Changing share prices have resulted in some interesting changes to my portfolio weightings recently.
As I wrote earlier this week, setting a specific percentage for a stock to occupy in your portfolio doesn't make a lot of sense for the average investor. I don't believe in paying much attention to it; prices change, and so do various stock positions in the hierarchy.
However, I do check to make sure that they sit broadly in the positions I assign to them, with my most likely winners taking up more space, and more risky stocks lower down the chain.
At the time of writing Carsales.Com Ltd (ASX: CAR) is my biggest holding, thanks to its dominant position in the Australian market, and ability to diversify sideways into parallel profitable industries. With vehicle inspection, tyre sales, and automotive financing businesses, Carsales is well positioned to profit from individuals on both sides of every transaction, whilst also charging a fee for making the sale.
While these industries have low profit margins I believe they enhance Carsales' network effect which has been key to its success so far.
Importantly this kind of expansion can occur for years, and as Carsales increasingly becomes a one-stop shop for all automotive sellers and buyers, I am expecting it will be able to grow its market share as well. The websites it co-owns in Brazil, Mexico, and Korea also have ample potential, meaning Carsales will be a very long-term story.
As a result, Carsales comprises 8.14% of my portfolio.
Second cab off the rank and sometimes top dog is Collection House Limited (ASX: CLH) a small debt collection company with a market cap of under $300m.
Collection House has managed to grow revenues and dividends every year since before the GFC and has proved itself to be a diligent and conscientious steward for shareholders. While the collections market is currently quite competitive, the business is an established player and I am expecting significant tailwinds in the form of rising bad debts over the next five years or so.
Perhaps ironically, Collection House relies fairly heavily on debt to fund its growth (through the purchase of debt ledgers) and I am conscious that it is not risk-free. However, I believe the stock to be a fantastic investment and rather than sell any shares, I will be looking to build a larger portfolio around it.
Collection House is currently 8.06% of my portfolio.
Third position used to be occupied by Greencross Limited (ASX: GXL) at 5.49%, although it was recently relegated to fourth place by a resurgent Reject Shop Limited (ASX: TRS) at 6.06%.
Reject Shop reflected an unusually large purchase last year at a time when I expected to be contributing more to my portfolio than I am, and as a result it takes up more of my capital than I expected. Shares lost 50% of their value soon after I bought in as investors dumped the stock wholesale for underperformance. Its subsequent exit from the S&P/ASX 200 (INDEXASX: XJO) index crushed prices further.
A return to form has subsequently seen shares lift 54% to the price I bought them at, and I will be waiting to see if the stock can continue to improve on its key same-store sales metrics and deliver growth to shareholders.
With that said, selling some of my stake is a possibility, and I would consider putting the proceeds into Retail Food Group Limited (ASX: RFG), which is my highest conviction idea right now.
