Private Investor: Diversity is the secret of my success
By Sean O'Grady
Published: 06 May 2006
What to do with the laggards? Most of my portfolio has kept up with
the general, very impressive upturn in the market. Part of that is
down to my incredibly successful stock picking (I'm joking, by the
way); much more is down to the shares I own being so many and varied
that it's difficult not to do as well as the market, although, by the
same token, it's also hard to outperform it.
I remember reading once that if you have invested in something like
10 different and reasonably varied shares, you've pretty much reached
the limit of reducing risk through diversification. In other words,
it isn't much more risky to own, say, 10 or 12 equities than if you
held 100 or 200.
So, provided you have the resources, it's not that difficult to build
up a portfolio that is actually safer than you might think, given the
usual risk/reward balance associated with equities. If you've got one
privatisation share, say, and one demutualisation share, it wouldn't
take much for you to add a few more through a cheap online broker.
The upside is that you don't pay the usual charges you might with an
investment trust or other collective fund of a tracker, although
you'll probably achieve much the same returns. The downside is that
you can be unlucky.
Anyway, you are bound to have some laggards. My particular problems
are Vodafone and BSkyB.
I have dealt with the Vodafone issue by selling down some of the
shares. It is amazing how badly Vodafone has fallen behind almost
every other blue-chip stock. It's getting a particularly bad press at
the moment, and there doesn't seem to be a clear enough corporate
strategy for dealing with its difficulties in America and Japan.
I still hold quite a few of the shares, however, in the hope that
even Vodafone can't lag the market forever, but I'm inclined to sell
some more soon, maybe on what passes for strength in the share price
these days, ie anything above 130p.
The other laggard is BSkyB. This was a straight punt on the sedentary
tastes of the great British public, whose appetite for paid TV and
football never ceases to amaze me. I actually know people who are
happy, indeed proud, to spend £1,500 on a gigantic telly screen.
High-definition TV is the new must-have thing, I'm told, and BSkyB is
an early adopter of the technology, which should be ready to
broadcast very soon. BSkyB also had a reasonable outcome from the
raffle of Premiership football rights. Not as good as it once was (ie
a monopoly), but probably enough to keep me from selling my BSkyB
shares. Trouble is, they just don't seem to be going anywhere, when
even newspaper-company shares are showing signs of life.
Perhaps the great advantage of being a shareholder in BSkyB should be
that your fellow-shareholders include Rupert and so many other
members of the Murdoch dynasty. Thus, you would think, there might be
some emphasis on achieving excellent results for the shareholders.
You might think that Rupert might have a word to that effect with his
son James, who runs BSkyB. Maybe he has. But there has been little
sign of it in the share price.
I'm sticking with BSkyB for now because I reckon that innovations
such as high-definition technology, the "gnome" portable audio box,
and the company's broadband ambition should see it through in the
medium term. Here's hoping.
One share that never stops rising is Savills, which I always call a
posh estate agent, but which is in fact a posh estate agent with a
growing wealth-management business attached, with interests in the UK
and Hong Kong. I have been in and out of the shares for almost 10
years, starting when they were at about 130p. This week, they hit yet
another all-time high of £13.30 and show no signs of slowing down.
Indeed, even at those levels, the shares can still be considered
cheap on some measures. Given the number of the super-rich seems to
be rising inexorably, Savills would seem to be a good way to gain
some exposure to this phenomenon. Even if I'll never join them, it
would be nice to get a sliver of their action.
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