How my top 10 ASX stock picks performed in 2023 and 1 valuable lesson

How an investor with a 50% strike rate can still beat the market. Here's proof it is possible.

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Before the calendars switched over to 2023, I put my brain to work devising a list of quality ASX stock picks. These were the companies I believed provided the most attractive opportunity for adding to a portfolio ahead of 2023.

The goal was not to be a fortune teller — attempting to pick the top-performing stocks for the year ahead. Rather, I wanted to assemble a robust 'team' of companies that covered three distinct areas: growth, defensive, and income-generators.

I suspected that a balanced portfolio — one that refrained from giving up on embattled growth companies nor neglected the defensive side — could be a winning mix when combined together.

Personally, it seemed advantageous to create a comfortable combination in light of economic storm clouds gathering on the horizon. After all, it's important to strike the right balance between desired returns and palatable risk.

So, how did my top 10 ASX stock picks fair compared to a solid 9% gain (plus 4% in dividends) from the S&P/ASX 200 Index (ASX: XJO) this year?

Top ASX stock picks in review

Despite a broad rise in the Australian stock market this year, half of the companies I selected have experienced a share price fall in 2023 — the worst offender being drilling optimisation solutions provider Imdex Limited (ASX: IMD), retreating 12.6%.

Although the mining tech company still appears fundamentally solid, a large capital raise early in the year substantially diluted shareholders. My guess is a portion of the poor performance is attributable to the price-dampening effect of more shares being issued.

At the other end of the spectrum, Codan Limited (ASX: CDA) — a metal detecting and communications equipment seller — has shot the lights out during this trip around the sun. Shares in the company have returned around 120% year-to-date as results panned out better than the market anticipated.

For a full read into my thoughts on Codan, take a look at this write-up.

ASX stock pickShare price returnDividend yieldTotal return
Jumbo Interactive Ltd (ASX: JIN)-2.7%3.1%0.4%
Pro Medicus Limited (ASX: PME)71.2%0.04%71.2%
Imdex Limited (ASX: IMD) -12.6%1.9%-10.7%
Objective Corporation Ltd (ASX: OCL)-5.6%1.1%-4.6%
Sonic Healthcare Ltd (ASX: SHL)6.7%3.3%10.0%
AUB Group Ltd (ASX: AUB) 23.3%2.3%25.6%
Lynas Rare Earths Ltd (ASX: LYC)-9.9%0.0%9.9%
Codan Limited (ASX: CDA) 118.2%2.1%120.3%
JB Hi-Fi Limited (ASX: JBH)23.5%6.0%29.5%
Shaver Shop Group Ltd (ASX: SSG)-7.8%9.5%1.7%
Data as of 9:00 am AEST 21 December 2023

Thanks to a few big performers and minimal detractors, my top 10 ASX stock picks have returned 23.4% (including dividends) up to 21 December 2023. Pleasingly, this represents a 10.4% outperformance of the ASX 200 before fees.

Furthermore, this collection of shares generated a dividend yield of 2.93% in 2023. It's not quite the 4% offered by the bank and mining-heavy benchmark, but still nothing to sneeze at. This passive income was kept afloat by generous payouts from JB Hi-Fi and Shaver Shop.

Still a winner when 'losing' half of the time

Now, the valuable lesson promised in the headline.

Reflecting on a hypothetical portfolio is a fun exercise. However, the useful takeaway here is the benefit of diversification.

The overall performance of my ASX stock picks still exceeded the market, even though half delivered a negative return. That is the magic of portfolio diversification at work — the act of not putting all your eggs in one basket.

History has shown that the majority of returns are usually derived from a few stocks. The list above is a prime example of this. That's why it can be incredibly valuable to invest in, say, 15 to 20 different companies.

Being right 50% of the time can still generate market-beating returns.

Motley Fool contributor Mitchell Lawler has positions in Jumbo Interactive, Lynas Rare Earths, Pro Medicus, and Sonic Healthcare. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Imdex, Jumbo Interactive, Objective, and Pro Medicus. The Motley Fool Australia has positions in and has recommended Imdex. The Motley Fool Australia has recommended Aub Group, Jb Hi-Fi, Jumbo Interactive, Objective, Pro Medicus, and Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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