Building a profitable portfolio is very similar to how football manager’s like Jose Mourinho selects his team.
Knowing that the season is long and takes its toll on the players in the squad, and manager’s like Mourinho will always try to select the best available players to get a result.
If he gets the recipe right, gets the right balance and plays the right players, he moves higher up on the table and lasts longer in cup games.
There is not much difference in selecting a winning portfolio of stocks. Yes, you may suffer a few injuries during the season but there’s always another capable player who can fill in until your stars come back to perform.
Similarly, every position on the field plays a role in how the team performs, and selecting stocks for their function is the same as picking a player for his position.
Football managers are ruthless when it comes to selecting players for game day. They only pick the best players for the job. Out of form players are not only left out, but if they fail to perform they’re sold and replaced with ones who can do the job.
With all this in mind, I’ve decided to pick my best squad of stocks to take the field. Today, I want to introduce you to the title winning team…
How to pick the perfect portfolio formation
My goal keeper stock: The shot stopper
The keeper is the last line of defence.
His job is to keep the ball out of the net at any cost.
The more clean sheets he’s able to achieve, the better the chance the team has of winning the league.
The stock you need ‘in goals’ has to be one that doesn’t concede many goals.
It needs to be solid between the posts and dominate the penalty area. Most of all, the keeper needs to be reliable.
The stock I’ve selected for this important position is a solid performer without much volatility. It performs consistently even in turbulent times.
For this position I’ve selected a bank.
First Rand has been a great performer and has always delivered a strong performance
Since 2013 this stock has maintained a beautiful upward trend and the one or two dips in between have been perfect buying opportunities.
With the recent sell off our market has experienced, I think the time is right to call this stock up to the first team.
My Defenders: The wall
Defenders play a vital role in keeping attackers at bay and their job is to take pressure off the goal keeper by making sure that the opposition doesn’t get an opportunity to strike at goal.
In football, every attack starts at the back so your defence is vital in getting your portfolio on the front foot.
Defensive stocks form the back four of my portfolio formation.
Defensive stocks are the stocks that give you some protection against Rand weakness. So when the major currencies (the opposition) are on the charge, you’ll need the best defence to keep them at bay, and protect your portfolio (the rest of the team).
Defensive stocks are those that earn revenue in foreign currency and trade on overseas exchanges as well as locally.
My back four are SABMiller, Richemont, Mondi and Steinhoff.
Steinhoff will be listing on the Frankfurt exchange in the near future. They’re on course to becoming the biggest furniture distributor in Europe and the German listing will beef up my defence immensely against the Euro.
Mondi has earned its place in my squad after the recent stellar run and I’m just waiting for the right moment to put the stock in the squad. This pull-back in our market just may be the opportunity I have been waiting for
SAB has always been a 2015 favorite of mine for various reasons, not to mention the upcoming IRB World Cup in September. This power stock deserves its place in the centre of my defence.
My midfield: The team engine room
A good midfield is made up of a mix of great creative players and players who can help out in both attack and defence.
The best midfielders in the world are also the greatest team players and thus, your stock selection needs to compliment the team.
For my squad portfolio I need a mix of some risk as well as conservative plays.
The stocks I’ve selected are the ones I think will give me the best performance in the long run. They are:
Aspen, MTN, Discovery and Bidvest
Aspen has been out of form over recent months but a stock of this quality can never be left out of a portfolio. I believe that it’s only a matter of time until this share finds its form and once again becomes a fan favourite.
Discovery is my insurance play to back up the defence. With small business interests in China, consistent local returns, and a price to earnings ratio of around 14, this could turn out to be my most valuable player.
MTN is the creative player in the midfield. With businesses throughout Africa and the Middle East, this company is always looking at expansion projects and is not afraid of taking risk. An ideal quality for a well-balanced squad.
Once oil prices start to stabilise and the strike is over, I expect this stock outperform the rest of my midfield.
Bidvest is a versatile player and as a diversified industrial stock, in my mind is best of breed. With many facets to their business, they’re well equipped to ride out market storms and provide excellent returns in the good times.
My strikers: Attack
Selecting strikers is always tough for any manager.
You need a combination of form and quality, and only the best strikers can make a goal out of nothing.
Strikers take risks. Their job is to score goals. They’ll shoot at any opportunity and at any sight of goal. Their attitude of “if you don’t shoot, you can’t score” is ideal for selecting my shooters.
I’m looking for big hitters, big performers and risk to make something out of nothing.
The strikers I’ve selected are the JSE and Naspers.
You might think this is a strange combination but there’s no arguing the performance of both these stocks.
Naspers has the ability to give you massive returns in short spaces of time and they churn out the goals year after year.
JSE provides my front line with consistency, and owning this stock offers you just over 3% dividend yield on top excellent annual share price performance. This company has no competition and is always the first name on the team sheet.
What my title winning team looks like
Click for an enlarged image
Let’s have a team meeting
In football, everybody has different opinions, formations, goals and strategy.
Constructing a portfolio is the same.
Whether your strategy is long term or short term, you need to pick the right team for the job.
I’m happy to have a team selection meeting with you to help you achieve your goals.
If you like the team I’ve selected, drop me a mail and let’s finish top of the table together.
Here’s to trading profits,
Private Client Trader | Vunani Private Clients