One of the most intriguing aspects to investing is the uniqueness of an investor’s portfolio. This isn’t just the case amongst normal investors, it’s a similar case amongst many of the in-the-spotlight outperforming fund managers too.
There are lots of reasons for this occurrence. One reason is timing – cash available for investing appears at different times and at any point in time the opportunity set for an investor differs. Another reason is investment philosophy and personal biases – a value investor’s portfolio will look completely different to a growth investor’s and even two like-minded investors will not view every stock opportunity in the same way.
Assuming I received a $10,000 cash windfall with which to buy four stocks to “put in the bottom draw for ten years” there would be two major criteria I would seek. Firstly, a high level of conviction that the businesses would still be operating in ten years’ time and secondly, that the businesses would grow at a solid rate.
Here are the four I’d choose:
Japara Healthcare Ltd (ASX: JHC) is a recently listed operator of aged care facilities. While the stock is no screaming bargain, its long-term growth profile is appealing and over the next decade I suspect it can outperform the broader market.
ResMed Inc. (CHESS) (ASX: RMD) still has a very long way to go before it reaches saturation point in terms of product penetration. With market-leading respiratory products and rising living standards around the globe, I believe ResMed will continue to grow and prosper.
QBE Insurance Group Ltd (ASX: QBE) – this is by far the riskiest stock amongst my picks. The balance sheet leverage and unknown risks of a large insurer such as QBE means it’s hard to have a super high conviction on valuation. That being said, I think currently there is a large enough margin of safety between the price and a conservative assessment of value to buy. Moreover in ten years’ time I suspect QBE will have worked through its current issues, interest rates across the globe will be higher and QBE’s earnings and stock price could be meaningfully higher too.
WAM Capital Limited (ASX: WAM) – if I’m locking my cash up for ten years, my biggest reservation is about the opportunity cost of missing a wonderful buying period within the decade. With the ASX and most stocks currently looking fully priced, it’s highly likely that at some point in the next ten years a more appealing opportunity set will present itself. Besides the solid track record and diversified equity holdings that WAM Capital offers exposure to, the portfolio is also currently 37% cash and fixed interest, thus providing a nice hedge against better value in the future.