This article was published on 12 September 2006. Some information may be out of date.

When you want to stay but the company goes

The best laid plans of investors often go awry (to paraphrase and Anglicise Robert Burns).

A reader has made “an amused comment” about my recent statement that we should always buy shares with the intention of holding them for at least 10 years.

“But how do you make the companies stick around for 10 years?” he asks. “In the past year, I have had my invested money returned to me by both Ports of Auckland and Waste Management. I’ve had partial buy-backs over the last few years as well.

“No complaint about the overall return in each case, and no sell brokerage, but nevertheless I have to scramble around and find other investments. I guess ‘with the intention of’ is the key phrase!”

It is indeed. Anyone with a diversified share portfolio will find that all sort of things happen in the course of a decade.

Often, as in your case, you profit from developments. Takeovers, buybacks and so on are some of the ways that shareholders are rewarded.

And, as long as you a widely diversified, you won’t have a huge chunk of your portfolio to reinvest at any one time.

The idea is not to go to the trouble and expense of frequent trading — often doing no better than if you had bought and held. But if some selling and buying is forced upon you, sobeit.

If you don’t want the hassle, you can always invest in share funds, in which the management handles all of that for you.

The reader’s letter goes on to say, “In a slightly different field, I’m now having to make new arrangements for my call account which was with Superbank, who have decided to leave NZ.

“I’m beginning to think I’ll have to start investing in Australian companies. I do have the Tortis Ozzy index fund, but haven’t felt able to put the time in to following the Australian market for direct investments.”

My response: Don’t bother. If you want to invest in Aussie shares, I have three suggestions:

  • Choose say 20 shares at random.

    Even the experts don’t tend to do better than random selection over time. Chances are that you won’t either.

    This is because the share price of any company with a good outlook will already be high. And for a company with bad prospects, the share price will already be low.

    Basically, buying any share is as good as any other — although if you are risk averse you may want to avoid industries such as mining or shares with a volatile price history. Beyond that, research is often a waste of time.

  • Add to your index fund — which is now called smartOzzy as it is being managed by NZX subsidiary Smartshares.

    Index funds invest in the shares in a market index, in this case covering Australia’s biggest 20 listed companies.

    Because index funds are cheaper to run than other “active” share funds, their fees are lower. They tend, therefore, to give a better than average after-fee performance.

    Sure, some active funds perform superbly for a while. But over time, not many. And there’s no way of knowing in advance which will continue to do well. Index funds are a good bet.

  • Broaden your Aussie coverage by also investing in smartMOZY, a stable mate of smartOZZY that invests in middle-sized Australian companies.

In my next column we’ll look at whether Australia is the best place to go for your offshore share investing.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.