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Re: [sharechat] Portfolio Theory

From: "Soarer2" <>
Date: Mon, 29 Sep 2003 19:43:02 +1200

portfolio theory diversifies away your  risk as well as your return, my suggestion would be to trade 1 - 2  times a year ( stick all your eggs in one basket )
if you have done your research and you know your right why not go in large, I put everything I had into gold after 100's of hours of research, if it had not come off I would have been stopped out and still had 70 - 80% of my capital
you will not get wealthy by conservative investing making 15% in a good year  
----- Original Message -----
Sent: Monday, September 29, 2003 10:54 AM
Subject: Re: [sharechat] Portfolio Theory

I think smasha hits the nail on the head when it comes to investing (against trading).  One has to develop a portfolio based on some sort of logical concept.  He has a portfolio based on income, core and growth shares as set out in his e-mail and what appear to be some reasonable choices in those areas.
Another suggestion is an economy concept which succeeds is as follows:
(a) Look at the core aspects of the modern economy operating in, say, New Zealand and Australia;
(b) Break those aspects down into your own headings - as many as you may choose - banking, telecommunications, transport. farming, export, gambling, retail, chemicals, property, etc etc; 
(c) Analyse which aspects appear to be essential - ie: they are not going to go away;
(d) Disregard those areas which you may feel are not performing at all well - forestry, airlines, etc;
(e) Finally, select the company which you think best represents the sectors/s in which you choose to invest and which from investigation appears to be actually performing well both in its business and for the shareholders; 
(f) Do not buy into a company with the cheapest available shares necessarily. (The cost of the shares will only determine the number of shares that you can afford, not the quality of the investment.)
The main point of such investing is to do the research and make an informed decision.  I accept that some, like the chartists, (I find Phaedrus most interesting) have their arguments, but that is only part of the story.  I think charting is perhaps more appropriate for those who chose to trade the market.   Nothing beats doing your homework first.  Read widely!   Use the Internet!   It may be stating the obvious, but there is no real science to it, just time and careful attention to detail.  That is how Ron Brierley has always operated even if really looking for opportunities and not necessarily good long term investments . 
A well run company in an essential sector will normally produce reasonable levels of both income and capital growth in the medium to long term and out-perform the market in general .  I consider this economy concept as rather pragmatic approach and perhaps it is along the Warren Buffet school of investing. 
I would think a portfolio in ten to twelve essential sectors based on this economy concept can do well and may lead to an early retirement if built up steadily.   Look back five years and consider the following as examples:
Banking - Westpac, Bendigo Bank (Aus- a winner !! )
Transport/Property - Auckland Airport
Farming -  Wrightson  
Export - Port of Tauranga, Ports of Auckland
Gambling - Sky City, Tabcorp (Aus)
Chemicals - Orica (Aus)
General - GPG, Infratil.
There will always be some disappointments and mistakes can be made.   In telecommunications, Telecom has disappointed, but Telecom will not go away.  The dividends are regular and perhaps there will be better times to come.  Forestry has been a Cinderella industry for shareholders to date, but read Terry Hall's comments in yesterday's Sunday Star Times if you seek a little optimism.  Airlines in general - perhaps to be avoided, but then look ar Ryan Air in the UK.  Can Air New Zealand foot it successfully as a budget airline?   Virgin/Pacific Blue sounds great but read the article in this mornings Dominion Post as a bit of an eye opener on that operation.
You won't always win, but if you can get, say, two-thirds of your choices rightl in the long term, you should be well ahead of the pack, and you can always adjust your portfolio to cash up and/or replace the non-performers as may become desirable. All this goes with riding out the highs and lows, not punting on rumours and all those numerous other factors, predictable or otherwise, which affect the market. 
Sound boring?  Not really, and I believe it works!
(Discl: Hold some of the above companies)


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