Diversification is one of the key parts to an investment strategy. Mitigating risk whilst still attaining high investment returns is one of the best things you can do for your portfolio. Being focused too much on one sector, such as banks, can be a problem.
It can also be a good idea to invest in shares that have the founder or multi-generational management involved in the business. That’s why I think the following three shares are good options for a strong portfolio:
Reece Ltd (ASX: REH)
I’m sure nearly every reader will have heard of the country’s leading plumbing and bathroom business. The Wilson family have had more than one member as CEO during Reece’s impressive century-long history.
The bathroom business alone has done very well thanks to Australia’s growing population and the obsession with renovating. However, it’s the other segments to Reece that could drive future growth. It offers products for water mains, sewerage, draining, fire services, gas mains, telecommunications, heating, ventilation, air conditioning and refrigeration. Reece can benefit greatly from the construction boom that’s occurring.
However, it’s also acquiring a Reece-like business in the US called MORSCO which could perhaps double the size of Reece and offer a lot of potential future organic growth in the growing ‘sun belt’ region of the US.
TPG Telecom Ltd (ASX: TPM)
TPG is one of Australia’s largest telecommunications businesses and is led by founder David Teoh, who owns a significant stake of the telco.
The entire telco industry has been under significant pressure with the change to the NBN, perhaps the market has been too harsh? TPG is investing significant sums of money into creating mobile networks in Australia and Singapore which could lead to a decent increase of earnings in future years.
I think 5G could be the future for the telco industry and the current TPG share price could offer a good long-term entry point.
It’s my preference compared to Telstra Corporation Ltd (ASX: TPS) at the moment, which still has large underlying issues.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
This is one of my favourite shares on the ASX.
Soul Patts is an investment conglomerate which has a diversified list of holdings. Its biggest holding is actually TPG.
It could definitely be described as a family business. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families.
Chairman Robert Millner is the current man in charge and within the ranks of important figures is his son Tom Millner who’s currently a non-executive director at Soul Patts and is a portfolio manager of the LIC Bki Investment Co Ltd (ASX: BKI), he was the CEO of BKI for nine years.
I like Soul Patts so much because the management have proven that they can outperform the market over the long-term and provide shareholders with a reliable dividend that has been increased every year since 2000.
The key to its future success is that it can change its holdings as it sees fit, which means its holdings will always be relevant to the time. It’s not like a bank that is stuck being a bank.
At the current prices I’d rather get TPG exposure indirectly through Soul Patts. I think Soul Patts is a better business. Reece is an interesting idea, but I’d want to see the full-year report before jumping in.
Want more diversification ideas? These top shares would all be wonderful picks for growth.
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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended TPG Telecom Limited and Washington H. Soul Pattinson and Company Limited. 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 Scott Phillips.