At this time of the year, every self-respecting bank and fund manager comes up with its "top picks" for the year ahead - stocks which they think will outperform the market.

It's about time The Business Times comes up with its own selections.

Unlike serious Shenton Way funds, we don't have expensively assembled teams of buy-side and sector analysts to make conventional selections.

That didn't deter us. In line with latest trends, we have decided to outsource our stock-picking abilities - to chance.

Introducing the BT Random Fund - the latest long-only, passive-aggressive, unknown-volatility, maximum-risk fund in the market with a starting net asset value of $1 million and a lock-up period of one year. Zero management and performance fees. Promise.

The 10 stocks we hold are in the table, hypothetically bought on the last traded price of the last trading day of 2013, using $100,000 for each stock.

We chose them for their high returns on invested capital, recession-proof cashflow generating ability, low debt, prudent and forward-looking management, brand-name endurance, strong corporate governance, sustainable business practices and a distinguished history of delivering maximum shareholder returns.

Just kidding.

What we actually did was to get a list from the Bloomberg machine of the 781 Singapore-traded stocks in its database, and used Excel to randomly select 10 stocks from that list. We got two exchange-traded funds on the first cut and replaced those with two more random picks.

The picks

The resulting 10 surprised us in some ways.

Instead of 10 illiquid, loss-making S-chips, we got a decent number of profitable names spanning the financial services, oil and gas, shipping, electronics and industrial sectors - a good sampling of the Singapore market. Nine in 10 paid dividends last year.

OCBC Bank needs no introduction, heading the list as the only large-cap, Straits Times Index (STI) component. Another financial services firm in our list is Malacca Trust, an Indonesia-based consumer finance, asset management, brokerage and insurance group.

Three companies deal with ships. Nam Cheong makes offshore support vessels for oil and gas exploration purposes. It is the second-largest stock in our list. Interestingly, it is rated a "buy" by all nine analysts covering it, according to Bloomberg.

Rickmers Maritime is a business trust that owns and operates container ships, with a 10 per cent historical dividend yield. Also in the shipping business is Singapore Shipping Corporation. Its profits have increased in the past few years amid a downturn in the industry.

Two companies are in the electronics sector. PCI Limited is an electronics manufacturer that has been listed in Singapore since 1992. Earnings plunged for its 2013 financial year amid weak global demand. Meanwhile, AEI Corp makes aluminium parts mainly for the electronics and precision engineering industry.

China-based Southern Packaging Group makes plastic packaging for customers in the food and beverage, pharmaceutical and personal care industries. It is trading at two-fifths of its net asset value.

Two illiquid, loss-making micro-caps round up our portfolio. Health supplement distributor Jacks International owns the Nature's Farm chain here.

Craft Print International, a Catalist-listed printing firm, has reported losses for seven years in a row. Blame the computer for that one.


Why are we doing this? And why randomly pick 10 stocks? This is, firstly, an experiment, though not a very rigorous one.

Some people think the stock market is nothing more than a lottery. Others theorise that in an alternate universe where a group of monkeys has an infinite amount of time to hit keys on a typewriter, one particularly literary monkey will accidentally type out the complete works of William Shakespeare.

Perhaps a collection of 10 random stocks will similarly have a chance of making money. Perhaps our fund will fall flat on its face.

But given that a significant number of funds out in the market actually don't beat benchmark returns and just live off management fees, we thought it interesting to pit our imaginary horde of monkeys against the bevy of bespoke fund managers out there.

We selected 10 stocks because we wanted to avoid large fluctuations when we report our returns. The risk of a portfolio, defined by its standard deviation or how dramatically its returns vary day to day, drops very quickly as you add more stocks to it.

At a number closer to 30, the unsystemic risk of a portfolio is diversified away to effectively zero. That is, market-moving news specific to a company, like a CEO resigning or workers going on strike, will not affect the returns of the entire portfolio. What is left is systemic risk, such as the risk of a global financial crisis.

The upshot is, the more stocks in your portfolio, the more robustly protected you'll be against an individual screw-up. There's debate over whether 30 is too much or too little, and also how diversification can't be achieved by concentrating all picks in one market.

In any case, we'll stick with 10 stocks for now - about what an ordinary retail investor with a busy schedule can keep track of.

The 10 randomly picked stocks will stay in our portfolio for at least a year, before we do another run of randomly picked stocks.

We will run a piece once a month summarising the major changes in this fund, compare price returns against other funds and indices, highlight unusual happenings, and so on. We will take into account dividends paid when evaluating returns at the end of the year, as well as go with the majority on corporate actions.

Hopefully, this process might throw up interesting gems in the market which investors rarely hear of, companies which might be too small to have an impact on the Singapore market to be covered by the media or by broking house research.

At the very least, the BT Random Fund will be an alternative benchmark to measure your own performance against. And if you're an active fund manager and can't beat us, well, maybe you should be joining us.