My Portfolio Challenge

To take my investing to the next level, I have decided to build a small portfolio using real money. I will gradually add companies to the portfolio, write theses on them, and track their performance and the performance of the portfolio over time.

The Goal:

  • To beat the ASX200 accumulation index, S&P/ASX200 Net Total Return (ASX: XNT), over the next 3-5 years.
  • To beat the ASX Small Ordinaries accumulation index over the next 3-5 years. – if anyone can recommend an easily trackable index for this, id appreciate it.
  • Stretch goal: To earn returns exceeding 8% per annum on average over the next 5 years, excluding franking credits and before tax.

My ideal end date is in 5 years time, however by 3 years it should start to become obvious if my selection process is sound (or not!).

I will also track the S&P/ASX200 (ASX: XJO) index and the S&P/ASX SMALL ORDINARIES (ASX: XSO) index. This is the 200 largest stocks, and the ASX300 excluding the 200 largest stocks. This should let me compare my portfolio to the ASX mid-large caps and small caps effectively.

The Rules: 

It will have a maximum of 20 positions when complete, and no less than 7.

I will include brokerage fees in my cost base, but exclude taxes, franking credits, and other costs – e.g. this website – from returns. I may idiosyncratically make adjustments for tax where I incur large capital gains tax bills so as not to overstate performance, but I won’t track every last tax dollar.

I will include a nominal return on cash at a rate of 0.5% of the remaining cash balance at the end of each quarter. As I will be saving for the portfolio at the same time as investing it, at least part of these cash returns will be fictional (the shares will be real).

The start date will be from the day of my first purchase on 30.03.2017. At this point I will record the value of the above benchmark indices on the portfolio page.

At least 80% of the portfolio must be profitable, at least on an underlying basis, or have very good prospects of becoming so in the next 12-18 months.

The Strategy:

I am style agnostic, and will own anything regardless of size or market capitalisation. Generally speaking I want to own profitable companies (see ‘The Rules’ above) with dividends as this gives me a better shot at achieving the type of returns I am looking for over the target period.

I am a long-term investor. While I am not averse to selling quickly if my estimate of intrinsic value is exceeded, in general I am looking to hold for 3-5 years or longer.

In between my current direct shareholdings and an investment in a fund, I already own a number of attractive high-growth stocks (many of them unprofitable or not paying a dividend) on the ASX. So, while I might own anything in the portfolio, I likely won’t be owning too many highly priced growth stocks.

I also will not own companies that I already hold in my personal portfolio (which is not a part of this experiment).

The Quandary: 

I have a decent level of investment knowledge. However, I have not professionally managed money and I know that there are a lot of small things I am not good at identifying. Unfortunately when you see an investment idea from a professional it often becomes a ‘proxy’ for due diligence – instead of forming your own decision you may think “well XYZ fundie bought it, it must be good/safe.” 

As a result I aim not to own companies where I have already seen a detailed ‘buy’ rec on it from another investor. This is to minimise the external noise on my investing process. Necessarily, this involves a degree of sticking my head in the sand.

I will update this page as necessary to add further clarification.