What if you had no investments and wanted to create a portfolio right now?
What are the first five stocks you would buy as the foundation for your investment stable?
This is a great hypothetical to think about to suppress all the noise, macroeconomics and short-term greed. It forces one to consider the genuine long-term prospects of ASX shares.
As a prime example, TMS Capital portfolio manager Ben Clark was recently asked this very question.
Here are the ASX shares he picked:
Start with some old favourites
Clark would start painting his blank canvas with western Australian conglomerate Wesfarmers Ltd (ASX: WES).
"Wesfarmers is a business, which I truly believe, whose management looked after the shareholders superbly," Clark said in the On The Couch podcast.
"Bunnings, time and again, has proven to be an incredibly good business to own… This lithium venture's about to come online in the next year or two."
Wesfarmers' is "cashed up", and Clark feels it can exploit the current downturn to take on even more exciting business ideas.
The next two to add to the portfolio would be CSL Limited (ASX: CSL) and Macquarie Group Ltd (ASX: MQG).
"You got to have Macquarie in there," said Clark.
"It's driven by some of the smartest people in the country and on the planet, who are all heavily incentivised to make money for themselves and the business."
For Clark, though, Macquarie differs from many of its international investment banking rivals.
"You've got this very strong risk [management] attitude across the bank, at the top of the bank," he said.
"The business just continues to ground out higher and higher earnings."
'Bedrock of a portfolio'
The fourth pick is Brickworks Limited (ASX: BKW) or Washington H Soul Pattinson and Co Ltd (ASX: SOL), both of which own a considerable amount of each other's shares.
But funnily enough, the ownership overlap doesn't seem to correlate to synchronous movements in their stock prices.
"You do find their share prices not correlated, bizarrely, because they should be," said Clark.
"So sometimes Brickworks will appeal to us more, and sometimes Soul."
Similar to Macquarie and Wesfarmers, these companies have fingers in many different pies. The diversity seems to smooth out their fortunes over time.
Both Soul Patts and Brickworks are famous for increasing their dividends each year over many decades, regardless of how the economy or the stock market is doing.
"Rising stream of income over many, many years. It's the bedrock of a portfolio."
A 'misunderstood' gem
The fifth stock to add is mining royalties company Deterra Royalties Ltd (ASX: DRR).
"It's an incredibly interesting business. But I still think it's misunderstood."
Despite the massive presence of mining companies on the ASX, listed royalties companies are few and far between. According to Clark, they are much more common on the Canadian and New York stock exchanges.
But most seem to earn their keep from gold extraction and the subsequent profits of their tenants. Plus the mines have fairly short lives.
Deterra has none of those things.
"What Deterra has is globally unique," he said.
"Deterra owns a 1.232% royalty over the MAC [Mining Area C], which about two-thirds of BHP Group Ltd (ASX: BHP)'s total iron ore production comes out of… It's done on revenue, not profit."
Also, the MAC mine has an estimated 60-year life, and BHP is increasing production out of it over the next few years.
These differences mean there is much more certainty over the income.
"This year, it should push out, including franking credits, a yield of about 11% or 12%," said Clark.
"And it's got net cash on the balance sheet, and I think at some stage, one of those big resource players will come sniffing for it."
