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The Shareswatch Random Portfolio.

October 24th, 2008 · Greg Atkinson · 3 Comments

Like many other investors I spend countless hours doing research before picking stocks to invest in. Ratios are checked, annual reports read, sector reports studied and yet like everyone else I have seen some of my most beloved stocks cut down by 30% or more. (some by more than 50%)

Even the stock picking gurus have been humbled recently so I am wondering, are we fooling ourselves by thinking we actually add any value by selecting stocks? Or could we just randomly select companies to invest in and achieve basically the same results?

Enter the “Random Portfolio”. This fictional portfolio is a selection of stocks from the S&P/ASX 200 range of companies selected randomly. To include stocks in this portfolio I simply used an online random number generator to pump out numbers between 0 and 201 and then picked the stock corresponding to that number from an alphabetical list of ASX 200 stocks.

For example Challenger Financial is stock 52 in an alphabetical list of ASX 200 stocks, and therefore it is in the portfolio because the random number generator spewed out the number 52. A fictional $100k was used to construct the portfolio and to keep things simple I decided that the portfolio will have just 10 stocks with $10k invested in each one. The fictional buy price for each stock is based on the closing prices as of the 23rd October, 2008.

So without further delay, allow me to present to you the “Random Portfolio”.

CCL – Coca-Cola Amatil. 1248 shares. Buy price – $8.01. Cost – $9996.48

CGF – Challenger Financial. 5263 shares. Buy price – $1.90. Cost – $9999.70

DUE – Duet Group. 3676 shares. Buy price – $2.72. Cost – $9998.72

GNS – Gunns Limited. 9174 shares. Buy price – $1.09. Cost – $9999.66

MAH – Macmahon Holdings. 11494 shares. Buy price – $0.87. Cost – $9998.78

MND – Monadelphous Group. 1034 shares. Buy price – $9.67. Cost – $9998.78

OST – OneSteel. 2958 shares. Buy price – $3.38. Cost – $9998.04

PTM – Platinum Asset Mgmt. 2645 shares. Buy price – $3.78. Cost – $9998.10

RIV – Riversdale Mining. 2949 shares. Buy price – $3.39. Cost – $9997.11

WOW – Woolworths. 377 shares. Buy price – $26.50. Cost – $9990.05

Total Portfolio Cost – $100,000 AUD (rounded up)

Notes:

1. To keep things simple no broker costs are included.
2. Stocks will not be sold. Positions will be reviewed in 5 years.
3. Dividends will be theoretically used to pay taxes, running costs.
4. There will be no active trading.

If anyone has any other suggestions regarding how the portfolio should be managed please feel free to leave a comment.

Every few months I will update blog readers on how the portfolio is tracking and we can all see how it performs.

Remember this is just a random selection of stocks and I am not suggesting that this is the way anyone should invest!


3 responses so far ↓

  • 1 steve // Nov 8, 2008 at 11:24 am

    This will be interesting.
    I have an innocently naive question, though. (Please remember I am totally new to this).
    Wouldn’t it be more interesting, or at least equally interesting, to go BACK five years and look at the share prices five years ago, hypotheitcally buy $10,000 worth of each, and then see where they are at in today’s market?

    I can imagine there are good reasons to not do this, most of all the fact that the worldwide market just slumped, and therefore the portfolio would not have gained much, or would recently have lost whatever gains it had managed to accrue…? Is that correct?

  • 2 Administrator // Nov 12, 2008 at 8:34 am

    Going back 5 years to pick the stocks could work, but I did not do this because it would be easy to cheat 🙂 Also the ASX 200 Index changes (stocks move in/out) so I would have had to go back and try and find out what stocks were in the ASX 200 5 years ago. So I figured pick the stocks this year (in a shocking year) and let’s see what happens!

  • 3 Greg Atkinson // Dec 13, 2008 at 11:06 am

    I will be looking at the performance of the random portfolio at the end of December, however as people could probably guess it is not doing very well!

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