The One Stock "Portfolio"?

Posted by Mike H on 30 August 2016 | Comments

During the recent AIA conference a member stood up and said

” My portfolio is 45 % CBA shares; you do not need anything else!”

This raised few eyebrows, and a “Thank you for your comment" comment.

I initially thought that’s crazy, but I thought let’s be a devil’s advocate and see how it works out.

Here is what I ended up with:

Even though the banking sector is facing some headwinds the CBA is the biggest bank in Australia making up over 9 % of the ASX. It is offering excellent growth and, to date, high sustainable, fully franked dividends

CBA is one of the strongest in the world and getting stronger due to regulator’s efforts.

It actually does not make sense to invest in the other banks for “diversity”. If one of the banks were to indeed to crash it won’t be the CBA; money and business would flood into the strongest bank, CBA, not just from the failed bank but from the surviving smaller, more vulnerable banks. The CBA would be huge! (If The Australian economy was hit by a nuclear bomb I suspect all that would found afterwards would be some cockroaches and the CBA.)

While you may argue that there is no growth in the banking sector at present, we are in a very low growth economy, the hunt elsewhere for income and growth at current high PEs right now might well be a fool’s errand.

Suppose he only invested only one third of his money in CBA shares and the rest in bank term deposits. His outcome would be a total portfolio income of just shy of 5% (if he is in super) with 66% of capital guaranteed by government coffers. Even if CBA dropped by 30 % the total drop in his capital would be 10 % in a major market crash, dividends will only be moderately affected.  Plus, he has oodles of cash on hand, so no need for to sell any shares at those prices (presuming he has staggered his term deposits)

Maybe, crazy like a fox!

(At the AIA conference some of the board members suggested that the blog should be controversial. I think this will do for starters!)

 

Another 150 Portfolios

If you think this is all too radical, are not sure how your portfolio should be structured and are looking for ideas, the below blog could be the one to completely fuse your synapses.

http://whitecoatinvestor.com/150-portfolios-better-than-yours/

All the examples use Vanguard products but they give ideas for market and segment diversity, and weightings.

(I have yet to find an “ideal” index based portfolio that ticks all the boxes for Australian based investors. The search continues.)

Regards

Mike H

"The views expressed here are the views of individual contributors and in no way should be construed to represent of the AIA, the Board, employees or volunteers. The AIA does not provide advice or recommend products or strategies. Readers should obtain professional advice before acting on any information provided in this Blog".

PS

Marcus Padley was our brilliant, funny and jaguar-like compere at the AIA conference dinner.

He was chuffed at being announced as AIA ambassador and quite taken with the enormous prestige and power that comes with this honor.

He  explained how he expects AIA members to behave when he enters the room
(I did not quite make out all of what he said as I was unfortunately  right at the back of the room)

 If I heard him right, the gist of it is, that whenever he walks through the room he expects the entire crowd to fart in front of him.

So please remember this the next time you meet him.

(Sorry Marcus.  After that, it might be safest to add the following disclaimer)

"The jokes expressed here are those of individual contributors and in no way should be construed to represent of the AIA, the Board, employees or volunteers "