When I kicked off my show, SWITZER on Sky Business Channel on 29 June this year, I told my viewers I wanted to pursue the perfect portfolio over time and then we would add or take from it, tracking its performance over time.
I gave myself an imaginary starting point, which was the group of top 30 stocks on the Australian Stock Exchange as of the start of the day on June 29.
In fact, they were the closing prices on Friday 26 June and I got the list from The Weekend Australian, which published the top 300 companies in order of market capitalisation.
Even though I know what needs to be done to buy shares in companies, most of us are so time poor it would be silly to try to convince everyone to fully understand the businesses that you are buying into when you purchase a share.
By going for the top 30, you are getting mostly great brand name businesses — blue chips — but there can be a few challenges in there as well. However, because you buy 30 companies, you then only have a 3.3 per cent exposure to anyone company.
This is a way, not the best mind you, of investing in Australian industry. Warren Buffett, the US investor guru says he invests in American industry, though he does drill down into the businesses and buys accordingly. Simply buying the top 30 at any point in time is a lazy, short cut but it’s still not a bad approach. Another technique could be to buy the top 30 dividend paying companies in the top 50 companies but that takes a bit of work and you might want to get some history on the dividend paying performance of the companies you’re thinking about.
There are a few problems with 30 companies such as the broker cost of buying them, keeping records for so many companies and even tracking what’s going on in these businesses. However, once you have them you can just sit with them or only occasionally kick out a few and add a few when it seems wise to do so.
For simplicity you can buy an ETF for the top 30 and that puts all of this into one ‘share’, which gives you the same effect, as well as the dividends. Also, the company that runs the ETF will change the companies depending on which ones drop out of or drop into the top 30.
Here are the companies I ended up with on 29 June and I have now decided to cull some to create the so-called ‘perfect portfolio’ and I am getting some help from mates like ABN AMRO Morgans broker Simon Bond. Have a look how my top 30 portfolio performed over the two and a bit months to the closing prices on 1 September.
|Stock||Price 26/6/09||Price 1/9/09|
|1||BHP Billiton Ltd||34.18||37.29|
|4||National Australia Bank||22.30||29.19|
|6||Alcoa Inc cdi||46||47|
|9||News Corp bcdi||13.20||15.13|
|10||Rio Tinto Ltd||51||57.36|
|12||Westfield Group st||11.32||12.42|
|26||AXA Asia Pacific||3.81||4.40|
|27||CC Hellenic cdi||22||26.01|
Only two stocks went backwards — Coal Allied and Newcrest — and it was not by a lot. Telstra did not gain but it pays a big dividend. On the other hand, look at the performance of Macquarie, which was up 35 per cent, AMP up 36 per cent, Wesfarmers up 17 per cent and ANZ up 34 per cent. Sure, there were some question marks over Macquarie by some critics but it wasn’t a bad bet was it?
Also remember many of these companies pay healthy dividends and so the whole exercise has been a great one. While we were lucky with the two months, I reckon most of these companies over five to 10 years, the sensible timeframe for investing in shares, will be pretty good deliverers.
On my program we will keep these top 30 companies with a few adjustments if companies disappear via a takeover or something unusual and we will benchmark this against our ‘perfect portfolio’ we will make and change over time.
The great debate
There’s a big debate in investor circles that active fund management or stock picking on average doesn’t outperform the market index or ETFs such as ones based on the top 30 stocks, so I am going to test it over time.
Watch this space for the updated performances of this original portfolio versus the ‘perfect portfolio’, which I am close to naming.
For advice you can trust, contact Switzer Financial Services.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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