When you're scouring through the stock market, it can be hard to know what a 'buy' is and what a 'sell' is. Sometimes your success seems to be more luck than anything. However there are simple ways to put the odds of this lottery in your favour.
Over the years, investors have devised a simple strategy for mitigating losses and maximising the chances of capital gains. It might not sound pretty but creating a portfolio with companies of different sizes who operate in different industries, can greatly reduce our chances of seeing our portfolio drop significantly in value.
To do this, we develop an "all-rounder's" portfolio. Enabling it to take its shape from the ground-up. Having a majority of our funds in 'core' stocks, followed by growth stocks and, depending on your risk tolerance, a number of riskier companies.
At current prices, investors starting to buy stocks should look at companies like Coca-Cola Amatil Ltd (ASX: CCL), Telstra Corporation Ltd (ASX: CCL) and ResMed Inc. (CHESS) (ASX: RMD). Each pay good dividends (5.9%, 5.6% and 2% respectively), have brand names many of us know and trust, and currently trade at modest prices. If you ask yourself whether each company will be around in 10 years' time, the answer will likely be yes and in that time, earnings are likely to grow. So too are dividends.
For a mixture of growth and income, it's hard to go past Ardent Leisure Group (ASX: AAD), Village Roadshow Limited (ASX: VRL), Slater & Gordon Limited (ASX: SGH) and M2 Group Ltd (ASX: MTU) – the owner of Dodo, Primus, Eftel and Commander. Each pay strong dividends but are likely to grow earnings strongly in the next three years.
Looking at the sectors currently out of favour with the market provides opportunities for savvy investors. Pacific Brands Limited (ASX: PBG) (owner of Bonds, Mosimo, Tontine and much more) is currently undervalued following years of tough retailing conditions. So too are a number of resources stocks like Beach Energy Limited (ASX: BPT).
For high-risk investors, small-cap stocks are a must. Shine Corporate Ltd (ASX: SHJ), Cash Converters International Ltd (ASX: CCV) and gas producer Senex Energy Ltd (ASX: SXY) are names to be familiar with.
Foolish takeaway
Building a well-diversified portfolio not only helps you mitigate losses but enables you to be picky with your stock choices. In investing there's no rewards for being unique but just remember your portfolio only deserves the best!
