This page contains a Flash digital edition of a book.
SHARE PORTFOLIOS


“It comes as a surprise to most investors to learn that over any 12-month period, only around one third of companies on the ASX make money”


other, whether they are actually members of the family or outside managers. Second, it allows the methodology to be presented


objectively to the other family members. Properly presented (and this is really only possible when the basis is clear and rational), it allows the other family members to understand the rationale behind the investment decisions. The third reason is that it gives the members of the


family a sense of responsibility and ownership of the investment decisions along with their actual ownership of the portfolio itself. The fourth reason is that it reduces the potential for conflict between members, so often responsible directly and indirectly for sub-par performance.


The second requirement for family office share


portfolios is the preservation of capital. Even though performance is important, more important are strategies that preserve the wealth within and between generations and avoid it slipping away through misguided, ill-informed or short-term decisions. The obvious reason to preserve capital is that there


is no loss of wealth for the current generation. A second and more important reason is that it prevents an even greater loss of money for future generations. A loss of wealth now can become magnified in the future because of a smaller base to take advantage of the effect of compounding. Of course, Buffett has done much more than not lose


money, and the same would be anticipated for family office portfolios using the methods described below. Even though the methods are aimed at implementing


the requirements of a rational basis for the investment methodology and the preservation of capital, they also provide a foundation for generating not only an attractive return, but one with high safety as well.


Rational basis for share selection and portfolio management Let us start with an outline of a rational basis for selecting shares and managing a portfolio. There are four aspects to this.


Financial requirements Start with the earnings of a company. It comes as a surprise to most investors to learn that over any 12-month period, only around one third of companies on the ASX make money. Putting it another way, over any 12 months, well over 1400 companies make no money for their shareholders, with most losing money for them. It is no wonder that the prices of so many shares never meet their touted expectations. Most turn out to be outright capital-killers, with huge crashes in share price. Or they are capital-killers by stealth and dribble your capital away. The first financial requirement is strong, steady growth in earnings per share. The same applies to sales per share, the bedrock of earnings per share. Next look at return on equity, the earnings of


a company divided by its equity. It is an important measure of the economic success of a business. Unless management scores well in this regard, it makes little sense to invest in the company. With this in mind, a


FAMILY OFFICE: ASIA TOMORROW  59


OPERATIONS


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126  |  Page 127  |  Page 128  |  Page 129  |  Page 130  |  Page 131  |  Page 132  |  Page 133  |  Page 134  |  Page 135  |  Page 136  |  Page 137  |  Page 138  |  Page 139  |  Page 140  |  Page 141  |  Page 142  |  Page 143  |  Page 144  |  Page 145  |  Page 146  |  Page 147  |  Page 148