Building a long-term stock portfolio is a lot like coaching an AFL team. Stock picking is all about the right companies in the right roles and positions.
A lot of people don’t know how to build a strong stock portfolio, and I often explain this with the AFL analogy. The penny seems to drop and become much more distinct.
So, as the Footy Finals drew to a close, I asked the expert panel I use in my daily investment program The Call (noon AEST www.ausbiz.com.au) for offers for an Australian-wide equity portfolio. I asked them to stick to AFL principles and key positions.
Now I have to preface this by saying that every investor is an individual and you have to find your own independent board before buying any shares. The following exercise will show you how to create an AFL-style portfolio.
In AFL, the back line is the last line of defense to protect your goal when the game is going against you.
When it comes to investing in stocks, defensive stocks play a similar role. These are quality companies that provide stability when momentum has changed and the rest of the market looks a little uncertain or soft. They are your long-term defensive foundation.
The choice of back can be:
Aristocrat: A poker machine manufacturer may be excluded from some portfolios due to ESG concerns. But it has been a favorite underlying stock of many investors because it always lives up to expectations. The move into online gaming has also led to strong cash flows.
CSL: The old Commonwealth Serum Laboratory, CSL, is a global health trust that collects and processes blood plasma, and produces influenza and other vaccines. Double-digit shareholder returns over the years have cemented CSL as an excellent defensive stock.
Vashington H Soul Pattinson: Don’t be fooled by the pharmacy chain-sounding name, Soul Patts is primarily a listed investment company with a portfolio that includes Brickworks, New Hope Coal Mine and a list of other blue chip stocks. It has shown consistent shareholder returns over the years.
Group effort: The hotels and spirits group, spun off from Woolworths into a separate listed company, includes a portfolio of hotels and bottle shops, the crown jewel of which is Dan Murphy’s. No matter how bad the economy is, people still eat and drink.
BHP: Australia is a huge commodity producer and resource stocks dominate our equity market. BHP has always been a cornerstone of the sector and is an attractive dividend play, with this year’s total dividend payout the second largest in the world behind Microsoft.
In the AFL, midfield is all about quick, agile guys who can light a team on fire. They play an intense, high-risk game that can lift a team when they’re on song but can cause problems when they’re not on form.
In the stock market game, it’s the companies that provide the flair. Stocks that can give a portfolio a real boost.
Ato unite: The developer and owner of the Dante protocol, which has become the world standard in connecting audio to video. It controls 98 percent of the global market and is used by all major audio equipment manufacturers, so it has a massive “moat” against any future competition.
Lovisa: Would be this year’s Brownlow winner among retailers. The affordable jewelery retailer has completed a massive store opening in Australia and is now taking its formula to success overseas.
emailders: As an agricultural investment company that owns everything from farms and grain processing to rural real estate and financing. If you think food is going to be a strong investment theme over the next few years, Elders has you covered.
Pilbara minerals: As an essential ingredient in the production of batteries for electric vehicles, lithium is very popular at the moment. But Pilbara is one of the few real lithium producers, not an explorer promising big things in the future… Pilbara is making money now.
The Goodman Group: Considered a premium builder with flair. Goodman dabbles in industrial property, building warehouses for companies like Amazon.
Forwards need to be consistent performers, but there needs to be a mix. The monster who provides the target is surrounded by a group of small forwards who provide sniff and run away from the big guy. The same in a stock portfolio.
Woodside: Monster (think Buddy Franklin) of the energy sector. After acquiring BHP’s oil and gas assets, Woodside is now a top 10 global producer. If you think energy prices are going to stay high for a while (as many analysts believe), then Woodside will be a major beneficiary.
REA: The real estate marketing platform dominates the sector in Australia and has expanded globally, with India seen as a country with great potential. Even when property is in a downturn, REA is still doing well as vendors pay for premium positions to improve sales potential. Second monster in the front line (think Jarryd Roughead).
Whitehaven: There is a theory that coal is a spoiled commodity because no new coal mines will be approved by governments or financed by banks. Therefore, as demand and prices for thermal coal remain high, there will be no new proposals to lower prices until decades of transition to renewables.
Cochlear: The bionic ear maker, which sells products around the world, has come under attack from new competitors in the past, but none have emerged as a significant threat. Still has a stranglehold on the market.
Subs in the AFL are used to replace a player who is injured or out of form. They are intended for plug the hole.
Premier Investment: A well-run retail investment company that will benefit from rising consumer spending. It owns brands such as Smiggle, Just Jeans, Peter Alexander and Portmans, and has a significant stake in kitchen appliance manufacturer Breville. Could replace Lovisa.
Mineral resources: a mining company that is a major producer of iron ore but has recently become a significant producer of lithium. Natural crop rotation from Pilbara Minerals.
Resmed: A leading manufacturer of sleep apnea devices and ventilators for hospitals. It is the third part of Australia’s global healthcare triumvirate (along with Cochlear and CSL) and could easily come off the bench for the other two.
Get Kochie’s weekly newsletter delivered straight to your inbox! Take care of your money and your life Facebook, Twitter and Instagram.
Read the following: