interest rates have been making mortgages more expensive and slowing down the demand for housing. 

As a result, shares in Rightmove have fallen by around 37% since the start of the year. But I’m seeing this as an opportunity. 

The company has a dominant position in an industry that typically has high margins and it generates significant amounts of cash. There might be some turbulence in the near future, but I think that the business will do well as the economy recovers.

Furthermore, the company has been buying back its own stock over the last few months. To me, this indicates that management also sees the stock as undervalued.

Stephen Wright owns shares in Rightmove.

Diageo

What it does: Diageo is a global leader in alcoholic beverages with products sold in more than 180 countries.

By Ben McPoland. Diageo (LSE: DGE) has been firing on all cylinders for many years. The British drinks giant has a portfolio of over 200 brands, including Guinness, Johnnie Walker and Baileys.

The share price is down this year, though, with the looming possibility of a global recession. Consumers, however, don’t tend to give up their favourite tipple, even during economic downturns. They are unlikely to switch from something like Johnnie Walker (the world’s most popular Scotch whisky) to a cheaper alternative. People basically put these drinks into the “affordable luxury” category.

This consumer loyalty to Diageo’s brands gives it a powerful competitive edge. And, due to its wide global presence, the company stands to benefit as disposable incomes rise in regions like Asia and Latin America.

The shares trade at a P/E ratio of 24, which isn’t particularly cheap. But I think the premium price is warranted for Diageo.

Ben McPoland owns shares of Diageo. 

A new era of austerity?

Thomas Pugh at City group RSM said the new prime minister’s pledge for fiscal responsibility suggests the country could be facing a fresh wave of austerity.

The reversal of Liz Truss’s catastrophic fiscal policy could result in companies and individuals further reducing their economic activity and may induce a deeper recession than expected. Combine this with a cost-of-living crisis, and many companies may struggle.

There are counter arguments to this. Fiscal responsibility should bring down inflation and there’ll be less need to continually raise interest rates — higher rates mean higher mortgage repayments.

While my portfolio contains stocks like Lloyds, which is unlikely to perform well in a recession, I’m also looking at defensive stocks to hedge my position.

Defensive pick 1

Unilever (LSE:ULVR) is among my top picks and I’ve recently added it to my portfolio. The fast-moving consumer goods giant sells in 190 countries and claims that 3.4bn people use its products every day. Unilever has defensive qualities because of the strength of the brands it owns, such as Hellmann’s, Marmite, Heinz, Persil, and Lifebuoy.

When times are tough, customers still tend to buy branded goods. And this is why Unilever is likely to outperform the market in downturns. This has already been demonstrated in 2022, with the firm lifting prices and passing costs on to customers. In its H1 results, Unilever said it hiked its prices by 9.8% versus the same period in 2021, only resulting in a small fall in sales volumes.

Unilever also earns most of its income overseas and, with a weak pound, this should be a positive. Some 58% of its income comes from emerging markets, while approximately 17% of its revenues are derived from the US.

A deep recession is never good for spending, but Unilever still looks a strong pick for me. I already own shares in Unilever, but I’m looking to buy more.

Defensive pick 2

Diageo (LSE:DGE) is another company with similar characteristics. The firm has defensive qualities, selling brands such as Johnnie Walker, Guinness, Baileys, and Smirnoff. As noted, well-known brands tend to do well, even when pockets get squeezed. 

Moreover, a large proportion of its sales are made in the US, and it’s growing considerably in developing economies. More than a third of the firm’s sales come from North America. The figure, $6bn, is around double the company’s earnings in Europe.

I don’t have a position in Diageo, but with some analysts predicting a deeper recession, this stock could help me manage risk. As such, it’s a stock that I’m intending to buy.

It’s not particularly cheap, with a price-to-earnings ratio of 23. But that reflects growth prospects in developing markets, as well as the current demand for defensive stocks.

A great British exporter

The first stock I don’t plan to sell is British spirits giant Diageo (LSE: DGE). The company has a portfolio of over 200 brands sold in 180 countries.

Diageo’s most popular brands

Most of these brands have a timeless quality to them, though, of course, the risk of a recession is looming. While this could hurt sales of alcohol, consumers tend not to cut back on their favourite tipple even during recessions. And I think as disposable incomes rise in South-East Asia and Latin America, demand for Diageo’s products will remain strong for decades.

The DNA age

Illumina (NASDAQ: ILMN) makes gene sequencing machines that enable customers to read and understand an organism’s DNA. The firm’s products played a crucial role during the pandemic, enabling scientists to identify novel coronavirus mutations, track transmission, and ultimately to develop vaccines.

The company commands 70% of the global DNA sequencing market. A very healthy 70% of its revenues are recurring, and its operating margins are around 20%.

This dominance, however, hasn’t gone unnoticed by regulators, and Illumina has been thwarted recently in its attempts to acquire competitors. The risk here is that if organic growth slows, it won’t be able to grow through acquisition.

Even so, with only 0.02% of humans sequenced today, Illumina has a gigantic runway of growth ahead of it. I believe we’re entering the DNA age and I intend to hold my shares over the long haul.

An ageing population

By 2050, the world’s population of people aged 60 years and older will double to 2.1bn. This trend towards an ageing global population is one of the reasons I own shares in Intuitive Surgical (NASDAQ:ISRG).

The company is the top dog in global surgical robotics, controlling around 80% of the market. Its flagship product is the da Vinci Surgical System, which surgeons use to perform an increasingly wide range of minimally invasive procedures.

Some of the benefits of robotic-assisted surgery for patients include less pain and blood loss, reduced risk of infection, and less scarring. Also, recovery times are quicker, saving health systems a fortune.

Today, over 10m procedures have been carried out on the company’s robotic-assisted devices, from an installed base of 7,364 systems. Once medical professionals are trained on these products, they’re unlikely to switch to a competitor.

The competitive advantage Intuitive Surgical now has over its rivals is enormous, but that doesn’t mean competitors couldn’t emerge one day with even better surgical systems.

Still, an ageing global population should drive demand for robotic surgery for decades. So I can’t see myself ever selling the shares. In fact, I’m thinking about buying more.

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• While Diageo was formed in 1997, the history of many of its famous brands stretches back much further. Its six top brands were all founded between 1759 and 1974 – potentially demonstrating resilience.
  
• Diageo has produced top-line growth in all regions in the beginning of fiscal 23 – and it’s targeting operating profit growth of 6-9% between 2023-25.
  
• Its performance reflects its outstanding portfolio, continued investment in brand building, and its agile supply chain.
  
• It has a stable track record in raising its dividends for shareholders with a five-year CAGR of 3.9%. It currently offers a trailing yield of 2.1%.

1. Consistently pays a dividend to its shareholders
2. Annually increases the size of the payout

There is no requirement for high yields. I assume the market is forward-looking. Investors might have driven a stock price down because they see trouble is on the horizon for the company. But that will also drive the trailing dividend yield higher. Thus, I could buy a stock just for its high yield and walk straight into a dividend cut.

The yields on my three FTSE 100 dividend aristocrat picks might seem uninspiring. But bear in mind that I am looking for companies to buy and hold in my Stocks and Shares ISA for years. I am looking for a great track record to give me confidence that dividends will be consistent and grow over time.

FTSE 100 dividend aristocrats

The first of my picks is the industrial engineering company Spirax-Sarco (LSE: SPX). It has increased its dividend per share (DPS) every year over the last decade. Over the last five fiscal years, payouts to Spirax shareholders have increased by 12% per year.

Spirax’s revenues and earnings have grown solidly over the last decade, driving dividends steadily higher. The company’s dividend payout ratio (DPR) — DPS divided by earnings per share (EPS) — has remained fairly stable at around 45% over the last half-decade. That speaks to a consistent dividend policy designed to pay out what the company can afford. This is all comforting. It suggests that if the company continues to perform as it has, I should see bigger cash flows into my ISA over time if I buy its shares now.

Diageo is another FTSE 100 dividend aristocrat with solid revenue and earnings growth and a consistently increasing dividend over the last decade. Aside from a very high reading in 2020, the DPR has remained at around 60% over the last five years. The company, which produces alcoholic beverages known the world over, like Johnnie Walker and Smirnoff, has increased its DPS by 4% annually on average over the last five years.

Finally, I like the look of Relx. This provider of research journals, databases, business intelligence, analytics services, and exhibitions has consistently paid a dividend to its shareholders for decades and increased it yearly over the last 10 years. Once again, I see solid revenue and earnings growth and a consistent DPR of about 60%.

Attractive dividend yields

A high dividend yield might not necessarily be attractive. Also, a low yield might not mean an investor like myself should turn away in horror. None of these three stocks has eyewatering yields: Spirax’s yield is 1.3% on a trailing 12-month basis, Relx’s is 2.3%, and Diageo comes in at 2.1%.

But let’s look at DPS instead. Spirax shareholders received a dividend of 136p per share in 2021. If Spirax continues to grow its payments at 12% a year, then after 10 years, the DPS will be 350p, and after 20, 1,088p, which would be a yield of 10% on a 10,620p per share investment in the stock made today. But, as always, there are no guarantees in investing, and I need to be confident that the future of these companies will look like the past before diving in.

US thinktank The Conference Board recently forecast that, “the US and Europe [will] experience recessions in the very near term”, and that China will suffer “significantly weaker growth” in 2023.

Economists are becoming increasingly convinced of sluggish growth (or even a global recession) next year. And by extension, the earnings and dividend forecasts for many UK shares are looking increasingly fragile.

A FTSE 100 share on my radar

However, I don’t plan to press the pause button and wait until conditions improve. I plan to continue investing in my Stocks & Shares ISA in 2023.

Drinks manufacturer Diageo (LSE: DGE) is a defensive FTSE 100 stock I already own. Here’s why I’m planning to increase my holdings next year.

Brand power

Diageo has two significant weapons that allow it to thrive even during tough periods.

One is that demand for alcoholic beverages remains stable at all points of the economic cycle. The second is that its heavyweight labels like Guinness and Captain Morgan command intense customer loyalty.

Its Johnnie Walker and Smirnoff labels, for example, are two of the world’s four largest spirits brands by retail sales volume. That’s according to drinks industry researcher IWSR.

Products with popular labels usually continue selling in exceptional volumes even when broader consumer spending power falls. This allows Diageo to enjoy robust profits year after year.

Marketing spending

Diageo spends fortunes on marketing its products to keep them ultra popular. And this has a big impact on its earnings. It may have to keep increasing such expenditure too as the marketing landscape evolves. The business hiked organic marketing spending 25% year-on-year in the 12 months to June 2022.

But as an investor myself this is a price I’m happy to pay. Not only do I see Diageo as a reliable lifeboat in these uncertain times. I expect sales of its drinks to grow strongly over the long term as personal incomes in emerging markets soar.

Dividend growth

Admittedly the company doesn’t carry the biggest dividend yield out there. For this fiscal year it sits at a handy, if unspectacular, 2.3%.

However, I fully expect Diageo to meet current dividend forecasts. It’s in a much stronger position to do this than many other FTSE 100 shares.

Firstly, the drinks firm has those highly stable revenues to fall back on. Secondly, this year’s predicted dividend is covered a healthy 2.1 times by anticipated earnings, too. That provides a wide margin of safety in case earnings forecasts miss their mark.

The drinks giant also has considerable balance sheet strength to help it raise dividends even if it experiences temporary profits trouble. Its free cash flow clocked in at a robust £2.8bn last year.

The annual dividend at Diageo has risen for 21 years on the spin. As someone seeking reliable dividend income every single year, I think the company is hard to beat.

And, of course, the notion that the government would have to borrow from international lenders made the pound weaker. There are also concerns the tax cuts will be inflationary, which, in turn, will increase the government’s debt burden as around a quarter of its debt is inflation linked. None of this is good for the pound.

However, some UK-listed stocks can benefit from a weaker pound, namely those that earn the majority of their earnings overseas. In fact, companies in the FTSE 100 derive approximately 75% of their revenues overseas.

High fashion

Before the pandemic, around 40% of Burberry‘s (LSE:BRBY) sales were from China, or Chinese tourists buying abroad. The company also generates a lot of its revenue in the US. In fact, a very small percentage of the London fashion house’s income comes in the form of British pounds. The yuan and the dollar have both gained considerably on the pound this year and this should lead to inflated GBP earnings for Burberry.

The weakness of the pound could also push costs up however, as some of Burberry’s production facilities are located in northern England. While some raw material costs might be increasing, at least labour costs should remain unaffected by exchange rate fluctuations.

High fashion also tends to be fairly bombproof when recessions come. This is because the uber wealthy tend to be insulated from economic challenges. And this is a positive characteristic for the brand with economic growth slowing around the world.

I don’t own Burberry shares but I’m looking to add the stock to my portfolio soon as it should benefit considerably from a weaker pound and I appreciate its defensive qualities.

Drinks leader

Diageo (LSE:DGE) owns 200 drinks brands, selling in more than 180 countries. In 2018, the US represents over a third of Diageo’s net sales and almost half of its operating profits. And that’s positive as the dollar really is king right now.

In fact, the company makes approximately twice as much income in North American markets, where currencies have stayed strong, than in Europe, including the UK. But like the pound, the euro has been pretty weak this year.

And at the beginning of 2022, Diageo said a strong pound had negatively impacted earnings. But back then, the pound was worth around $1.35. Right now, with the pound at $1.11, it’s going to have a positive impact on earnings. 

Once again, a weak pound could push production costs up, but the impact of currency on sales should more than make up for it.

I’m looking to add Diageo to my portfolio soon as I see it benefiting from a weaker pound over the next year. I also like the group as it owns many well-known brands, including Johnnie Walker, Guinness, Baileys, and Smirnoff — giving it defensive qualities. Brands tend to outperform other products even when the economic situation gets tough.

Diageo

Thanks to its bumper portfolio of 200+ brands that people continue buying whatever the economic climate, Diageo (LSE: DGE) is one of my favourite FTSE 100 stocks.

But another one of Diageo’s attributes is that it’s a truly global business. It’s this geographical diversification that should mean the company is able to remain resilient in the face of a plunging pound.

Trouble is, Diageo shares never trade at bargain basement prices. Right now, for example, they change hands on a price-to-earnings (P/E) ratio of 22. That said, this is actually below the five-year average valuation of 25.

The company is also a reliable source of dividends. Sure, a 2.2% yield might look very average compared to some in the FTSE 100. However, Diageo has been remarkably consistent in hiking its payouts every year.

Personally, I’d rather have a smaller but more stable level of passive income than one reliant on firms that may never pay up. If I had the cash, I’d jump in.

National Grid

What it does may be essential, but National Grid (LSE: NG) shares have been losing height over recent months. As I type, the stock is down 12% this year.

I wonder if some investors may begin reaching for the ‘buy’ button again. After all, a good proportion of the power provider’s assets are actually located across the pond. It owns and operates electricity distribution networks in upstate New York and Massachusetts and gas distribution networks across the Northeastern US.

All this dollar exposure should mean that this highly defensive company can maintain its status as a dividend aristocrat going forward.

Holders are now looking at a yield of 5.7%. That’s pretty attractive to me considering that the best savings account only offers 2.5%. A P/E of 14 is also lower than it was earlier in the year.

If my own portfolio weren’t more tilted towards growth stocks, I’d hoover up some of these shares.

Pearson

Pearson (LSE: PSON) is yet another top-tier member worth commenting on. It provides tests and scoring services to governments, educational establishments and businesses with a particularly large presence in the US.

Of the three FTSE 100 stocks mentioned here, Pearson has been easily the best performer in 2022. The shares are up 44% as I type. Is there more to come?

Again, the fact that it has significant operations in a dollar-denominated market (where earnings are then converted into pounds) probably won’t do any harm. The growth in digital learning, turbocharged by the pandemic, looks set to continue as well.

However, I shouldn’t overlook the possibility that recent share price gains are due to a failed takeover deal earlier in the year. The company may potentially still be a target but the question is, how much hope of another bid is now priced in?

I’d say a fair bit. Pearson’s shares trade at 18 times forecast earnings. The five-year average is 13 times.

I believe there are better opportunities out there for my portfolio.

That’s why I’m avoiding Diageo (LSE:DGE) shares at the moment. I think that the underlying business is very attractive, but its shares are just too expensive for me right now.

The business

Diageo’s biggest asset is its brand portfolio. Warren Buffett talks about ‘share of mind’ as a measure of brand strength.

I think Diageo’s brands are clearly impressive by this metric. They include the leading scotch whisky (Johnnie Walker), the leading vodka (Smirnoff) and the leading gin (Gordon’s) by sales volume.

There’s a tangible benefit to having powerful brands, too. They allow the business to maintain high operating margins and provide protection against inflation.

Over the last decade, the company has consistently maintained operating margins above 25%. That’s similar to Coca-Cola and around double those of PepsiCo.

Strong brands also allow the company to use its assets more effectively. Diageo generates £4.4bn in operating income using just under £6bn in fixed assets.

That’s a return of around 75% on fixed assets, which is between Coca-Cola (116%) and Pepsi (46%). So I think that Diageo’s brands are comparable with the best.

Investment return

There’s no question in my mind that Diageo is a good business that I’d like to own part of. But I don’t think that right now is the time for me to buy the stock.

At the moment, inflation and the prospect of a recession have investors on edge. That’s causing them to pile into steady, predictable companies.

Over the last 12 months, the Diageo share price has risen, while others have fallen. As a result, I find other stocks more attractive at the moment.

Diageo has around £16.5bn in debt and £2.5bn in cash. It generates just under £3bn in free cash annually. 

With a market cap of £88bn, that’s a return of 2.78%. The concern with that, for me, is that the company isn’t growing fast enough.

Over the past decade, Diageo’s earnings have grown at around 4%. If that continues, then the average annual return over the next 10 years will be around 3.3%

That doesn’t sound impressive to me. I’d rather put my money elsewhere at the moment. 

Experian, for example, has a current free cash yield of 4.21%. Moreover, the credit assessment company is growing its earnings at a faster rate.

Equally, Diploma’s free cash yield is 3.94%, but it has been growing at around 10%. I’m expecting an annual return of around 5% from the underlying business there.

A stock to buy?

It’s clear to me that Diageo has terrific brands that make it an attractive investment proposition. It’s a stock I’d very much like to own.

At the moment, though, I think that the price is too high. Since I’m more optimistic on other UK stocks at the moment, I don’t see myself adding Diageo shares to my portfolio… for the time being.

Inflation and the stock market

To keep price rises stable, the government sets the Bank of England an inflation target of 2% a year. This stability helps businesses and consumers plan for the future. Stock markets tend to like this level of predicability when it comes to the economy and company earnings.

If inflation does jump 10 times higher than this 2% target, then clearly the UK economy is in for a rough ride. Consumers will likely cut back on spending, which would hurt the earning potential of companies. The stock market will likely fall to reflect this decline. It could even crash.

So, what should I do (if anything) to prepare my portfolio for this possibility?

The long game

One of the most important lessons I’ve learned as an investor is to always remember the game I’m playing. There are many strategies and games being played each day in the stock market. There are day traders, speculators, hedge funds, and robot traders that buy and sell thousands of stocks per second.

I like to use a football analogy when thinking about this. Imagine there’s one giant pitch (the stock market), and there are thousands of different games of football being played on it at the same time. Professional, amateur, five-a-side, futsal, penalties, and so on. Every player is trying to win (make returns) within their own game.

However, most of these players are not playing my game, which is long-term investing. I have a different time frame to these other investors, yet we’re all on this same pitch that is the stock market. So I need to know which game I’m playing, and stick to it.

Success is where preparation and opportunity meet

To me, being long term as an investor means not being scared into selling my positions when economic downturns affect the market. I try to remind myself of this as much as possible, especially when markets tumble. It really helps me stay focused on my long-term plan of slowly building wealth over time.

Obviously it wouldn’t be nice to see the value of my portfolio fall if the market crashes. But I’ve built some cash reserves up so I’m not forced into selling my shares at lower prices.

I’ve also made a list of great companies I’d like to own if their shares went on sale during a crash. These include British drinks giant Diageo and Watsco, the leading HVAC distributor in America.

Ultimately, nobody knows for certain when a stock market crash will happen. If it’s this winter, then I’ll use it as a buying opportunity to add more shares to my portfolio.