Diversification

[Gladman]

Hello all, I've been reading these forums for a couple of weeks and decided it was time I posted.

Basically, I'm a young finance student with the dream of one day making my millions in the share market. I have been doing some basic trades on CommSec for the last year or so to grasp an understanding of how the market works and have seen a small (maybe 10%) profit on my original capital. I have decided that it is time to diversify my holdings a bit. Currently my portfolio is based on three sectors:

Materials (80%) - BHP, HGO
Energy (15%) - BUL
Industrials/Transport? (5%) - MAP

Previously held QBE, ORG, WBC also.

Now I know this setup is far from diverse, that is why I am here. I plan to invest my Rudd bonus this week as well as around $500 of my own into two more stocks. I have been hesitant to invest in Health/Media/Services/REITs/Agribusiness due to lack of knowledge in those areas but I am also eager to learn about the main players in these industries. I'm not keen on Telcos either because in my opinion the industry is, for lack of a better word, stuffed.

What would be some good sectors to compliment my portfolio and who are the main companies worth looking at in these sectors? (note: I'm not looking for recomendations, but for some companies to research and analyse myself in these sectors. Basiacally, what two sectors in particular would go with my current holdings.

Here are some of the shares/sectors I am very familiar with. Feel free to fill in these blanks for me:

Consumer Discretionary/Staples
Energy - AGK, ORG, BUL
Financials - CBA, QBE, WBC, MQG, NAB
Health
Media
Industrials - MAP
IT
Materials - BHP, RIO, HGO, ESG, LGL
Telcos - TLS
Services
Utilities
Agribusiness
Transport
REITs - CEU, TCL (maybe these are under Transport or Industrials?)

Looking forward to some good input,
Gladman

 

[wonderrman]

Hello,

It sounds like you are going down the path of investing, buy and hold. I would not recommend to do this as it is going to be very hard to predict where markets will be in a year or two years time. This is because of massive money printing on behalf of governments and this leads to high volatility in all types of markets - sharemarkets, commodities etc.

I think trading is the way to go over the next few years. There are lots of good books and info on how to use charts to invest on the web. Good luck. wonder.

 

[beerwm]

Hello,

It sounds like you are going down the path of investing, buy and hold. I would not recommend to do this as it is going to be very hard to predict where markets will be in a year or two years time. This is because of massive money printing on behalf of governments and this leads to high volatility in all types of markets - sharemarkets, commodities etc.

I think trading is the way to go over the next few years. There are lots of good books and info on how to use charts to invest on the web. Good luck. wonder.

haha wonderman,

you've seen the light

 

[sammy84]

Wonderman, you have to learn to crawl before you can walk. Trading cant be just mastered overnight, and it also takes a certain type of person to be a trader. You have to decide whether you can dedicate the time and wear the emotions that trading may entail. For many buy and hold is just the easier option(and more profitable for some).

Gladman goodluck with creating your portfolio. I'm a technical trader myself so I cant offer you much help. My only advice would be is dont diversify purely for the sake of diversification.

 

[wonderrman]

Trading cant be just mastered overnight, and it also takes a certain type of person to be a trader. You have to decide whether you can dedicate the time and wear the emotions that trading may entail.

When exactly did I say it can? I'm not talking about the type of trading were you're for ever watching the ticker, buying something at 11am and selling at 1pm. I'm talking about identifying the longer term trends and using them in your investing. BHP & CVN have been perfect example's of what I am talking about.

I haven't claimed to be an expert in the field of trading at all.

w

 

[kingcarmleo]

If you want to cover two of those blank sections I suggest IBA-Health and IT.

 

[So_Cynical]

LOL the doom and gloom brigade are out in force.

Its a great time to get into a little buy and hold, personally i reckon there's great value in
the Property - REITs sector and Transport (road/rail) just gota be a little careful with some
of the property company's/trusts/funds that have asset write downs to come...some have
been more realistic than others.

 

[Julia]

My only advice would be is dont diversify purely for the sake of diversification.

That's excellent advice.

 

[white_crane]

What would be some good sectors to compliment my portfolio and who are the main companies worth looking at in these sectors? (note: I'm not looking for recomendations, but for some companies to research and analyse myself in these sectors. Basiacally, what two sectors in particular would go with my current holdings.

Is this the question you really want answered?

I say this because one would think that if you have to ability to "research and analyse" companies, then surely you would be able to find the answer to your question yourself?

And I would have to concur with sammy84 and Julia.

 

[Gladman]

Is this the question you really want answered?

I say this because one would think that if you have to ability to "research and analyse" companies, then surely you would be able to find the answer to your question yourself?

And I would have to concur with sammy84 and Julia.

Well, yes it is.

I'm just looking for a nudge in the right direction. I really don't have much knowledge in certain sectors and people are always saying to diversify. However, I have done some reading on the topic of diversification in the last couple of days and have come to understand what sammy and Julia mean when they say not to diversify for the sake of it. I've now gone back to my tryed and trusted method of reading about different companies and then doing my own further research on the ones that interest me, then investing in the ones that I really like.

 

[white_crane]

Good to hear Gladman.

In answer to your question, have you tried the indices?
http://www2.standardandpoors.com/portal/site/sp/en/au/page.family/indices_ei_au/2,3,2,8,0,0,0,0,0,0,0,0,0,0,0,0.html

Click on an index, then click on the Overview tab, then click on Constituent List. You can download the list if you need to.

 

[tommymac]

Gladman,

Congrats on learning from others experience. Too many times people try to do it themselves without taking advice and generally they fail.

I also use the buy and hold method of investing and initially I started looking at sectors to buy in. This is still a part of what I do, but I found that by focusing on a sector, other opportunities were missed.

If you look for good quality companies then you will find that sector diversification should come naturally.

 

[beamstas]

Im a trader -- so probably not a good idea to take advice from me.. but i'll give it a shot

Are you looking for blue chips, mid caps or specs? You can expect more growth from the smaller stocks, but more risk. There are lots of very small miners with very small amounts of debt, they might be worth a look

Looking at fundamentals ( *gasp* ) , i'd be looking for sectors that you believe will perform well in a sideways market. (hint non leisure items.. woolworths(food) etc). I wouldn't be buying shares in companies that sell luxury items such as Mercedes Cars

I say this because i am quite bearish about the market still. The market doesn't just fall down to new lows and then pick itself up into a bull market. It hasn't done it before and it's not likely to again.

Swing trading will far outperform buy and hold over the next 5 years

Do not forget about the power of dividends. They can provide a very nice bonus on the side if you are buying & holding. That being said don't just buy stocks on their dividend yeild.

Don't get too caught up in "value" -- what is value when the bear has just jumped out the window?

Be prepared if you buy now for another dip in the market

I am also a young (19) finance & accounting student. If you want to talk to me any more just drop me a pm

Brad