As usual, I received an email from a viewer/reader that brought an excessive response, as I dedicated nearly an entire show to answering the question! In fact, the question actually inspired the story I wrote yesterday where I claimed that “I am not a Money Monster. You are!”
This reaction to the question of three stocks that I really liked and believed in could’ve had two interpretations. First, the inquirer might want only three stocks to buy and hold, which worried me because that means he could end up with 33% of his portfolio exposed to one company! I like 10 to 20 stocks so you reduce your exposure to any one company, its CEO, or a crazy government decision.
Second, the guy simply wanted three good stocks to add to an existing portfolio, or he could have been just starting out.
So, to cover all bases, along with Paul Rickard, I looked at three options if you were putting all the money you’ve allocated to buying shares into these three stocks. On the other hand, I asked Ric Spooner of CMC Markets, Michael Heffernan of Phillip Capital and Roger Montgomery Asset Management to give us three stocks they liked right now.
All up, that means there’d be 15 stocks or investment options, provided there was no overlap between the tipsters.
My Switzer Super Report colleague, Paul Rickard, (who was named Stockbroker of the Year when he led CommSec) went for three listed investment companies. He suggested 40% of the total spend to Milton Corporation (MLT), which is a good one for an income stream, another 40% in Argo (ARG), which holds a good diversified group of big name listed companies and 20% to Contango Microcaps (CTN) to add some small cap companies as well as potential alpha to your total investment.
Taking a similar approach, I also like CTN for small cap exposure. I suggested iShares’ exchange traded fund or ETF that gives you all 200 stocks in the S&P/ASX 200 index and also delivers a collected dividend payment of around 4% plus franking credits. Its ticker code is IOZ. For some foreign exposure, I opted for ANZ’s ETF that targets high income, low volatility stocks in the US stock market with the ticker code ZYUS.
Both Paul and I have opted for a pretty broad and safe option that would keep returning good income flows, even if the stock market dived damn hard. Our other colleagues were driven by the request for their three current most liked stocks and I figured the total collection of stocks would give someone both a safe base for good returns and then some potential for stellar results.
Ric Spooner liked CSG Group (CSV) that services the small business sector with the kinds of hardware/equipment products they buy or lease to do business. With the snoring problem getting noisier worldwide, he likes Resmed (RMD) and surprised me for giving Myer (MYR) the ‘coming back from the dead’ tag!
Another awarded stockbroker in Michael Heffernan was keen on Aristocrat Leisure (ALL) and this was also named by Charlie Aitken of Aitken Investment Management as his number one holding in his fund earlier this week on my TV show. He also liked Sydney Airport (SYD) based on our favourable tourism outlook and the calibre of the business and Mayne Pharma (MYX), which is making big strides as a generic drug company even in the US.
Finally, Roger Montgomery went for his old favourite iSentia (SD), which specializes in communications services to companies and governments. He is a big believer in the REA Group (REA), despite a slowing down housing market. He asks: “who doesn’t go to www.realestate.com.au when buying a home?” And he opted for a company with a checkered past in Healthscope (HSO), which he thinks has a better business hospital nowadays, based on building hospitals with government being one of its key customers.
So there’s an interesting bunch of stocks. Most are pretty good names but there are a couple of speculators in there as well.
A financial adviser or broker should have more science in the selection of stocks for a client that’s linked to the risk profile and goals of that client, but they’re still an interesting group of potential investments.
Again, if someone took only three stocks and invested in only those three, I think that would be a case of someone being their own money monster because it’s a risky play. However, if someone went for all of these 14 options, it would give pretty good diversification and income. Also the potential for capital growth would be there.
One final point has to be made. This isn’t financial advice, as I don’t know your personal circumstances but there are some interesting companies or investment options in this story, as well as some pertinent financial education.
By the way, I would’ve loved to have done this story in March when I was telling people not to be too spooked by the early, big stock market sell off in January and February, as the market is up about 16% since then. It’s possible that we’re in for a pullback so I’ll check out how these perform after the New Year to see if we've been on the money. That’s a deal.
If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.