Ask Colin

Your portfolio does not seem to have any blue chip stocks. Why not?

Your question begs another question, which is what a blue chip stock is. There is already an answer to this question on the Ask Colin pages of my web site. This says that it is an imprecise definition but generally blue chip stocks are large, as measured by market capitalisation, and have long established businesses.

If we take the top 100 stocks by capitalisation on the ASX, I hold, or have held, a few of them:

I currently hold Tabcorp, which is No 38.

I held Amcor earlier in the year, which is No 28.

I held AGL earlier in the year, which is No 35.

I have also held a few others in recent years, like Boral and Paperlinx.

These capitalisations relate to 5 March 2004.

Of course, your definition of "blue chip" might not include these stocks.

Having clarified this, my investment plan is to focus primarily on second rank industrial shares. This generally means companies between No 100 and No 500 in capitalisation. I will also buy smaller companies from time to time, and I hold a few now. I will also buy larger companies and hold one now. I will also buy producing miners from time to time, but do not hold one now.

My reasoning is that it is more likely for a smaller company to double or triple in size or price in a short time, but more difficult for a large company. Of course it works the other way too: they can go down in price more and more quickly than large companies. So, I am taking more risk in that part of my investment plan. It is one reason why the working title of my book is The Aggressive Investor.It also explains why some people think my investment plan is quite conservative and risk-averse in other areas. There are several types of risk and if you take greater risk in one area, it may be prudent to take less risk in another.