Portfolio management is a key art to master for investors. While extreme diversification can handicap your best ideas and lead to lower overall returns, extreme concentration is risky as it increases your chance of experiencing a significant loss from which it can be hard to recover.
An adequate level of diversification can be achieved in a number of ways – a balanced portfolio, incorporating different investment metrics is one.
When it comes to owning a rock solid business that can withstand all kinds of pressures, a company backed by hard assets and with a product or service which is almost impossible to avoid is the type of stock you want. Sydney Airport Holdings Ltd (ASX: SYD) fits the bill nicely. It’s backed by the hard assets of an airport and associated infrastructure and it provides a service which is critical for both domestic and international travellers.
GARP stands for growth at a reasonable price. In the past Cochlear Limited (ASX: COH) has generally traded at a very high premium due to its high growth prospects and comparative advantage in implantable hearing devices. Last year the stock price took a tumble which has arguably left the stock trading on more appealing metrics.
Some investors like to allocate a portion of their portfolio to smaller stocks that have the potential to provide big returns. While the small-cap sector can be ‘hit-and-miss’, stocks in the mid-cap sector have generally established themselves with business models which have already proven themselves. Ozforex Group Ltd (ASX: OFX) which listed last year is one such company – its business is high quality and growing at a steady clip.
When it comes to quality, it’s hard to go past Woolworths Limited (ASX: WOW). The retailer’s success at continually growing sales and at squeezing extra margins from its operations has elevated the company to world class status.
Dick Smith Holdings Ltd (ASX: DSH) didn’t receive too much love from investors when it listed via an initial public offer (IPO) last year. However, with the electronics retailer reporting a solid $25 million net profit after tax (NPAT) for the first half and reaffirming guidance for the full year of $40 million NPAT, the stock looks to be trading in value territory.
When it comes to blue-chip companies trading on high dividend yields it’s hard to go past Insurance Australia Group Limited (ASX: IAG). The insurer is forecast to pay dividends totalling 35.2 cents per share in FY 2014, placing the stock on a yield of 6.3%.