What defines a 'blue-chip' or a good 'LT hold'?

[DionM]

Over the last few months I've been forcing myself to re-evaluate why I invested in the market. Originally my motive was to fund my kids education and help them post-education (i.e. housing); but now having seen the recent market turmoil, my motives have changed.

I will save for the funding of my children's education with a different investment vehicle, I think. And I want to change my share focus to be far more defined into very long term and shorter term trading.

My very long term focus is to create a 'second superannuation'. Something to complement our compulsory superannuation. That is a period of 30-35 years, at this stage (I'm 30).

The short term is to (a) get in early on potential long term holds, or (b) make a profit and run away (much easier said than done that one!).

So with that in mind, I have been realigning my 'classifications' of my stocks in my portfolio.

With big banks (e.g. CBA), big miners (e.g. BHP) this is easy - they go into the very long term bucket. They are (excluding recent blips!) good solid dividend returners etc. And for better or worse, BBI, BBP etc go there too, as I bought these mostly as long termers (originally 10-15-20 years, now more like 30 years).

And I can put my BRM and JMS etc into the short term pool - thats obvious since they still explorers or very junior miners, and I bought them as such.

But them I'm left with the companies that live inbetween.

In my case, take AOE. They've come up fast in the world. I like them - a lot (and not just the SP growth, but the direction the company is going). But I'm not sure if they 'fit' my "long term" bucket ? TZL is another one - and it shows perfectly that while it's not a true spec stock (it is advanced along more than a pure tech company), it still behaves like one with it's share price. And neither pay dividends.

I know it's a bit rambling here, but I guess I'm trying to ask - what are some measures people use for 'emerging blue chip' companies? How did people pick years ago that Woolies would be a good long term investment, for example?

 

[johenmo]

From what I've read most people base it on fundamentals - which might be hard at the moment! Alan Hull and Roger Kinsky (amongst others) both wrote re LT investing, and focus on fundamentals. My FILaw is successful at this and used ROE, Debt/Equity and one other fundamental I can't recall. AND looks at the business model and management. I can't stress how much of a fan I am for this last point for LT situations. I didn't do it well enough and got caught.

 

[Sir Osisofliver]

Emerging Blue Chip companies you say??? You mean like Babcock and Brown and Allco Finance Group were supposed to be 18 months ago? That kind of Emerging Blue Chip?

DionM - You are trying to have your cake and eat it too, you want the performance possibility of a mid cap, with the security of a "Blue Chip".
I'm quite disciplined with my definition of a "blue chip" or core portfolio stock as I prefer to call it. My basic methodology to construct a Blue Chip portfolio is to take the ASX100 constituent list and apply the following parametres..

1) 10 years of history on the market. If it doesn't have at least ten years of history it doesn't even get a look in.
2) Long term performance...in Line or better than market performance - otherwise it hits the rubbish pile as well.

This generally pulls the list into 50 stocks (and still accounts for a significant percentage of the market weight).

I then look at each stock individually from both Technical and Fundamental perspectives, making sure to ignore the spin and read between the lines, call the company officers if necessary and get comfortable with my understanding of the prime profit drivers of the company, perform a SWOT analysis and use some technical tools to come up with a price range with which I am comfortable in buying in.

After all of that I will use leverage and protection measures where appropriate and build the thing slowly over six to twelve months, reviewing my assumptions constantly.

Anything that desn't fit into the above...isn't "Blue Chip" enough for me. I'd be unlikely to transact on anything within such a portfolio for 5 years.

 

[johenmo]

My basic methodology to construct a Blue Chip portfolio is to take the ASX100 constituent list and apply the following parametres..

1) 10 years of history on the market. If it doesn't have at least ten years of history it doesn't even get a look in.
2) Long term performance...in Line or better than market performance - otherwise it hits the rubbish pile as well.

This generally pulls the list into 50 stocks (and still accounts for a significant percentage of the market weight).

I then look at each stock individually from both Technical and Fundamental perspectives, making sure to ignore the spin and read between the lines, call the company officers if necessary and get comfortable with my understanding of the prime profit drivers of the company, perform a SWOT analysis and use some technical tools to come up with a price range with which I am comfortable in buying in.

After all of that I will use leverage and protection measures where appropriate and build the thing slowly over six to twelve months, reviewing my assumptions constantly.

Anything that desn't fit into the above...isn't "Blue Chip" enough for me. I'd be unlikely to transact on anything within such a portfolio for 5 years.

Sounds like one good approach. Will file this away with my ASF snippets as background to build my strategy. Thanks Sir Osisofliver.