Smart Strategies for your Portfolio
We live in interesting times and like you, I’m watching my portfolio move south. What do investors do now in response to Trump’s tariff turbulence?
I’m going to make three quick points, then talk a bit more about portfolio management.
1. Keeping Cash in Your Portfolio
The first is that we always say to keep 15-20% of your portfolio in cash and this is why. You need to be ready to jump into opportunities like we advised members do in Covid. We’ve got your back and we’ll be doing that again after the recent bout of selling.
2. The fundamentals of the company has not materially changed
The second point is that the fundamentals of the stocks we cover have not materially changed. Their still doing what they do and they’ll be here tomorrow, the next day and the day after that. Their debt levels haven’t changed and there is still demand for their products. Many companies got stronger after Covid, enhancing supply chains, improving profit margins and managing working capital more efficiently. Most are in a better position than back then.
3. The valuation has changed
The third point has to do with what has changed, which is valuation. In valuation terms what’s called the equity risk premium has increased. Take the banks. NAB’s PE was was trading at over 17 times late last year and after the 20% fall it’s on around 14 times, which is where it was at the start of 2024. The bank is still churning out the same profits and dividends. What has changed is perception.
Where do you buy?
There is value emerging and it’s important to state that we’re investors not index huggers, so pay attention to the market, but don’t get fixated by it. Keep looking at your holdings and whether you’re happy with each stock’s contribution to the overall mix.
This is important. When they’re blue chips, they’re going to be more for income. When they’re small caps, they’re going to be more for growth.
In this week’s blue chip we’re buyers of Rio Tinto (RIO), which is in the global iron ore oligopoly and delivers solid income. It’s worth checking out.
Small Caps: Nuclear Stocks
In Under the Radar Report we focus on nuclear stocks. These are much more speculative and we give portfolio advice. Like lithium we’ve made money over the past few years, but this is less than it was after the selling. These stocks should be a much smaller proportion of your portfolio, even quality producers like Paladin Energy (PDN) and Boss Energy (BOE).
While you might have 12% of your portfolio invested in RIO, you might have only 2.5% in nuclear & uranium stocks. When sentiment is subdued, like now, you might increase this to 5%. If the market does its work this could increase to 10%, then you would take profits to come back to 5%. In this way you’re reducing risk by taking profits along the way.
Managing a portfolio is about sleeping at night, as I keep saying. Reading our reports this week gives you good stock specific news but also about industries – iron ore and nuclear. Knowledge is power and most important when the world seems like a crazy place.
There is value emerging and it’s important to state that we’re investors not index huggers, so pay attention to the market, but don’t get fixated by it. Keep looking at your holdings and whether you’re happy with each stock’s contribution to the overall mix.
