Given the strong performance of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the last 18 months or so, relatively new investors would, justifiably, be questioning why they hadn't gotten involved in the stock market 20 years ago.
The index has risen an incredible 34% in that time, smashing returns that could otherwise have been recognised from bonds, money invested in term deposits or any other form of investment. However, this is a very dangerous way of thinking, and here's why.
Investors who start off in the best of times learn to only cope with these enormous returns. Whilst it is fantastic to watch our wealth increase on the back of strong performances from the companies we own, it is the nature of stock markets to rally and then fall, and it's agonising to watch your stocks fall in value as investors take their profits or lose sight of the business' long-term prospects.
Whilst diversifying your portfolio with a range of different stocks is important, so that weakness in one company will (hopefully) be offset by strength in another, it is also vital to maintain a strong foundation or base for your portfolio.
For instance, whilst the exciting rallies often occur in the growth or smaller cap stocks, you should also expose your portfolio to a number of well-established companies that will (more likely) remain strong through the tough times – provided that you buy them at an attractive valuation.
Here are three companies that fit that description nicely.
Washington H Soul Pattinson (ASX: SOL) is a diversified investor that is exposed to various industries, including the telecommunications industry through its part ownership of TPG Telecom (ASX: TPM), as well as building products, coal, equities and pharmaceuticals. The company is reasonably priced and, given that it is the second oldest company listed on the ASX, has proven its ability to get through the tough times.
Coca-Cola Amatil (ASX: CCL) is a company that needs no introduction but is trading at a very attractive price due to its poor profit guidance for this financial year. Earnings have been hit by pressures from supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) whilst the company has also been involved in a pricing war with key rival Schweppes, however, these factors are unlikely to affect the company in the long term. At $12.15 per share, Coca-Cola Amatil would be an excellent addition to your portfolio.
Like Coca-Cola Amatil, Telstra (ASX: TLS) is a company known to all Australians. Although the company's shares have rallied hard over the last year, there is plenty of room to keep growing given the telco's dominance in the market as more and more customers convert from the services provided by competitors.
