***** Portfolio - thoughts?

I found this entertaining article from Marcus Padley about the ***** portfolio: "the portfolio you create by listing all the shares in the S&P/ASX 200 index, sorting them in market cap order and then, starting at the top, crossing out any stocks you don't like or understand. Then all you do is buy the first 10 to 20 stocks left on the list and voila, you have the ***** portfolio."

The ***** portfolio might just be a sensible approach

This would be a fun experiment on paper although I wouldn't do this for real. But I'd like to know what people think about his comments on dividend investing, especially those who take a buy and hold approach. Is buy and hold realistic or does it need to be supplemented with selling shares from time to time?

"The difference between high-yield investing and investing for total return is the recognition that capital is as important as dividends and a dollar from either is the same. To accept that, you will have to accept you may have to sell stocks and pay some capital gain into your ''living'' account in order to generate your annual ''income''. Dividends are not the only way to produce a living out of the market, even in retirement, and in many cases is a poor way (especially in a bull market)."

 

sounds rather close to the mandate of some 'smart-beta' ETFs ( each is formulated differently .. but ....).


i suppose if it works for the individual investor ( most likely a relative novice ) not a bad start to base a longer-term investment plan on

it is tough work . to jump in as a novice and survive the first 3 years with assets and experience to build on

 

Likely you may create a portfolio with some strong bias's.

 

Marcus first wrote about it in 2009, has he been tracking how its performed since then?

 

He wrote an update in 2014 http://www.smh.com.au/business/comm...res-any-*****-could-pick-20141120-11qnsl.html

I don't know what to make of Marcus, although I've been reading about different approaches to build a portfolio. The Peter Thornhill way is easier for beginners to start with and my financial planner also recommends shares that produce consistent dividends, which seems to be the opposite of what Marcus suggests - make money by selling. But if you're doing debt recycling, the dividends are paying down the mortgage instead of being reinvested, and it may not make sense to sell. I suppose it comes down to doing what's consistent with your goals. (hope this makes sense, it's been a long day :S)

 

Marcus is a professional fund manager so would be under some pressure to produce significant returns , every year ( in good times and bad ) .

so buying and selling into the yearly cycles , trend trading , div. stripping , and stock-picking would all be part of his toolkit .
what looks easy for Marcus is much harder for most novices .

to give an example .. i hold WAX ('free-carried ' ) bought in Sept. 2011 @ 70c. and have since rescued the investment cash and invested elsewhere .. BUT the WAX portfolio in 2011 is NOTHING like the current holdings in fact one analyst suggests WAX turns over more than 80% of the portfolio each year . ( and pay a fair return regularly ) i suggest not ideal to be a major part of your portfolio ( it must hit a road bump sometime ) ... but does flag small/mid-cap stocks for further research , and opportunism .

now detractors will rightfully point out costs ( and fees ) are quite high , but if they are bringing home the returns ...

now i am not good at most of the stuff the WAX management have done in the last 6 years , so i focus at learning and doing the styles i am better at ( and let WA do things their way for me )

i would love to 'set and forget ; but sometimes big companies aren't the reliable div. payers they seem ... ORG and BHP are two fine examples , of how the divs can get very irregular quickly .

now debt recycling , is very unattractive to me . and due to recent changes in life being very low debt was a good thing ( but debt-recycling might be great for you )

 

The ***** portfolio would probably perform pretty close to the index I would guess. Especially if you're selecting the top 10-20 companies you like based on market cap. You would probably end up with banks and resources which the ASX200 is dominated by anyway.

In regards to the dividends vs selling shares, I agree. In fact, selling shares would probably be preferable from a tax perspective due to the 50% CGT discount. Also, if you don't need the income, it's better to have a high growth, no dividend portfolio because the gains are only taxed when (if) you sell. You can therefore use the gains to compound further before having to pay the tax. As Warren Buffet put it, its like a free loan from the tax department!

 

The company has to pay tax at company rates, for those investing in a SMSF in Australian stocks then taking the dividend (and franking credits) at 15% and reinvesting has some advantages.