Here’s a unique test for investors: If you had to sell down your portfolio and invest it all in just one stock, ask yourself which stock would it be? While we’re not supposed to have favourites, everyone does, and most people can nominate their one stock without pausing for thought.
Marcus Padley threw me a curveball by posing this unusual theoretical question during our video interview recently. To be clear, he’s not advocating that investors should hold just one stock, just thinking about which stock it would be. His point is that investors are invariably deeply informed about the stock that they select.
Marcus then explained how answering this question also reveals a critical flaw present in most portfolios, before going on to offer a simple solution anyone could put in place with a small amount of work.
Hear direct from Marcus
Padley: The 9-point checklist for a perfect portfolio
If you missed it, in the first wire from our shoot with Marcus he ran through the 9 most common mistakes he sees when reviewing client portfolios.
Sorry, your kids aren't getting your equities (or your house)
In a zero rate world, retirees would need to explore the concept of selling down their assets to live off the proceeds, given income is fast disappearing, or as Marcus put it in our second video with Marcus: Sorry, your kids aren't getting you equities, or your house.
You then need to analyse and act on the work. You must either own the stock or not own the stock. That requires the greater work.
This is an interesting concept, and probably reveals some truths about how investors should consider the companies they own shares in. It however does not consider the vast number of investors who DON'T want to be intimately involved with their investments, those who don't want to watch share prices daily and just want to keep their finger slightly on the pulse to work out if the original thesis remains intact (do nothing) or is broken (sell quickly). A somewhat partially open coffee-can approach is what I try to achieve. I don't think the 'one stock portfolio' would pass the 'sleep soundly at night' test.
Diversification has not worked for me. So I now focus on the small number of large cap stocks that have performed well over the last 2 years (up more than 30%), with superior growth in their fundamentals (as per Marcus). Then I use technicals for timing. Over the last very satisfying month 90% in MFG, 10% in RMD.
William J O'Neil has been doing it in the US since the mid 1950's. His theory based on the greatest growth stocks in US history dating back to the 1880. Finding a Super Stock with the best fundamental growth, and being supported by Professionals. Then the best charting patterns based on price/volume action. These super stocks happen from time to time. I did all the work based around O'Neil theory. Sold down my weaker stocks and concentrated just like O'Neil has done in the past with his super stocks. I was fully invested in A2 Milk a couple of years ago based on my work, and his theory of a super stock. Over a 12 month period it went up 269% I think it was ? and sold it weekending 29/3/18. My greatest winner of all time!! Banjo Edwards Specialising in William. J .O'Neil Theory