A few months ago I created an watchlist for myself of all the companies I could find that exhibited some qualities I was looking for.
These qualities where:
*Must be currently making a profit
*Must have a PE below 12, or have a 12 month projected PE below 10 that can be reasonably assumed with a margin of safety.
*Low PE must not be for an obvious reason, for example earnings in that industry are expected to decline, or legal cases against the company are ongoing.
*Must have average liquidity of $100k+ a day
*Upon inspect and research, Management must look reasonable.
*Must "feel" like a good investment.
So I came up with 23 stocks that I thought represented a good medium term investment and assigned $2000 to each one in the watch list.
My question for you guys is, how would you expect such a portfolio to perform in the short, medium and long terms?
When I started the virtual portfolio I expected that a few of the stocks would give tripple digit returns, which would probably be evened out by a few stocks going to 0. I would expect allot of the companies to give a 1 year return of perhaps 20-40%, but not as many to drop by that amount. So far losers to winners is 19-4. Perhaps its just a bullish period for small caps? (most of these are small caps, and none of the big caps have posted big gains)
I expected Beta to be high, because the portfolio is riskier than the market as a whole I expected higher volatility. The volatility is there but the beta is low, I have seen some huge gains on big red days for a asx200.
It has not been long enough to make any conclusions, but it will be interesting to see how it pans out after a year. If it was actually money invested I would be selling out on average after 12-18 months so.
So far averaging 3% a week, that's just holding not trading. Seems like a very good run and I would expect some negative action to even it out.
It feels like that with a portfolio like this, your downside is limited, say 2 companies goto 0. That's a 8% loss, and quite unlikely. But the upside outweighs and seems more probable than the downside. It is quite probable that in my portfolio of 23, 2 or more will double in SP in 12 months. If a silver mine is trading at a prospective PE of 4, and they will start production in 9 months, and silver is going up, a doubling of the SP in 12 months is a much higher probability than a company with no debt currently making a profit going to 0. As long as you research and do'nt put anything too speculative in there it seems like a great bet.
Sorry for rambling!