I may not always agree with Nouriel Roubini, but I have to give him credit -- he's committed to his cause. Like an episode of Pinky and the Brain, you know what you're going to get -- except in Roubini's case, it's a bitter economic forecast, rather than an attempted takeover of the world.
According to Business Insider, Roubini recently released a list of the 10 biggest risks to the U.S. economy. His boogeymen include household deleveraging, a housing double dip, rising oil prices, the Federal debt, and general investor unease over the Middle East and Japan.
The list reminds me just how easy it is round up a bunch of the headline-making economic risks and throw them into a scary-sounding list. With little effort, we could have a nice top 10 list of the potential opportunities for the global economy (U.S. labor market picks up, China's inflation calms down, peace in the Middle East, turnaround in European economies, etc.).
The real challenge lies in taking the headline risks, mixing them up with the upside possibilities, and then -- most importantly -- dumping them all out and figuring out the risks that nobody's thinking about.
Better get a good spitshine on that crystal ball.
A history of the unexpected
Over the past 50 years, some of the biggest economic, social, and political events have come out of left field -- or at least somewhere thereabouts. Just a few that might ring some bells:
- 1962: Cuban missile crisis
- 1963: John F. Kennedy assassinated
- 1966: Cultural revolution in China
- 1970: Bhola cyclone
- 1973: Oil crisis
- 1979: Soviet war in Afghanistan
- 1979: Iranian revolution
- 1979: Energy crisis
- 1987: Black Monday
- 1988: Lockerbie bombing
- 1989: San Francisco earthquake
- 1988: U.S. drought
- 1990: Gulf War
- 1992: Los Angeles riots
- 1993: World Trade Center bombing
- 1995: Oklahoma City bombing
- 1997: Asian financial crisis
- 1998: Russian financial crisis
- 1998: India and Pakistan test nuclear weapons
- 2001: September 11 attacks
- 2001: War in Afghanistan
- 2003: War in Iraq
- 2004: Indian Ocean earthquake and tsunami
- 2005: Katrina, Rita, and Wilma hurricanes
- 2006: Thai coup
- 2008: Energy crisis
- 2009: H1N1 pandemic
Obviously, this list is far from exhaustive, but you get the idea. A trip back in time to five years before just about all of these events would have found few (if any) economists or pundits predicting anything like them. And when we consider larger trends over longer periods of time, the track record for predictions becomes even worse.
Macro forecasters like Roubini give it their A-plus effort, but they're ultimately participating in a game that's bound to make them look silly.
Through thick and thin
So what's the investor's answer to this minefield of future uncertainty? First, diversification. Over-diversification is often as undesirable as no diversification at all, but diversification ensures that you're not financially kneecapped if something unexpected happens to one of your investments.
However, diversification is only as good as the stocks that you're investing in. And when we look back at the wild history of the past half-century, a great number of companies have grown and prospered in spite of it all. And because investors seem to be largely shunning large-cap stocks these days, many of those battle-tested companies are selling at very attractive prices today.
Here are five of my favorites.
Average Annual Stock Returns, Past 20 Years
Current Forward Price-to-Earnings Ratio
Johnson & Johnson
Source: Capital IQ, a Standard & Poor's company, and Yahoo! Finance.
Stock returns are between January 1981 and January 2011 and are adjusted for splits and dividends.
For sake of comparison, the S&P 500 returned 7% per year over the same period, making every one of these stocks a market-beater over the past two decades.
That said, a company's age certainly doesn't guarantee its performance. Look no further than Eastman Kodak
And though they may be interesting, past returns don't earn us anything today. I really like the companies above because they're all selling goods and services that customers demand today, and will almost certainly still demand five and 10 years from now. While these are all fairly large companies, and may not offer the same growth that they did 20 years ago, the market has priced them for very little (if any!) growth.
But don't take my word for it. Add the companies above to your watchlist by clicking the "+" button next to each ticker, and begin following and learning about them. And if you haven't set up your Foolish watchlist yet, get started now and add any stocks you like.
General Motors and Johnson & Johnson are Motley Fool Inside Value picks. AFLAC is a Motley Fool Stock Advisor selection. Johnson & Johnson and Kimberly-Clark are Motley Fool Income Investor recommendations. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of AFLAC, General Dynamics, Johnson & Johnson, and Teva Pharmaceutical Industries. Motley Fool Alpha LLC owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Fool contributor Matt Koppenheffer owns shares of Johnson & Johnson, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.