Want to have better gains in 2015? Then it's time for a stiff cup of black coffee and to go through your group of stocks one by one to see what stays and goes.
The famous fund manager Peter Lynch was fond of saying "grow your flowers and cut your weeds". When it comes to improving your returns, stock laggards not only perform poorly, they keep you from putting your money into better stocks- like weeds siphoning off nutrients away from the flowers.
Take a look at each stock and ask-
- Is the stock's story getting better or worse?
- Are the reasons why you bought the stock still in play, or has the situation changed?
- If you could wave a magic wand and make this stock disappear from your portfolio with no loss, would you buy it again now?
If any of these are answered in the negative, then probably it's time to cut the weed and give your winning stocks a money boost.
Another way to keep performance high is to avoid some stocks from the word "go". A company may be ok, yet if its industry is flat or in decline, there's not much it can do but ride out the storm. You, on the other hand, don't need to put yourself through that.
Here are some stocks with headwinds that it might be best to avoid for the time being. (Once they're completely unloved and forgotten, you can always circle back for some bargains….)
Until you see movement in the Chinese construction and property market driving up iron ore imports, ore prices will fall and flounder. So steer clear of the mining juniors like Atlas Iron Limited (ASX: AGO). Even the mining giants BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) are price takers of iron ore, but they are low cost producers and can ride out a weak market. Rio Tinto is too reliant on iron ore, so I'd lean toward BHP here because at least it also has oil and gas business to offset iron ore and coal.
Santos Ltd (ASX: STO) will be starting up its GLNG LNG project next year, but falling crude oil prices could pull down LNG prices since they are based on world petroleum prices. That may cut into the projected rate of return for the project when similar projects overseas are built and operated at lower cost. The company is good, but a declining commodity market can pull down all the players- good and bad.
