Question: I’m surprised to see Origin exited from the income portfolio. Do you not see a recovery in its share price and dividend even with near future 2015 LNG exports from Gladstone?
Answer (By Paul Rickard): The reason for taking Origin out was that I wanted the portfolio to be underweight energy – so it came down to a choice between Origin and Woodside. My thinking about the energy sector is that it always takes longer to feel the full impact of major price shocks – so my guess is that we haven’t seen the bottom on prices in energy-related stocks just yet.
I prefer Woodside over Origin for this portfolio because it is probably a little more insulated, dividend yield is higher, and it is fully franked.
Question 2: How important is the shorted stocks list in investing, as I notice J B Hi-Fi is in there and it is also in your high-income portfolio. I also own a couple of others in there. Should I be thinking of selling?
Answer 2 (By Paul Rickard): It is important to the extent that it conveys some useful information about what some of the professionals think, and also alerts you to the fact that you may need to be patient with your position.
For a medium to long-term investor, it probably doesn’t mean that much.
Short sellers often get things spectacularly wrong, but on the whole, they probably get more things right than wrong. Two things that you don’t know are their investment time frame, and what they are short against. Sometimes, they might be short one stock, and long a similar stock – as a play between two companies on a spread basis. Other times, they are just short a particular stock.
Bottom line: information to consider, but not the final arbiter in terms of stock selection/portfolio construction.
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