2023 is around the corner, so I’ve started to look at how to invest fresh money in my Stocks and Shares ISA.
This year has been challenging for many investors. Many global stock indices are down by over 10%. Companies are experiencing higher labour, borrowing and raw materials costs. And this has put pressure on profits and stock valuations.
With experts predicting a nasty recession to come, investing in 2023 could have its own challenges.
That said, there are always opportunities to take advantage of, in my opinion. I’d also note that despite many global shares falling, the FTSE 100 is currently over 5% higher over the past year.
That’s due to the many energy, staples and defensive companies it holds. These sectors have proved resilient so far.
Stocks and Shares ISA strategy
Looking forward, if I had £10,000 to invest in a new Stocks and Shares ISA, what would I do? Well, first I’d split my pot in two equal parts.
In one half, I’d remain defensive with my stock picks. I’d want to own companies that can thrive in a recession.
That includes consumer staples companies like Imperial Brands and Unilever. These companies own strong and established brands. Their customers tend to stick with brands that they know.
Defence and cybersecurity are likely to be areas in demand over the coming years. As such, I reckon BAE Systems should also remain resilient.
Lastly, utility companies like Centrica and SSE could have the wind in their sails as renewable energy continues to move forward.
Buying quality
Now, to the second half of my Stocks and Shares ISA. Here, I’d look for high-quality-but-unloved shares. As a long-term investor, I’d be looking for shares that could thrive over several years.
But what makes a quality share? One of my favoured measures of business quality is a high return on capital employed. This metric measures how efficiently a company can turn its capital into profits.
Next, I’d like to find a profitable business with a strong balance sheet and an enviable market position. In particular, I’d look for what Warren Buffett famously called a moat. That could be described as a sustainable competitive advantage.
Overall, I reckon companies like Rightmove, Persimmon, and Ashtead meet my criteria. These are excellent operations that are currently out of favour. And I reckon they would make good long-term additions to my portfolio.
Looking ahead
Bear in mind that share prices could continue to fall. In that scenario, if I had more cash at the time, I’d buy some more of the same shares to lower my average purchase cost.
Despite potential challenges for 2023, my strategy would be to own a diversified set of shares like those mentioned above.
At some point, economies will start to recover and should set the stage for the next bull market. But that will be a discussion for another time.
