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The Random Portfolio: August 2009

August 17th, 2009 · Greg Atkinson · 19 Comments

Back in June the Shareswatch Random Portfolio was down by just over 4% but as I wrote in the update for that month, I felt confident it would be in positive territory within 2009. Thanks to the sustained rally this financial year the portfolio is now well into positive territory and I doubt it will be in the red again for many years, if ever.

Over the last few months most of the stocks in the portfolio have surged ahead with the exception of Monadelphous Group (MND) which has just moved up a few percent but the stock price is still heading in the right direction. Unfortunately there are also quite a few stocks still in the red but some of them will probably recover over the next year or so.

Some of the stand out performers since near the end of June have been Challenger Financial Services Group (CGF) which has gone from $2.41 to $2.91, Platinum Asset Management (PTM) whose stock price is now above the original purchase prices by over 30% and Riversdale Mining (RIV) which continues to power ahead and closed at $6.27 on the 14th August.

If we look at the entire portfolio it is clear that although 4 stocks are in the red the overall portfolio is now up by 11.677% and this highlights the importance of having a diversified portfolio. Some people may be great stock pickers and pick just a couple of great stocks, but for the rest of us mere mortals having a small bag of good stocks spread across a few sectors is probably the best long term strategy.

Shareswatch Random Portfolio August 2009

(I have changed the format of the table because the previous version was not very clear when using some browsers)

So the Shareswatch Random Stocks Portfolio now has a respectable unrealised gain of over 11% and that means it has already out performed cash and gold in $AUD terms since it was created on October 23rd. (it may have also outperformed residential property as well?)

Just think about that for a second. This group of stocks was selected totally randomly and yet has out-performed a lot of the investment strategies tossed around by some self anointed market experts. To get an over 11% return in around 10 months you did not need to sign up for a stock picking newsletter or try and time the market, you just needed to have a long term belief that eventually the stock market would rise again.

At this stage I would be tempted to take some profits from CGF and RIV but to keep things very simple I will stick to holding all stocks for at least some years to prove my theory that over the long term, buying in bear markets and taking profits some years down the track will provide good investment returns.

Comments and Notes:

  • The portfolio dog stocks: Duet Group (DUE) and Macmahon Holdings (MAH) are still in the red but in a lot better shape than they were back in June.
  • Platinum Asset Management (PTM) and Challenger Financial Service Group (CGF) are proof that the financial world has not been sucked into some vortex and that only gold will be accepted at your local shops. Some time ago many exprts were saying that financial stocks would be a bad investment for years to come, well guess what? They were wrong!
  • The weakness in the share price of Macmahon Holdings (MAH) suggests to me that the mining boom is not coming back in a hurry. Yes exports are holding up relatively well for now, but prices for iron ore etc. are down and so the miners are not adding capacity or pushing ahead aggressively with a lot of new projects.

Remember that this random selection of stocks was put together before the stock market bottomed out in March 2009, so if my timing has been better then the portfolio may been doing even better now. But getting the timing right is a hard thing to do and in my view the best strategy is to just buy quality stocks in bear markets whenever they look like good value.

Anyway it will be very interesting to see how this portfolio will be doing on it’s first anniversary. My current view is that I doubt it will continue to surge ahead and that the overall market will have a tough time breaking through the 4800-5000 level. However I certainly do not expect to see stocks fall below 4000 again for the rest of 2009. (fingers crossed!)

Please note this Random Portfolio is NOT meant as an endorsement or recommendation of any of the stocks contained within it.

The Shareswatch Random Portfolio is a random selection of stocks from the ASX 200 range of companies. For further details regarding how it was constructed please see: The Random Portfolio

The current stocks prices of the companies on the portfolio can be viewed here: Stock market quotes and stock prices

19 responses so far ↓

  • 1 Senator13 // Aug 20, 2009 at 4:59 pm

    What do people make of recent company earnings results so far?

  • 2 Pete // Aug 28, 2009 at 3:10 pm

    “I doubt it will be in the red again for many years, if ever.”

    Haha, I will hold you to that one Greg.
    An 11.7% change is hardly a position of resilience.

    Senator: I admit I don’t follow every industry, so I cannot really say much, but I have found some gold miners to be doing pretty well, and even other companies doing surprisingly well (like Woolies).

    But…I still think there is a certain level of BS in these reports, especially from finance related companies, and some of them may be forgoing current loss reporting now, hoping to absorb it later when things pick up. Which is dodgy of course, and also a risk if things don’t pick up and they are stuck reporting even more losses than they should have to.

    It’s all legit if you don’t get caught right?

  • 3 Greg Atkinson // Aug 29, 2009 at 8:14 am

    Pete for a random bunch of stocks put together while the market was still heading down I reckon the portfolio is doing pretty well. A 11% capital gain in less than a year in a bear market simply shows that money can be made in stocks even in bad times. Anyway the real test will be in a another year or so, by then I would hope it is up around least 20%. Remember the long term average return from stocks is around 10% so for long term investors like me an 11% capital gain is right on the money.

  • 4 Pete // Aug 29, 2009 at 2:51 pm

    I don’t have a constructive reply to your comment Greg, I disagree with most of the rationale behind it.

  • 5 Ned S // Aug 30, 2009 at 12:05 am

    Month End data for SP500 showed P/E was at 143.95 on 31 July 2009.,3,2,2,0,0,0,0,0,1,11,0,0,0,0,0.html

  • 6 Greg Atkinson // Aug 30, 2009 at 7:44 am

    Hi Ned, the P/E ratio looks terrible because it is “Based on As Reported Earnings” and is not forward looking. If you use that type of P/E ratio in a recession then I guess it is always likely to look very poor. If you feel that companies will continue to do as bad in FY2009-2010 as they did in FY2008-2009 then you would stay clear of stocks, but many investors are buying into the recovery story and are betting that next year this P/E will look much better.

    I cannot really comment more because I do not follow the U.S, market in that much detail.

    I wonder if they have the same figure for the S&P/ASX 200? (I could not find it)

    Personally I look at historical P/E’s and forward looking P/E’s (amongst other things) to try and help me through the fog of a recession.

  • 7 Ned S // Aug 30, 2009 at 8:23 am

    Ta Greg – I looked for the P/E for the ASX200 and couldn’t find one either – Closest I got was this which I figured someone might be able to calculate something from the downloadable .csv files if they knew what they were reading:

  • 8 Greg Atkinson // Aug 30, 2009 at 8:32 am

    Ned I saw the figure “14” being tossed around for the Oz stock market but I did not pay much attention to it. I mainly focus on individual stocks and not so much on Index P/E’s etc. Charting tools often have an option to show a trailing P/E on them and if you like I can dig a few of these charts up and post them.

  • 9 Ned S // Aug 30, 2009 at 8:47 am

    One such chart would be handy for me to get a historical feel on what Oz P/Es are like Greg – Thanks. I guess the other issue is that if that SP500 figure turns out to mean nothing much at all the lesson is to be pretty suspect of P/Es coming out of recession?

  • 10 Greg Atkinson // Aug 30, 2009 at 9:17 am

    Ned I was unable to get the P/E onto the same graph as the All Ords/ASX 200 using my charting tool but I found this: Market capitalisation Dividend Yield and PE ratio
    The current P/E for the ASX 200 is down around 14 now so the “E” side of things has improved since this chart was made.

    I am actually pretty suspect of all P/E ratios simply because the earnings side of things can change very quickly. It is a bit like batting averages, a good batsman might average 50 but this does not mean he will not get a duck the next time he comes out to bat. However over the longer term you figure he will get back to form and start scoring runs again.

    Maybe I should leave the cricket analogies alone? Oh the pain of that Ashes loss!

  • 11 Ned S // Aug 30, 2009 at 9:20 am

    Just noticed your Twitter on the BDI – From what I’ve read on it (and at the risk on stating the obvious) the hope is that it will turn around sometime during the next 6 weeks or so – And if it doesn’t then it’s likely to be a case of look out below again.

    Also the timeframe for resetting of the bulk of the remaining several trillions worth of US ARMs is worth watching – That’s still a year off I guess?

    Maybe America will just have to print some more money to bail itself out of a double dip recession. That bloke I follow a bit called Satyajit Das reckons the deleveraging will have to go on and seems to be inclinining to the view that the US is in for a long term flat spot with some ups and downs in it – Similar to Japan. Witty gent – He reckons their currency used to backed by gold but now it’s the 86th Airborne – Smile.

    And the Chinese recently made a comment that their recovery is “unbalanced”. One thing is obvious though – Namely the bubble (and bust?) mentality remains alive and well.

  • 12 Greg Atkinson // Aug 30, 2009 at 11:57 am

    Ned S – the decline in the BDI worries me because it might suggest that iron ore shipments for example have dropped off as the impact of the Chinese economic stimulus starts to wain a little. To get a “feel” for what might be going on I watch the commodities futures and the BDI; if they both fall at the same time for some weeks then I will start to be very worried.

    The double dip recession scenario is another worry because I do not think anyone really knows at the moment what will happen when governments start to wind back their spending. Can the U.S. economy for example stand on it’s own legs without the massive support of the taxpayer?

    As for China I still don’t see how the economy will return to strong growth without demand returning for Chinese exports. There is only so long you can keep factory workers occupied with building bridges etc.

  • 13 Ned S // Aug 30, 2009 at 3:19 pm

    That’s my take on the BDI Greg – Along with their electricity consumption it gives about as good an indication of what is going on in China as one is likely to get.

    The indications are that catastrophe has been avoided. But when one pokes around some sites that aren’t too given to end of the world scenarios it is still possible to get the impression that various bits of the world will be paying for the GFC in one way or another for anywhere up to 15 years.

    Inflation seems to be the “great white hope”? Although Western governments would deny it I think. Gradually we are just going to have to see that shift away from Western consumption towards Asia – Das talks about it a bit.

    With markets continuing up and down throughout the process I suppose. Hope springs eternal in the human breast hey? So Oz will line up for the next Ashes series I’m sure – Smile!

  • 14 Greg Atkinson // Aug 30, 2009 at 4:22 pm

    Ned S – yes I think the world has avoided a meltdown this time around but no doubt we will manage to create another bubble at some point. Many nations will be paying off debt for years to come but there will be winners out of all this mess…I am just not quite sure who they are yet.

    As you have probably guessed I am fairly bullish on Asia and see this region as being the engine that will spur on the next burst of global growth. It is a big region with a huge emerging middle class and I can’t see them giving up their dream of a better future just because some western consumers are having a hard time.

    Let’s not mention the cricket for a while 🙂

  • 15 Ned S // Aug 31, 2009 at 8:33 am

    It’ll be interesting to see how long the next bubble takes to build Greg – If we aren’t already in it. Indications are that they are becoming more frequent.

    And whether people will modify their investment habits based on such knowledge. An interesting example is bullion – It hasn’t gone ballistic like it did back in the 1970s and very early 1980s. Of course we haven’t had the oil supply shocks we had back then. Or the inflation – Yet anyway.

    I think of the Nikkei – I don’t think it is overstating it too much to say its been in a pretty nasty twenty year bear market? But I also gather its seen its fair share of ups and downs over the period. And wonder if it may just be possible that if different countries get the feeling that their economies are in for a long low flat/unhappy time that their investors mightn’t learn something from that – Regarding their home stock exchanges anyway?

    A lot of it will still come down to inflation expectations though I think. While its my understanding that high inflation isn’t great for stocks in real terms it is way better for them than it is for cash.

    But my crystal ball IS well and truly shattered!

  • 16 Greg Atkinson // Aug 31, 2009 at 9:50 am

    Ned I do not think anyone has a crystal ball that works very well, it is just that some people have a good run.

    I would guess it would be quite possible for a number of countries to enter a period of low growth for years, I am not sure they will have the ‘Japan” experience though. The bubble in Japan was unique in many ways and was actually not quite as bad an many people make out. I arrived in Japan for the first time during the so called “lost decade” and the place seemed pretty vibrant to me.

    As for the next bubble I am sure steps are being taken now that will create one. A commodities bubble perhaps?

  • 17 Greg Atkinson // Sep 1, 2009 at 3:09 pm

    By the way, the Random Portfolio as of today was in the black by 16.97% or nearly $17k. It is doing much better than I expected.

  • 18 Senator13 // Sep 1, 2009 at 8:12 pm

    With the reporting season out of the way it looks like there were some mixed results but overall could the worst be behind us?

  • 19 Greg Atkinson // Sep 8, 2009 at 11:47 am

    Senator13 I am not sure. Maybe the worst of the reporting is behind us but not the worst as far as the economy is concerned. I sense the economy has yet to bottom out just yet. I posted a blog today that covers my thoughts in this area. See: Tough times ahead for the Australian economy & businesses.

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