Monday, January 1, 2007

Australian Investing's Sample Portfolio

With the coming of the new year, I thought it would be a good time to introduce a sample portfolio to the Australian Investing blog.

I will start with a hyperthetical $50,000. This may seem like a fortune to some and a pittance to others. But it's a nice round figure and will allow me to work with amounts that would not be too eaten away by brokerage.

The portfolio will be built up with a long term view, however if short term opportunities arise which appear worthwhile, they could be included in the portfolio also. The goal of the portfolio is to grow the value of capital invested over the long term with minimal risk to capital. Although the goal is growth of capital, that does not necessarily mean growth stocks. Companies which are out of favour with the market, yet basically sound may offer an excellent opportunity for capital appreciation.

There will be no hard and fast rules for what will be included in the portfolio, but in general I will be looking for companies which have some of the following characteristics:
  • Good average return on equity over the medium term (5 - 7 years)
  • Minimal debt
  • Shareholder friendly management
  • Strong positions in their industry
  • Strong margins when compared with their peers
  • Trading at a reasonable price

Some special situations may also be considered. These may include companies trading at a steep discount to net tangible asset backing (or preferably net cash asset backing).

Some things to keep in mind about the portfolio:

  • It is a sample portfolio only. Any trades which occur are theoretical in nature. They do not represent real trades.
  • Brokerage costs will be ignored. This is to keep the exercise simple.
  • Tax on both capital gains and dividends will be ignored. Again, this is to keep things simple.
  • There will be no interest taken into account for un-invested funds. This will penalize the performance of the portfolio until it is fully invested, but will simplify things once again.
  • Any trades which take place should not be treated as recommendations. Idependent advice should alway be sought.

1 comments:

Hendrik Oude Nijhuis said...

Hi,

A few weeks back I wrote an article on Greenblatt’s results on Gurufocus.com: http://www.gurufocus.com/news.php?id=3978

I think it’s interesting to read for those who are interested in the results of the study (Greenblatt himself earned 40%+ annualized returns for over 20 years).

Success in investing,
Hendrik Oude Nijhuis
www.magicformulastocks.com