August 1997, II

Financial affairs

Manage your portfolio

Nowadays everybody has to do something to secure an income if one is retired, want to buy something expensive or wants an extra source of income. It is therefore of the utmost importance to start building your own portfolio as soon as possible.

There are essentially two ways to do it. First is ordering your bank or financial institution/advisor to buy some stocks, bonds or fund which will deliver the best return according your accountmanager. Secondly, is to manage your portfolio yourself.

This is possible even if you do not possess the same infra-structure and knowledge as the financial houses do. The information delivered by the internet, CNN, CNBC, newspapers and more specialized financial/business magazines is more than enough to do it yourself. Especially because your are investing for the long term result.

Your portfolio should be balanced and aimed at the long term. This way your portfolio does not inhibit not to much risk and also delivers the certainty of getting an extra income. The risks of your investment can be limited by decreasing the size of the stock part of your portfolio.

A portfolio which will deliver growth, an extra yearly income and certainty could be look like this. 10 % should be invested in property funds, 25 % in bonds and the remaining in stocks. To get the most out of stocks, the selected stocks should be the so-called blue chips. The larger international companies with an attractive package of products and a healthy balance sheet. These stocks promise growth and wil take care that you do not have to change the composition of your portfolio every week or month.

The 65 % of stocks should be spread over the stockmarkets of the world. You could select individual stocks in the developed world and for example the Asian/Tiger funds of Templeton or Morgan Stanley in the developing nations. A good division is 30 % in US stocks, 27,5 % in Western European stocks, 7,5 % in Japanese stocks, 7 % in Hong Kong/Chinese stocks or funds, 7 % in South East Easian funds, 8 % in Russian/Eastern European funds and 8 % in South American stocks and funds.

By using funds in developing or less developed nations you can get the profits of the emerging markets and at the same time circumvent the information, legal and financial problems which are connected with investments in developing nations.

Managing your own portfolio will secure your financial future and at the same time leaves you in control of your money. And it is nice to do.

The markets

The performance of the leading stockmarkets of the world has been staggering. There have been growths figures of up to 45 % in some markets, with individual stocks sometimes doubling their value.

The professional investors got nervous about this growth. But they could not get out of the market. The pressure of the market to deliver growth in their portfolio at least equal to the market index forces them to continue the game.

The correction which happened in the second week of August was nothing more than an expression of this nervoussness. A weakness in the bondmarket and the expiration of optionseries in the same week set off the sell programs of several stockmarkets. This correction was immediately taken as an excuse to take profit. The markets lost in week between 5 and 10 % in value but considering the growth of the first half year the losses are minimal.

The price of stocks have got expensive but till now they are still more or less in accordance to the financial situation of the economy. A fundamental analysis of several stocks showed that there is still more growth possible. The market will also recover itself from the losses pretty fast. It is now very attractive to buy some extra stocks in the coming weeks, they are now cheaper than for two weeks.

The US market

The US stockmarket will be even after this correction an interesting place with some growth potential. The growth will not be that impressive as in the preceding 18 months but within two years they will see some very impressive growth.

The following stocks will show some decent growth figures. AMEX and Citicorp in the financial sector. GTE and AT&T in the telecommunications sector. Intel, Motorola, Compaq, Sun micro systems, HP, Lucent technologies, Honeywell, IBM and Dell in the IT sector. Sears and Kroger in the retail sector. Exxon, Texaco and Schlumberger in the oil business. The pharmaceutical sector will also see some growth after a disappointing July. Companies like Pfizer, Eli Lily and Bristol Myers-Squibb. Further we like General Motors, General Electric, Boeing, Northrop Grumman, AMR and Delta Airlines.

The German stockmarket

The German market was the best performer in July of the European stockmarkets. The correction will just be an opportunity the buy some new stocks. The German economy is climbing out of the recession. A change in the tax system as proposed by the government will be a step in the right direction to further stimulate the economy.

German stocks remain high on the list of buy stocks. We like the multi-national companies with a high percentage of export. Companies like BMW, Daimler Benz, MAN, Siemens, Thyssen, Hoechst, Bayer, VEBA, VIAG, RWE, Metro, Dresdner Bank, Deutsche Bank, Allianz, Muenchener Ruck. and Hochtief.

The Swiss market

The Swiss stocks are one of the best performers of Europe. The Swiss companies have to rely on the export market to remain profitable. The question is can the SMI keep that growth as before. The Swiss stocks will be profitable but probably they will not show the same impressive growth as before.

The Swiss pharmaceutical gigants Novartis and Roche will show some growth. Their product range and their research capabilities still hold some nice products for the future. Further we expect some growth from ABB, Nestle ans SMH.

The FTSE 100

The British stockmarket will continue to grow, in line with the US market. The British exporters will adjust to the more expensive pound and the implications of a possible interest rate rise will also not hamper the economic growth. Therefore we maintain our advice for the British market. After this correction to buy some of the stocks of the FTSE 100.

The following stocks are on our shortlist; British Aerospace, British Airlines, British Petroleum, SmithKline Beecham, Glaxo Wellcome, Cadbury Schweppes, Grand Met., Tesco, Unilever, BarclaysBank, Royal Bank of Scotland and HSBC.

The French stockmarket

The CAC 40 is highly influenced by the performance of the French economy. The problems experienced there will limit the growth of most of the French stocks. But some will do better than others.

The companies who can hold against the tide are Elf-Sanofi, LMVH, l’Oreal, Carrefour, Canal +, Dassault Aviation, Soc. Generale and Total.

The South-east Asian market

The Asian market is in difficulties because of the currencies problems of several countries in the region. Only the export oriented companies of Japan and Hong Kong/China will offer some opportunities on the short term. The chances on the long term are very good for the region. Especially the Korean, Taiwanese and Chinese market will outperform the others markets in the region.

The best performers of the Japanese market will be Canon, Matsushita, NEC, Sony, Toyota and Yamanouchi Pharma.

The Hang Seng also has some very good performers; Hang Seng bank, HSBC, Hutchinson Whampoa, New World Development, Swire Pacific, Shangri-La, Shun Tak Holdings and Sino Land.

The other Asian countries are for the private investor, as said before, better covered by country funds. In about two to three years the situation will be different. Those countries are slowly adjusting their laws and finance regulations to a Western pattern afterwards investing in those countries will become much easier.