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 enduring a significant loss.
An adequate level of diversification can be achieved in a number of ways – with a balanced portfolio, or by incorporating different investment themes.
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 CSL Limited (ASX: CSL) has generally traded at a premium due to its high growth prospects and significant portfolio of intellectual property. While the stock continues to trade at a premium it’s arguably warranted considering the above-average quality of the group.
Some investors like to allocate a portion of their portfolio to smaller stocks that have the potential to provide bigger 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. iSentia Group Ltd (ASX: ISD) is one such company – not only is it growing at a steady pace but it also holds major market share in the provision of media intelligence.
When it comes to quality, it’s hard to go past Wesfarmers Ltd (ASX: WES). The retailer’s success at growing sales and squeezing extra margin from its operations which encompass Coles, Bunnings, Officeworks and Kmart is a testament to its strategy.
When it comes to blue chip companies trading on high dividend yields, Telstra Corporation Ltd (ASX: TLS) remains a winner. Assuming the telco pays dividends totalling 32 cents per share in financial year 2017, the stock is trading on a fully franked yield of nearly 6%.
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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.