smsf shares to buy?

[lizzie]

Sheesh - another thing to sort out.

We're going to roll out of the company run superfund as it's been performing okay, but ...

So, thinking about a SMSF. Obviously I'm a property person, but we have a fair $$ of property outside the superfund so want to keep a bit of balance.

Hubby is over 50, so also looking at good dividend returns, whilst protecting the nest egg ... growth is not as important as dividend. Speculation is definately not important.

Having a scour of what has been paying what over recent years, and what industries are relatively "unrisky" in relation to competition threat either local or international, and looking at what industries will retain a high-ish return over the next 5-10 years, we're thinking about equal division between :

WBC
WES
NAB
CBA
TOLL
ANZ
Tabcorp
Macquarie
Woolworths

Would that make us to bank reliant? I like the banks as they have always been steady earners, are government protected (to a degree) and there is really not much competition except between themselves.

Any other suggestions. Should I have more logistics?

We'd still have a goodly bit left over as cash to invest at high interest, and would re-invest the dividend income.

 

[Intrinsic_Value]

This is definately a stock pickers market, so its more important than usual to be in the 'right stocks'.

But it gets worse, the 'right stocks' are changing based on a changing environment, there are very few 'buy hold and forget'.

My opinion, a good proportion of the fund allocated to stocks should be in Argo and AFIC two large quality LICS.

They are both 'boring' but quality plays.

This goes against my opening statement, but unless you want to be glued to a computer screen, looking at individual stocks is difficult in this environment.

The secret is to try to buy them when the share price is near or below their NTA (since the NTA is basically the market value of all their listed investments).

See this article:
http://www.barefootinvestor.com/argo-investments-afic-blue-chip-shares/

Another opinion:
dont invest all at once, put some in now, wait, put some more in later, ie dollar average.

 

[devank]

WBC
WES
NAB
CBA
TOLL
ANZ
Tabcorp
Macquarie
Woolworths

I'm just a learner.. but this is what I think.

- I'm not too sure about Macquarie. I think they are a bit risky for what you are trying to do.

- I think you have too much exposure to banking/finance sector. I personally bought the shares where I have my loans. It is easier to tuned to any news related to the banks you are dealing with. After all, if they increase rates then you will get better dividends

- I think you can add some resources type like BHP or RIO

 

[oracle]

WBC
NAB
CBA
ANZ

....

WES
Woolworths

Not sure what advantage in splitting money into 4 banks, when you can invest in one and still get exposure to that industry. Diversification will not be much helpful if the entire industry suffers. Pick CBA or WBC, CBA has been the most profitable in the past of the big 4 and almost guaranteed to be bailed out by government if it ever gets into trouble. CBA and WBC both have very high exposure to Aussie resi market. So if you believe Aussie resi market will be higher in 10-15 yrs from now, then CBA and WBC should also do well over that period.

Same for Woolies and Wesfarmers. I like WOW over WES because it has been profitable and run with shareholders interest in mind. WOW CEO and directors took a pay cut last FY since the profits were not as high as they would have liked. This year they will again forego bonuses for the exact same reason. Shows you management are happy to suffer when shareholders suffer. Another reason i like WOW is they are entering home improvement business in Australia, they are expanding overseas (NZ and India) so very good prospects of growth in future.

This is just my opinion, please DYOR.

Cheers,
Oracle.

 

[shuggy]

Agree with some comments above. Definitely dump MQG, i know 4 people in hong kong who have resigned in the last 6mths. Out of your list i'd keep CBA and WOW. Also buy Argo. Disclaimer: I don't know much about shares.

 

[lizzie]

- I think you can add some resources type like BHP or RIO

Don't know how I missed those as they were both of my "mental" definately include list.

So:

WBC
WES
WOW
CBA
TOLL
TAH
BHP
RIO

Does that look like a rounded conservative, dividend paying list?

 

[oracle]

Don't know how I missed those as they were both of my "mental" definately include list.

So:

BHP
RIO

Does that look like a rounded conservative, dividend paying list?

BHP and RIO dividends are not very high, approx 3% for BHP and 2% for RIO both fully franked.

But that doesn't not mean they will be bad investment overall. They will more than make up for their lower dividends with CG.

BHP payout ratio (for those unware, it's the percentage of profits that is paid out as dividends) is between 20-30% while that of RIO is less than 20%.

BHP dividends has increased from 21.5cents in 2002 to 94cents in 2011. Recent half yearly results annouced by BHP they increased their dividends by 25% while RIO increased by 34%-37% (can't remember).

When payout ratio is small, very rarely do companies require to cut dividends even when profits fall. For eg. BHP earned 364.5cents while paid out only 94cents, so it will take a > 70% profit drop before dividends get impacted.

Another stock worth considering is QBE rather than MQG IMO.

Cheers,
Oracle.

(PS: The above figures are per share)

 

[JWR]

Hi Lizzie,

The main criteria with investing in stocks is - will the business still be here in 10-15 years? And will they be much bigger than they are today?

There is no need to buy the first and second best of something in the same industry. You only really need 8-10 stocks as above that isn't considered diversification but diworsification.

WES is a terrible company (in the sense of profitability) as they paid wayyyyy too much for Coles which decreased overall ROE.

WOW is far superior. So buy that.

As is BHP over RIO. For a speculative play - and only invest 5% or so of total funds in (and which I made my first house deposit on - is MCE and/or FGE - great companies going places. Bear in ind dividend is very low.)

No need for all the banks but CBA and WBC should be fine (though traditionally CBA is slightly more expensive than WBC.) NAB and ANZ are also good but no need to buy them all.

QBE - everyone hates it right now - but all insurers are suffering. They always buy the best businesses for the cheapest prices and will therefore grow market share.

Not Tabcorp - bad company. Cabcharge is better.

TOL is also a shocking company so don't go near there. Transport in general is a declining industry so no need to go there...

You need a health stock - again dividends aren't the greatest but are ok. CSL and COH (or just one - both fantastic companies)

Although always expense as it commands a premium, Coca Cola is a good one too (I personally wouldn't buy it but for a 'rounded' portfolio its ok)

There are others - but they are smaller than ASX/50 so you may not want to venture there (I would as they often aren't picked up by the market and so are relatively cheaper).

If you want a Telco - MTU is good and VOC. Probably only one you want.

So in summary:

CBA - 10%
WBC - 10%
QBE - 15%
CAB - 10%
CSL - 10%
COH - 10%
CCL - 10%
BHP - 15%

For Spec:
MCE or FGE - 5%
MTU or VOC - 5%

I would want a bigger weighting to mining companies but not the best dividend payers and riskier.

Hope I helped.

 

[Aaron_C]

Historically the best time to buy insurance companies is right after lots of natural disasters as this gives them an excuse to raise their premiums.

 

[lizzie]

The main criteria with investing in stocks is - will the business still be here in 10-15 years? And will they be much bigger than they are today?

Exactly. Wanting companies that won't suffer from globalisation, downturn in the economy, increased competition from Africa, India and Asia.

I included Toll as, with the ever increasing movement of goods, I thought a major logistics player would be good. Perhaps another logistics?

Defintely agree needed a health.

I don't know much about Cabcharge, and thought Tabcorp would be good as people always gamble - and the worse the economy gets, the more they gamble! Tabcorp also paid a 16% div last year - so makes up a bit for the lower returners ... although ... if you reckon ... Why do you think it's bad? Will read up on Cabcharge.

I had been avoiding the insurers due to the expectation of worsing climatic conditions (major storms etc) that would eat majorly into profits.

 

[oracle]

I had been avoiding the insurers due to the expectation of worsing climatic conditions (major storms etc) that would eat majorly into profits.

I read in some book, where it says there is no such thing as bad insurance, only bad premium rates. For the right premium rates anything and everything is insurable

Berkshire Hathway run by Warren Buffett who invests for the long term, would not have majority of Bershire's portfolio tied up in insurance companies if he believed the economics of insurance business is going to deteriorate in the future.

Cheers,
Oracle.

 

[devank]

Another reason i like WOW is they are entering home improvement business in Australia, they are expanding overseas (NZ and India) so very good prospects of growth in future.

Do you really think entering home improvement business in Australia and expanding to India are good?
It will be hard to take on already established Bunnings!

Few other major players got burnt in India. Only call centres seems to be surviving


Regarding Insurance companies - May be avoid anyone who operates in limited area? For example, avoiding any company who predominantly operates in QLD?

 

[oracle]

Do you really think entering home improvement business in Australia and expanding to India are good?
It will be hard to take on already established Bunnings!

Early results of Masters stores are very encouraging, beating managements expectations. WOW are investing billions, I am sure they would have done a study or two regarding size of the market for home improvement and whether it's worth spending such hugh sums. But I guess time will tell.

Few other major players got burnt in India. Only call centres seems to be surviving

Buffett recently visited India looking for investment opportunities. Wal-Mart has been queuing for years to get clearance to start opening malls. But I guess they don't know as much as you do about investing in market with over a 1Billion ppl.

Regarding Insurance companies - May be avoid anyone who operates in limited area? For example, avoiding any company who predominantly operates in QLD?

You probably didn't understand my previous post regarding insurance premiums. Let me give you an example, if I know QLD has floods once every 3 years and the approx payout is $1000 when it floods else it's $500 and I am insuring 10 houses.

The year before it floods, insurance premiums were $80 per house thereby giving me total premium of $800. Floods come, payout $1000, making a loss of $200.

Next year premiums go up to $150 per house. Yes, premiums can double. Ask ppl whose houses have been flooded, or are living in a flood zone. Total premiums received $1500 from 10 houses. But wait, floods only occur once in 3 years so next year no floods which mean payout is back to $500. Let's see what happens to my profits. Last year I made a $200 loss but this year, its Christmas! Profits are $1000

Now even when floods come and payout goes from $500 to $1000 because you are earning $1500, you are still making a profit.

So I repeat, there is no such thing as bad insurance, only bad premium rates. For the right premium rates insuring QLD houses from floods can still be profitable.


Cheers,
Oracle.

 

[redwing]

Marcus Padleys Moron Portfolio is an interesting read, he lists all the shares in the S&P/ASX 200 index, then sorts them via market cap and crosses out any stocks he doesn't like or understand. You then apparently buy the first 10 to 20 stocks on the list.

The complete moron's guide to the top 10 long-term stocks

WAS listening to a high-profile financial personality "guesting" on the radio the other day and he was asked by a caller what 10 stocks he would pick in a long-term portfolio and, amazingly, he had no answer.

The Age - 17th Oct 2009 - MARCUS PADLEY. Marcus Padley is a stockbroker with Patersons Securities, the author of the Marcus Today daily stockmarket newsletter and the book Stock Market Secrets, available at marcustoday.com.au

I WAS listening to a high-profile financial personality "guesting" on the radio the other day and he was asked by a caller what 10 stocks he would pick in a long-term portfolio and, amazingly, he had no answer.

Instead he fluffed out a couple of totally inappropriate mid-cap stocks that would have got you into a lot of trouble.

It turns out a lot of people we think are financial "professionals" have never given, are not licensed to give and do not know how to give, advice; they just crap on from the sidelines without actually having an opinion on the core, bottom line, "nothing else matters" skill of the finance game, answering the question What do I buy? It's amazing how much noise there is in this industry around that question without anyone actually getting down to answering it. I am more than guilty myself.

So let's make a start. What 10 stocks do you put into a long-term portfolio?

This is Stockbroking 101, chapter one  The Moron Portfolio.

The moron portfolio is not called that because only a moron would pick it; on the contrary, it is so labelled because any moron could pick it. It is a portfolio designed to protect financial professionals (definition: people who have a licence to give advice) from legal action, and when it comes to legal action the main concern is that they have to have a reasonable basis for their recommendation.

On that basis the moron portfolio picks itself, and for the timid financial professional, here is the process. You print off the ASX 200 in market cap order and, starting at the top, pick the biggest stocks that you can't be sued for recommending. You do this not by picking the best stocks but by eliminating any stocks that you could be sued for recommending.

The 10-stock moron portfolio includes the four banks. Most safe advisers quite rightly recommend holding all four banks because there are more important games in town that finessing which bank. All will do. Then it's BHP, Rio Tinto, Woolworths, Westfield Group and Woodside. Anyone who likes gold would add Newcrest; finally, it's a toss-up between QBE, CSL or Macquarie Group.

QBE gets into most portfolios because it is well managed with a strong balance sheet; for a defensive stock it has steadily outperformed the market since it listed. CSL is a great stock but needs a bit of timing; it sometimes has long periods in the cold.

Macquarie Group is simple. If the market goes up, Macquarie goes up more. If it goes down, sell, and quick.

The only stocks that don't get an automatic pick in the top 10 include Telstra and Wesfarmers. Telstra because the only sex it offers is a yield, and by rights no one should invest in equities for that.

Equities are for growth in capital  ask any Yank  and if it wasn't for the performance of a protected monopoly called the Australian bank sector that has spoilt us into thinking we can have income and capital growth, the Australian retail investor would realise that.

High yield means low growth, which means a dull share price. Utilities, regulated gambling, property trusts, food, infrastructure, health care. I rest my case.

Wesfarmers doesn't get in because it's too complicated for most people. You'll find brokers very divided on Wesfarmers. Most are cautious about the big lash on Coles. That uncertainty, and the fact that it has about 10 different business units, puts it in the too-hard basket because no one really knows what it does. But the main bits are cyclical and I reckon that's enough at the moment.

There is a tail of stocks you might be recommended after that. Origin and Santos, AMP, IAG, Suncorp-Metway, Amcor, Qantas and Stockland, Foster's, Brambles, Orica, Lihir, Oil Search and AGL.

That's about it. You'll know when your adviser isn't a moron. He's the one recommending a stock I haven't already mentioned.

Source

 

[redwing]

I'm currently reading "How a Second Grader Beat Wall Street" and have recently taken some profits on Atlas Iron and Fortescue again...what a contrast between thoughts (reading) and action

 

[Intrinsic_Value]

So I repeat, there is no such thing as bad insurance, only bad premium rates. For the right premium rates insuring QLD houses from floods can still be profitable.


Cheers,
Oracle.

wow you are good.
I think you should be in the financial services industry, alot of people could benefit from your insights.

 

[Intrinsic_Value]

I'm currently reading "How a Second Grader Beat Wall Street" and have recently taken some profits on Atlas Iron and Fortescue again...what a contrast between thoughts (reading) and action

can you go into this in more detail, i am interested, should i buy the book

 

[Intrinsic_Value]

, and thought Tabcorp would be good as people always gamble - and the worse the economy gets, the more they gamble! Tabcorp also paid a 16% div last year - so makes up a bit for the lower returners ... although ... if you reckon ... .

This is exactly why i think retail investors need to be very careful about specific stock investments.

16%, yeah i think some more homework is in order lizzie.

 

[Graemsay]

Last year around 20% of fund managers beat the overall stock market indices. So if you're looking for an easy way to invest then I'd suggest finding the cheapest index tracker or ETF (make sure it's backed up by assets, not synthetic) and put your money there.

If you're looking for an investment strategy then take a look at a High Yield Portfolio. The basic idea is to pick fifteen to twenty stocks, split across different sectors, and hold.

 

[sanj]

Do you really think entering home improvement business in Australia and expanding to India are good?
It will be hard to take on already established Bunnings!

Few other major players got burnt in India. Only call centres seems to be surviving


Regarding Insurance companies - May be avoid anyone who operates in limited area? For example, avoiding any company who predominantly operates in QLD?

not so sure that part is true...