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Bond's portfolio up 165.8%

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by Peter Switzer

Experts often bag the idea of 'buy and hold' portfolios but RBS Morgans stockbroker Simon Bond actually brought out one constructed 10 years ago that returned 165.8 per cent on share price movement and had an 10.78 per cent yield on cost price.

The All Ords over that time was up 40.93 per cent.

For the record, a $479,291 outlay turned into a $1,273,979.20 portfolio without including dividends.

That’s huge and it was constructed as a demographic portfolio with baby boomers in mind!

Buffett strategy

In fact, the story has overtones of Warren Buffett, arguably the world’s greatest investor, who we can copy. Most of us can’t be another George Soros who took on the Bank of England, but we can be mini-me Buffetts.

(Check out the interview here.)

Baby boomers

Having a look at the portfolio is not only interesting to see what businesses the brokers thought would benefit from the bulging baby boomer generation hitting retirement but it gives us a clue on what should be in a well-balanced portfolio.

Let’s have a look at the portfolio that has weathered the Dotcom bust and the crash of 2007 to 2009 to return over 165.8 per cent.

Banks: CBA, ANZ, Bank of QLD and Suncorp-Metway.
Industrial: AP Eagers, Brickworks, Fleetwood, Perpetual Trustees, Wesfarmers.
Transport: Asciano, Qantas, Toll Holdings.
Leisure: Billabong.
Health: Blackmores, Cochlear, Resmed.
Telecom: SP Telecom.
Retail: Westfield, Woolworths.
Property: FKP Ltd, Prime Retail Trust (now Centro).

Note how the portfolio covered the sectors to ensure good diversification and exposure to many industries. Also see how the portfolio did well despite losers such as Centro, Qantas and FKP. That’s because there were around 20 stocks, which means you only have five per cent exposure to any one company.

Three points

There are a lot of things I like about this portfolio story. First, it shows buy and hold can work. It might not be the best result in the world of investing but it’s a great result — more than 165.8 per cent over 10 years, not including dividend yield.

Second, it was constructed on the demographics linked to baby boomers. It was based on what they will buy, what they will do and all of the demand that will result when baby boomers retire.

I think I would like to do it again for the next 10 years as baby boomers are changing.

Companies such as Blackmores, Cochlear or Resmed would probably be in a new portfolio but we might have more online businesses that will be catering for the net-savvy older Aussies of today. In fact, I will twist Simon Bond’s arm to do it again for a new generation.

Finally, what this portfolio did is very similar to how Buffett invests. Some say he’s not a value investor but a demographic investor. He recently went longer on a trash company — Republic Services — that he already had shares in. In fact, Bill Gates is also long the same company.

Look at demographics

The point is that Buffett looks to see where buyers are going and then invests in those companies. When people wanted burgers he bought McDonald's and when they wanted credit cards, he went for American Express.

Given that lots of companies have been trashed since the GFC and market crash, it might be a good time to buy demographically well placed companies for the next 10 years or more.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, February 19, 2010