Building a 2020 Share Portfolio

Richard Hemming


Under the Radar Report's Portfolio Manager The Idle Speculator gives ASX investors advice on how to generate big returns for your Share Portfolio. 

Look at the fundamentals of the companies you invest in

When you invest, you run the risk of being your own worst enemy if you do not rationally manage your expectations to ensure that you are not at risk of crashing into unforeseen obstacles. Ultimately, there is more noise than substance in the stock market, but success most often comes down to the fundamentals of the companies you invest in. ASX investors will need to analyse and understand the relationship between sales revenue, which is a function of sales volume and realised prices, and operating costs leading to profit and cash flow. This is when Under the Radar Report comes. We do all the hard work so you don't have to. Sign up for a 14-day free trial and don't miss out on buying under the radar. 

The market for a stock might sell off in a second

This event might anticipate occurrences or events that may take months or years to reflect themselves in a company’s cash fows or balance sheet. On the other hand, the stock market may ignore for months or even years the impact of other events or circumstances despite the proximity of a report of signifcant direct fnancial efects. This ignorance might last until it (the market) is slapped about the face with #gures that leave the previous hypotheses gasping for air.

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Don't be afraid of failure 

One of the expectations that you have to manage is that it is more than likely that at least one or two of your ten holdings will halve or worse in value at a point when you are not expecting it (because otherwise you would have sold). You will feel sick to your stomach, and angry with the source of the suggestion or idea.

Know your investing limits

Your decisions have to reflect your temperament, your appetite for risk, your ability to take decisions for the right reasons and ignore the irrelevant factors that will attempt to misdirect your decision-making. You have to understand why you will invest or have invested in particular companies, and what you expect to get from it, and how you will react when circumstances change. "The better you know yourself, the better you know your investing.

Take investing decisions slowly and deliberately

This is one reason we take our portfolio investing decisions slowly and deliberately. The last state that you want or need to be in when investing is a state of obligation. We try to avoid having to take any particular action in our portfolios. Once you become obliged in relation to a particular investment, your decision making is easily compromised. But if you don’t participate, your position and share of the company’s proits will be heavily diluted. If you do participate, your investable cash is diminished at a bad time for the markets, when perhaps it could be better deployed elsewhere, and your somewhat diminished portfolio is even more exposed to this so far poorly performing stock. It would take an investing angel to easily ignore these painful but nevertheless completely irrelevant factors when it comes to deciding whether the shares you are offered and/or the shares you already hold offer an appropriate reward relative to their risk over your investment time horizon.

Small stocks positioned for growth

Going back to moving slowly. Our experience is that we may arrive early on the scene of stocks which eventually turn out to have been cheap. On the other hand, small stocks may be priced for growth and in fact over deliver, and if we manage to find and buy any of these, we may well be late to the story. We want to be sure that we are buying secular growth not cyclical growth before we pay a growth multiple. Other sorts of stocks that we will look at may have gone or be going through train wrecks, and this may or may not have been fully refected in their share price and market expectations. In the meantime, this type of stock which is unloved for a good reason may go through a very long period of rehabilitation before it is valued on the same basis as other companies even if it does achieve a #nancial turnaround.

The key when buying stocks 

So we buy slowly as a general rule. We always want to be ready to buy more. We ask ourselves before we commit whether our response to a substantial share price fall on no company specifc news would be to buy more. At some point we anticipate being asked that question for real. We may sell slowly, if we were right, and fast if we are or were wrong, but there are no hard and fast rules, stop-losses or any quantitative constraints that will cause us to transact one way or the other. Each circumstance is di!erent and dynamic, and each egg in our smaller company portfolio basket is especially precious.

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About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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