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Building a share portfolio

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So I'm looking to build a share portfolio (dividend or capital growth focussed...or both). I've got my ETFs, Unit Trusts, emergency funds etc. all sorted out and play with cryptos on the side.

 

What I do not have is ownership of a single share to my name. So my new project is to set one up and split a monthly fee evenly between them as a start.

 

My shortlist so far includes:

 

DSY

WHL

NPN

 

I'm looking for a couple more so any thoughts or reasoning behind some of those you hold will be appreciated :)

 

PS: Shoprite and Redefine maybe?

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From your shortlist, I would say Naspers and Discovery are obvious choices. If I had only four stock, these two would form two of them.

 

I disagree with your Woolworths choice. Woolworths has been doing badly the last couple of years and I'm not sure I'm not too confident it will recover well in the short/medium term. The news article called "Buy these stocks if you love high dividends" that is posted on the 2018 stocks thread is an old Forbes article from 2015 that has been recycled for several years by finance journalists and has turned out to be false. The new international clothing stores like H&M are hammering Woolworths in the clothing department and I only see this getting worse. I would seriously consider Shoprite (SHP) or Clicks (CLS) as alternatives to WHL. Also, if you're only doing less than six or seven stocks, I wouldn't do both WHL and SHP because they're in the same sector and you may not be well enough diversified. If it was me, I'd do all SHP rather than the WHL and SHP combination and then do another stock in a different sector.

 

I've actually been toying with buying Shoprite for a while now. Shoprite has huge potential and it's a solid stock. I may regret my decision not to buy, but I believe Clicks will outperform SHP in the long run, so I went for Clicks instead. But it's 50/50 and I as I said, I may regret not doing Shoprite instead of Clicks. It's a matter of personal choice and I can't say one is better than the other. Shoprite certainly is a solid choice.

 

In that sector, Dis-Chem (DSY) is also a new stock on the market with enormous potential, but it's new, and doesn't have a track record yet, so I would only go for this one if you have a few more stocks than four and are looking for a higher risk with massive potential.

 

With the real estate choice, I think Sirius (SRE) is a much, much better choice than Redefine (RDF) in the real estate sector. It's not that Redefine is bad, but rather that Sirius (SRE) just has much more potential and has consistently outperformed Redefine since it was listed three years ago. Also, Sirius is Europe-based and will grow if the rand drops, so it's a good rand-drop hedge as well as being a great property stock. If I were you, I'd seriously look into Sirius (SRE) as an alternative to Redefine for the real-estate sector choice.

 

I'd also consider at least one stock in the mining or basic materials sector to create diversity, as mining stocks are largely unaffected by political factors, and are more resilient in turbulent political times. As far as solid stocks in the Materials sector, Kumba Iron Ore and Exxaro both look promising in this sector. Kumba Iron Ore (KIO) has had two solid years of exceptional growth and is increasing exponentially. If you're looking for higher risk in Basic Materials sector, PPC also has a good turnaround strategy and has just completed building a massive limestone quarry in the Congo. It has a 100% Buy consensus on WSJ. Something to consider - massive potential, but risky. With less than 10 stocks, I'd do KIO rather than PPC.

 

Then, what about the financial sector? There are a lot of good choices in this sector too. Capitec and PSG are solid options in this sector.

 

As far as diversification across different sectors go, and taking your preferences into account. I would do something like:

 

Consumer staples: Shoprite (SHP)

Healthcare: Discovery (DSY)

Communications: Naspers (NPN)

Real Estate: Sirius (SRE)

Financials: Capitec (CPI)

Materials: Kumba Iron Ore (KIO)

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Shot, that's some really good and detailed info right there. I forgot about KIO and never even thought about PPC :)

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Here's a comparison between Clicks and Shoprite and Woolworths.

 

The downwards trend in Woolworths that started thee years ago coincides exactly with the introduction of international competitors in the clothing department, especially H&M. At the moment, I don't think Woolworths has any real strategy to combat the competition, and I don't see it turning around soon. Definitely not in the next three years. I think buying Woolworths now would be a mistake.

 

The Shoprite vs Clicks graph shows that Clicks is outperforming Shoprite at the moment, but the choice of Clicks vs Shoprite should depend on how long you think Clicks can continue this run. The biggest risk to clicks is competition from Dis-Chem, I think, whereas Shoprite doesn't have this problem and as the cheapest consumer staples store, will sky-rocket if the economy takes a turn for the worse.

 

I have both Clicks and Dis-chem to counter the competition risk to Clicks, but then I have 10 stocks so I already have enough diversification.

 

And here's some interesting bedtime reading:

https://www.moneyweb.co.za/news/companies-and-deals/dis-chem-vs-clicks/

 

I'd buy Shoprite as well, but then I'd have three in that sector and that's just too much concentration in one sector.

 

Pic.thumb.JPG.d6838081cf3db49ff4fd3658fb23f245.JPG

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And here's the Sirius/Redefine Comparison:

 

In every aspect you can think of, Sirius is better than Redefine - Past performance - Sirius. Global exposure - Sirius. Potential for expansion - Sirius. In my opinion, it's the best real estate option on the JSE at the moment. Sirius South Africa (JSE:SRE) is the holding company for the London based Sirius which has eight years of fantastic growth...

 

Pic.thumb.JPG.400a5db35678f1b8cc7e560f732bbb15.JPG

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All right, so after some basic research and pulling data from threads on a couple of forums etc. I've come up with this:

 

AVI AVI Ltd.

BVT Bidvest Group Ltd

CLS Clicks Group Ltd

SHP Shoprite Holdings Ltd

DSY Discovery Ltd

NPN Naspers Limited

CPI Capitec Bank Holdings Limited

KIO Kumba Iron Ore Ltd.

RES Resilient REIT Limited

SRE Sirius Real Estate Ltd

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We'll see. We should ask EE to make it the PW Bundle :D

 

Now...to go find money because I spent it all on cryptos  :s

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All right, so after some basic research and pulling data from threads on a couple of forums etc. I've come up with this:

 

AVI AVI Ltd. local

BVT Bidvest Group Ltd local

CLS Clicks Group Ltd local

SHP Shoprite Holdings Ltd africa

DSY Discovery Ltd

NPN Naspers Limited

CPI Capitec Bank Holdings Limited local

KIO Kumba Iron Ore Ltd. local

RES Resilient REIT Limited

SRE Sirius Real Estate Ltd

 

Two others that needs consideration would be Aspen and ABinbev - might have a bit too much local bias with those ten.

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I really want to restrict it to 10. Will add those to the list (well ABinBev) and take another look

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Yeah, the point of stocks is that you only buy the absolute best ones ones that are much better than the market average, As soon as you go above 10, your #11 and #12 are, by definition not as good as your top five with regards to returns, and thereby will lower your returns percentage overall. More than ten and you may as well buy ETFs.

 

As Steven Covey once remarked:

 

"The enemy of the best is often the good."

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Yeah, the point of stocks is that you only buy the absolute best ones ones that are much better than the market average, As soon as you go above 10, your #11 and #12 are, by definition not as good as your top five with regards to returns, and thereby will lower your returns percentage overall. More than ten and you may as well buy ETFs.

 

As Steven Covey once remarked:

 

"The enemy of the best is often the good."

 

Maybe - but then why not just 1? The more diverse in companies/sectors and geographic areas, the less risk. Also, most stocks are cyclical to a certain degree - so would the holder be prepared to be rotating stocks? No one size fits all - thank goodness otherwise we would all be buying the same few stocks - and we will have 5 NPNs and the rest would be on a pe of 2.

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The diversification, for me at least, comes with my ETFs and Unit Trusts. The vast majority of my investments are in funds like this to such a point where the Steinhoff mess didn't affect me that much at all.

 

This portfolio is for shares that are "safe" and will show growth over the next 12 months. Ideally, I do not want to pick a company, take a chance and if it doesn't work out having to replace it come June with some other "next best thing". A speculative portfolio might be on the cards but I already have cryptos which are volatile AF so I have no appetite to have that kind of risk in a share portfolio at the moment :P

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Maybe - but then why not just 1?

 

Well yes. If you only chose the one best stock, you would get rich very very fast. Slightly less fast with two, because, by definition, number two has a lower return than number 1. And so on for each added stock.

 

The reason why we diversify is because we are human and we make mistakes in picking stocks which aren't the best. But if you choose five stocks and four are above market average, you'll be way above market average. Statistically, the more stocks you have, the closer exponentially you are to the market average. Historical statistics show that at 10 stocks, the average professional investor is within 10 percent of the market average. At twenty stocks, the average professional investor is within 1 percent of the market average. So if that's the historical stats for professional investors, what about us mere mortals? That's why if you're planning to stay rich, ETFs are better than stocks. Stocks increase your volatility and help you get rich faster, but increase your risk. If you are not prepared to accept an increased risk, then ETFs are better than market average and the better choice.

 

It's one of the two golden rules of investing:

 

Rule 1: Buy low, sell high.

 

Rule 2: To get rich, concentrate your portfolio. To stay rich, diversify your portfolio.

 

It all depends what your goals are...

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So... what if we replace:

 

BVT with BID

KIO with BIL

 

?

 

That's a matter of personal choice.

 

KIO is quite volatile and has the potential to make big profits, especially in the shorter to medium term (3-5 years). KIO would be the Bitcoin in your portfoilio. Might make you rich, but might crash hard if the iron price drops. AT the moment, iron and paladium are the two metals in huge demand and should grow very fast, but that could change at any time. (See SBAPD1 as a paladium example - SBAPD1 is Standard bank's direct paladium ETN). My prediction is that these metals will continue to grow massively for three years at least. But that's just an educated "guess" of course, as is always the case in the stock market.

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Speaking of which, if you want to diversify your asset types, you might consider dropping KIO and doing an ETN (exchange-traded note) instead which is different in kind. If you buy SBAPD1, for example, it's actual physical paladium which Standard bank stores in a vault. Its performance is almost completely unaffected by JSE performance, but it is strongly linked to the Rand price and paladium demand. The increased demand for paladium comes because 90% of catalytic converters in petrol engines now use paladium. Diesel catalytic converters, which use platinum have failed international standards testing and the move is away from platinum and towards paladium. Hence, the drop in recent years in platinum and sudden growth in paladium.

 

So if you're looking for an alternative to KIO, maybe consider an ETN instead:

 

Pic.thumb.JPG.c6f05ed63e26aede89f357c33a606287.JPG

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No ETNs, no ETFs, just shares. I have an ETF portfolio. ETFRHO is doing fantastic btw.

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Yes, that's partly because rhodium is a side product of paladium mining. The two are always found in the same ore. Rhodium will invariably follow the paladium price to a large extent.

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In the mining sector, my bet is on KIO... ;-)

 

With regards to your other choice, BVT vs BID, I haven't really studied either, and I don't really know enough on either of them to comment.

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