How to find the best ASX shares on the share market

How does one find the best ASX shares to invest in, like perhaps Afterpay Ltd (ASX: APT) or CSL Limited (ASX: CSL)? Here's where to start

Sebastian Bowen

Author Bio Sebastian Bowen has been a Motley Fool contributor since late 2018. Sebastian found his passion for writing and educating others about shares and all things finance after completing his studies in political, economic and social science and enjoys bringing this passion to life at the Fool. His investment philosophy is a simple one – buying high-quality companies at prices that make sense. When he’s not researching his next investment at all hours of the morning, Sebastian enjoys classic movies and likes to unwind with a good book, newspaper or record. Areas of Expertise Dividend investing ETFs Education Bachelor of Political, Economic, and Social Sciences (Government and International Relations), University of Sydney Social Media X/Twitter Favorite Investment Quote "In the short run, the market is a voting machine, but in the long run, it is a weighing machine." – Benjamin Graham

Published April 30, 2021 2:48 pm AEST

Investing in ASX shares is hard. For every 'best ASX share' out there that might give you stellar returns year in, year out, there are 5 that will only deliver mediocre returns.

Some of these 'mediocre return' companies are amongst the biggest ASX shares on the S&P/ASX 200 Index (ASX: XJO) too. Take Westpac Banking Corp (ASX: WBC). Its share price today (around $25 at the time of writing) is at the same level it was back in 2007. The same can be said for AGL Energy Limited (ASX: AGL), only replace 2007 with 2004 for that one.

Investors who picked up Rio Tinto Limited (ASX: RIO) in May 2008 had to wait until this year to see their pricing positions break even. And Super Retail Group Ltd (ASX: SUL) has yet to break its all-time high from way back in 2013. Now I'm not saying that these companies are mediocre businesses. But their share price performances for long-term investors have certainly been mediocre, and hardly the best ASX shares to own.

It's a good reminder that there are a lot of shares that haven't done all that much for their owners over the past decade or two. It's easy to forget about those kinds of returns if one has an Afterpay Ltd (ASX: APT) or a CSL Limited (ASX: CSL) in one's portfolio. CSL and Afterpay might have both had a rough couple of months. But they are also up almost 150% and 4,000% respectively over the past 5 years.

So how does one pick the best ASX shares like CSL or Afterpay from the ocean of mediocrity out there?

investor looking excited at rising fortescue share price on laptop — Image source: Getty Images

Finding the best ASX shares in an ocean of mediocrity

Well, let's look at what these companies have in common. Both have managed to form what Warren Buffett might call a 'moat'. Afterpay arguably has 'the brand' in the by now, pay later space, as well as an ability to maintain a first-mover advantage in the space against a plethora of competition. CSL has managed to dominate industries with extremely high barriers to entry in blood medicines and vaccines. Both have been able to compound growth over a number of years, as well as dominate not just the Australian market, but the global one.

All of this adds up to a certain something, a je ne sais quoi if you will, that leads to success. The best ASX shares tend to have something like this. But it's tricky because each business's 'special something' will be different. But if a company can demonstrate an ability to grow and compound revenues, earnings and/or customers over multiple years, that's a good start

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