Investing in ASX listed Shares is never easy, but let me tell you, it’s a great deal more fun and dare I say it profitable than working. That’s right, you’ll never get rich working for somebody else!
Whether I was riding a high from the face masks being sold by Laurie McCallister’s beautified small cap McPherson’s (MCP), or Nicholas Yates’ airconditioning, telecommunications and infrastructure services group BSA (BSA). Both small caps have undergone huge turnarounds over the past three years and have been ignored by many fund managers because they don’t like their business models, but both are among the ASX listed small companies that have been kicking some major goals.
Small Caps listed on the ASX focussing on affordable accommodation for retirees
There are the small cap steady players like Ingenia Communities (INA) and Lifestyle Communities (LIC), whose business models are based around affordable accommodation for retirees. These small cap stocks just keep on keeping on… producing dividends, and a more than healthy dose of growth.
Then the junior small cap telco MNF (MNF) came good (again). If you believe in a company’s technology and its management team, it’s much easier being patient.
All in all, I was happy because we had a good reporting season, which means we’ve been making lots of “take profits” recommendations.
Of course there have been some disappointments, and the old media players, regional broadcaster Prime Media (PRT) and NZME (NZM) come to mind, but these small caps are getting their debt under control and I think there is hope in them yet.
These disappointments go to show the great value of a diversified small cap portfolio. Early on in my investing career I discovered that if you have a few really big wins, you can afford to have some losers. Of course, cutting them out of the share portfolio as soon as possible is also what I learned.
Why does all this matter? Simply because you can’t afford not to invest in shares. Or put another way, you need to start investing in shares today! Returns from a number of Small Caps we’ve invested in over the years have been literally 5 to 10 baggers, but overall our annual return over the long-term, meaning 10 plus years, has been in the double-digits.
The point is that these returns are significantly higher than those accrued by labour (meaning your pay packet) which are no higher than inflation (as measured by the consumer price index). Thomas Piketty in his “Capital in the Twenty-First Century” highlights this by analysing data on returns to capital versus labour going back 200 years.
The point is that everyone needs to be a capitalist, which means either starting your own business or saving and learning to invest your money effectively in shares.
How much risk should you take? If you are in a job that doesn’t have much sensitivity to the economy and your not on contract (think teaching, the medical profession, the public service) then you can and should take more risk.
The benefits of diversification from investing in a portfolio are powerful if you don’t have job risk on top of that. Every 30 to 50 years or so there is the possibility of a serious dislocation in the capital markets where the value of all savings might go down 40%.
Buying an index hugging funds are a good start, but ultimately the aim is to be in charge of your own destiny. Investing in one or two quality stocks is a good way to begin and the aim is to have a portfolio of 10 to 15 stocks, which gives you the ability to grow your savings at a good clip.
What defines quality? That’s another article.