All amounts invested should take account of the individual investor’s circumstances and be diversified across asset classes if possible. For specific investments in equities, investors should always seek professional financial advice before investing.
What stocks would you buy with R5 000 – R10 000?
I would recommend a person start at this level with an investment in a general equity unit trust.
Same advice. At a level of R100 000 we could start building a portfolio for somebody, but on the understanding it would still be marginally expensive and quite a concentrated portfolio. The risk with this is that if just one stock selection bombs, the entire portfolio underperforms.
With this amount a private investor is in a position to buy at least five shares that will provide a very focused, yet balanced equity exposure. Five shares can provide exposure to the financial sector, industrials and mining shares.
Our choice of financial shares in this portfolio would be Standard Bank and Old Mutual, both for value considerations. Standard Bank is generating a decent return on equity and has a strong balance sheet. Old Mutual is the cheapest within its South African peer group. The rating of the share is tainted as a result of its perceived exposure to the troubled European region.
Within industrial shares we would pick Richemont and Steinhoff. The latter also reflects exceptional value, as most of its profit and assets are based in Europe, where again the mood is pessimistic and the news negative. At a price to earnings (P/E) ratio of 8, it is much cheaper than many South African stocks.
The Richemont share price is volatile, but this luxury goods company offers exposure to the growth characteristics of emerging markets. We are buyers below R45.
Finally, within resources we opt for Anglo American and Sasol. They are cheap relative to their historic profits. In the short term there is the risk that the profits might well continue to be under pressure as commodity prices may decline from current levels. For the patient investor we recommend Anglo because it’s the cheapest in its universe.
With this amount one can add a few additional counters. However, it is still a relatively small amount to invest in single shares.
Within resources we would add Billiton as this counter has quality management and superior quality assets that can be mined at the low end of the cost curve and have long life-of-mine characteristics.
Within industrials, the brave investors could add Wilson Bayley Holmes on a P/E of 9. The share price is tainted by the woes of the rest of the construction sector but I believe that the higher margins of this company and its footprint in Africa will serve investors well over time.
Which stocks/market do you regret not investing in?
We should have bought retailers Shoprite, Woolies and Mr Price. I also regret the fact that we have not added Invicta and Omnia to our client portfolios.
What stocks or markets are you keeping an eye on?
We monitor resources counters very closely. Ideally we would like to buy them when the shares are cheap and the commodity prices – iron ore, copper, coal or platinum – are cheap.
What is the best investment decision you have made to date?
Late in 2007 and early in 2008 we decided to reduce the exposure to resource or mining shares in our clients’ portfolios. Initially it looked like a terrible decision but these shares ultimately were the biggest victims in the share melt-down of 2008/9.