Unlike some things in life, when it comes to the amount of shares in my portfolio, I know bigger is not better…
So whilst some advisors will tell their passive sharemarket investing clients to hold no less than 15 stocks at any one time, I prefer to stick to those companies I know best.
It's not by chance that they've been the ones which have performed better for me over the years.
However that doesn't mean I have expert level knowledge of all the companies I hold.
But I must at least understand how a company makes money, what makes it different from other companies and the risks associated with my investment.
After all, I'm my own worst enemy.
If one of my stocks fell by 10%, 20% or even 50% and I didn't know why I held it, I'd be prone to making irrational decisions and probably lose a lot of money when I sell out of panic.
But by having a good understanding of the businesses I own, many of my concerns are washed away when I see a sudden price drop.
Remember that behind every three letter ticker code is a company.
It's only then that you'll understand the difference between volatility and risk.
Make the market your servant, not your master
If you dollar cost average – like I do – and invest a fixed amount at regular intervals but can't find any new ideas, why not just add to an existing one? Rather than becoming exposed to something you know little about.
With only a handful of stocks on my buy list this month, chances are, I'll be adding to an existing position.
Here are four stocks which are firmly on my buy list…
- Yellow Brick Road Holdings Ltd (ASX: YBR) is a junior wealth management firm which I first added to my portfolio in September 2013. Since then, my investment is actually down 2% but that's absolutely fine with me because much has been achieved operationally by the company. Although somewhat speculative (it's not yet profitable), I believe YBR is doing all the right things by its shareholders and could outperform the market handsomely from today's prices.
- Slater & Gordon Limited (ASX: SGH) is Australia's largest law firm and already very profitable. However it is growing strongly in the UK market, where it sees significant potential to consolidate. It holds slightly more than 5% of the personal injury litigation market and expects to draw some 45% of revenues from it in FY15.
- Coca-Cola Amatil Ltd (ASX: CCL) is Australia's, Indonesia's and New Zealand's bottler and distributor of Coca-Cola branded products. It also holds the exclusive licence to distribute Beam branded products (Jim Beam, Canadian Club, Makers Mark etc.) until 2023. CCA shares were hit hard earlier in the year but appear to have hit a bottom. With CEO Alison Watkins forecasting a return to sustainable earnings per share growth in the near-term, I think now could be a good time to add some shares to my long-term collection.
- Ardent Leisure Group (ASX: AAD) is a leading Australian leisure and entertainment company. It owns brands such as AMF and Kingpin bowling, Goodlife Health Clubs, Dreamworld and more. Ardent is already up 48% for the year but with ongoing growth in its US business, Main Event, I believe the long-term is looking more and more promising.
