Buying Australian Shares | Managed Funds | Value Investing | Building Wealth And Income Over The Long Term
When it comes to maximising investment performance, I'm a firm believer that good returns are just as much a result the of shares we don't buy as of those we do. It's easy to put a large dent in the returns from our share investments with just one poor investment decision. So with that in mind, today I'd like to discuss a way which can be used to reduce the number of poor investment decisions which we all make. It's called the Piotroski Method.
The Piotroski Method is a system devised by Joseph Piotroski (of the University of Chicago) as a way of identifying stronger companies from among a group of cheap stocks. The problem with cheap shares is that they are normally cheap for a reason. They are often in poor financial health with poor profitability and in the worst cases are at risk of insolvency.
It's time for another 'best dividend stocks' type of post. Last time, in Highest Dividend Paying Stocks In The ASX100, I did just as the title suggests. I scoured the ASX100 looking for shares with the best income potential. While I stressed in that article that more investigative work would need to be done to whittle the list down to a handful of suitable investment candidates, I found the exercise useful and so did a number of readers.
Today's top dividend shares are all small caps. I have used the stocks which make up the S&P ASX Small Ordinaries index as a place to start my search. So based on historic dividend yield alone, I came up with the following list.
With the year now well underway, it's time to turn our attention to what the IPO market might throw our way in 2011. In terms of the number of new issues, last year was an improvement on 2009. Will 2011 be a better year again for investors in Australian share floats?
2010 saw 96 new listings worth a total of $7.5 billion. The monster float of the year was QR National. And despite some investor doubt in the run-up to the QRN share offer, the share price has actually performed fairly well. Shares are trading at $2.80 as I write this, which is a reasonable premium to the $2.45 paid by retail investors. Of course such short term price movement is likely to be driven more by sentiment than by fundamentals. The real test for QR National will be the next couple of years operating results.
This is a question which can almost cause good friends to come to blows. It seems that investing in residential property is such an emotional issue for some people. Well to add fuel to the fire I found the results of a study published last year found that investing in shares produced a better after tax return than investing in property.
The report was commissioned by the Australian Stock Exchange and prepared by Russell investments. It investigated the returns of a number of asset classes over the past 10 and 20 years taking into account the impact of investment costs, tax and borrowing on the on the final performance figures.
The headline result (certainly from the ASX's point of view) was that Australian shares outperformed all other asset classes on an after tax basis over 20 years for investors on both the lowest and highest marginal tax rates.
It might surprise you to learn that over the long term dividends make up a large part of a share portfolio's returns. In a study by Elroy Dimson, Paul Marsh and Mike Staunton (see Keeping faith with stocks) it was found that "The longer the investment horizon, the more important is dividend income."
And for retirees, dividends are the life blood of their investment portfolio. While growth in the value of the portfolio is important in order to keep pace with inflation, it is the steady stream of dividends which pays the bills.
Even though I'm not a retiree, I still like dividends because along with my regular savings, they provide me with the cash to make further investments without the need to sell existing ones.
With 2010 out of the way, it's now time to turn our our attention to 2011. While I'm sure we'd all like to have a crystal ball which we could look into to see what shares prices have done up to the end of 2011, the reality is the future is unknown. So how can we best position our investment portfolios to grow in 2011? In other words, what are the best shares to buy in 2011.
Retail Shares?
One sector of the Australian stock market which has taken a pounding in recent times is the retail sector. Harvey Norman boss Gerry Harvey was pessimistic at the company's recent AGM. Discount retailer The Reject Shop, which has been an outstanding performer over recent years, shocked the market recently with a profit downgrade. The announcement saw The Reject Shop shares drop to below $13.00 from over $17.00. And shares in JB Hi-Fi have fallen in recent times as well over the uncertainty in near term retail sales figures.
