I manage investments in stocks and managed funds for high net-worth, sophisticated investors. My specialty is investment management and I do not offer financial planning or other related services.
Most of my clients are retired and have a Moderate or Balanced risk profile. My advice is restricted to listed securities and managed funds in the client’s portfolio and excludes other investments such as real estate. The onus is on the client to decide on what percentage of their total portfolio to allocate to equities.
Stock Selection Process
My strategy involves the following steps:
- Examine structural trends to identify opportunities and threats. Structural trends are expected to last for more than a decade, sometimes a lot longer, and offer high probability outcomes.
- Study global markets to identify cycles that are likely to have a major impact on medium-term investment performance. Higher levels of uncertainty require that we react to market signals rather than make predictions.
- Identify sector opportunities from the first two steps and single out stocks that display:
- Strong earnings growth (or strong cash flows distributed as dividends or stock buybacks); and
- Ability to defend their market position against competitors.
- Targeted stocks are monitored for buying opportunities, when:
- Earnings multiples are low relative to dividend flows and expected growth; and
- Technical indicators reflect favorable market sentiment.
- Stocks in the investment portfolio are sold if expected long-term earnings growth declines or the enterprise loses its ability to defend market share.
- At times we also buy cyclical stocks — whether gold miners, fund managers, media companies, or building supplies — when technical indicators suggest opportunities and sell when market sentiment turns bearish.
- We adjust the portfolio when market risk measures are high, reducing exposure to equities and increasing exposure to cash and interest-bearing securities.
Next: Structural Trends