Building a core portfolio of quality shares is prudent
Investors keen on keeping it local need to know how to identify solid stocks on the JSE
Trade wars, slowing global growth, power failures, nervousness ahead of elections, possible further rating downgrades and some spectacular price collapses for JSE market darlings have led many South Africans to reduce investments in the local market or stop investing. But there is a way for investors to feel a lot more comfortable about achieving consumer price inflation-beating returns by putting money to work on the JSE — by building a core portfolio of shares based on the concept of quality. What are the characteristics of quality shares? On the quantitative side, there are three principal areas that should receive attention: profitability, financial strength and cyclicality of earnings. For example, to weather a decelerating growth environment a company should have a strong balance sheet, a degree of defensiveness that reduces earning volatility, and the ability to sustain profitability. Profitability is fundamentally important. Stock returns are generally a function of earnings...
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