From the editor

This article appeared in the January 2014 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.

It's not just about finding and valuing great companies. Just as important is how investors construct and maintain portfolios across a range of asset classes.

Photo of Tony Featherstone By Tony Featherstone, editor

Welcome to the first issue of ASX Investor Update for 2014. It’s always exciting to kick the year off with a bumper issue of the newsletter featuring a range of market experts who consider key market trends and investment strategies for the next 12 months.

A highlight is the ASX Investment video with investment author Martin Roth. I interviewed Martin about the 20th edition of his popular Top Stocks annual investment guide, with particular focus on how he chooses companies for the list and what it means for share investors.

Martin stresses his book is about identifying great companies. Some might be undervalued and others overvalued, depending on share-price movements, but his focus on starting with reliable, high-quality companies is a theme echoed in other features in this newsletter.

Although he uses a different methodology, Lincoln Indicators managing director Tim Lincoln also starts with company quality, with emphasis on financial health, using balance-sheet criteria. Tim expects a reasonable year for the Australian sharemarket, nominates 10 companies that meet his criteria for high financial health, and tracks financial health across the Australian sharemarket.

Lincoln’s finding that almost two-thirds of ASX-listed companies have marginal or distressed financial health may surprise. It is because of the high proportion of small resource stocks listed on ASX, many of which are yet to produce significant cash flow as they develop assets. Also, the results do not weight companies by market capitalisation.

Elsewhere, prominent value investor Roger Montgomery shows how to value outstanding companies. It is one thing to spot great companies - as Martin Roth does in his book - and another to determine if the market has already recognised their potential in the share price. Roger’s analogy of valuing a bank account is a simple, straightforward lesson for budding value investors who need to determine how much to pay for a company.

As challenging as its sounds, this focus on finding and valuing great companies is still only part of the investment equation for long-term investors. Arguably more important is how investors construct and maintain portfolios - across a range of asset classes - and the tools and strategies they use to minimise transaction costs, create tax-effective outcomes, and improve diversification.

Implemented Portfolios’ chief investment officer, Jon Reilly, considers the key asset-allocation trends across local and global sharemarkets in 2014. For a different perspective, popular chartist Regina Meani analyses the price charts of Australian and US shares, and gold and oil.

Vanguard Australia’s head of market strategy and communications, Robin Bowerman, considers the outlook for the fast-growing exchange-traded products market in 2014, and Fiig Securities’ director of education, Elizabeth Moran, does the same for fixed and floating-rate investments. Dixon Advisory’s Nerida Cole rounds out this issue with five top New Year investment resolutions.

There are also links to Upcoming Floats, the Morningstar Asset Allocation Report, free ASX online education resources, and the A-VIX indicator of market sentiment.

We hope you enjoy this issue of ASX Investor Update. As always, do not act on ideas or themes in this newsletter without doing further research of your own or talking to a licensed financial adviser.

About the author

Tony Featherstone is consulting editor of ASX Investor Update.

The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.

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