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Monday, 19 March 2012

Portfolio Query: What to do with my portfolio?

A reader sent a query on an older post "My Rules for Investing":

Great Post!!.

A generic query. Even after repeated warnings a lot of us have bought a few stocks based on TV channel/CNBC/Guru's tips etc..which results in
a) Too many stocks in portfolio around 35
b) Some are down around 25% & unfortunately i have no investment thesis & hence no plan on what to do with them.

What can be plan of action here, should i sell them at a loss, build a thesis and then accordingly hold or sell the stock or finally keep them in cold storage and hope that after 3 years they have appreciated :) 

Here is my response. I am putting it up here so that others who may have a similar predicament, can benefit and if anyone has a better idea, can share it with me :-)


Firstly, stop listening to all "gurus" on TV for your financial health :-) If they knew which stock would do well, they would reverse mortgage their houses and buy those stocks :-)

For your current holdings, the only option you have is to build conviction. Here is a quick and dirty process that you can follow:-
  1. Take one or two stocks a day and go through their financial numbers and basic business (what it does)
  2. Check on debt levels
  3. Check if company pays regular dividends
  4. Check if sales and profits are either constant or growing over the last 5 years (atleast) - the growth need not be every year but on a average 3 out of 5 years there should be reasonable growth.
  5. Check the RoE & ROCE. Take a real hard look if they are below 15%
  6. Check if there is +ve operational cash flow for atleast last 3 out of 5 years
If you do this, it wont take more than 30-60 mins each and you will get a much better idea of each company. Do this for every company in your portfolio. If you find ones which you do not understand or the numbers don't look good at all, just go ahead and sell. Those where you are not sure, dig a bit deeper.
Also, remember once you have a set of companies that you like and understand, it may be a better bet to keep buying into those than always looking for stocks not in your portfolio.

"I measure any new purchase against what I like least in portfolio now and unless it meets the  test, I'll just buy more of something in the portfolio." -- Warren Buffet
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3 comments:

  1. Amit19 March 2012 at 22:35

    Good suggestions. I agree on your comment on Gusrus on TV.

    Thanks
    -Amit

    ReplyDelete
  2. Kishor Barhate21 March 2012 at 21:53

    Dear Sir,
    What are your views on Titan Ind. If someone holding from very long (10 years+), is it a time/price for investment sell. OR titan can still give reasonable return for couple of more years from here onward. ( From CMP)

    Regards
    Kishor

    ReplyDelete
    Replies
    1. Abhishek21 March 2012 at 22:04

      Well, that depends on how you define "reasonable". I think Titan should do very well even from now, both as a company and as a stock. The main reason for my bullishness is that the eye-wear segment is mostly dominated by local and small pan-india players like Lawrence & Mayo and GKB Opticals.

      The margins are huge in the "frames" (I know a frame importer who buys a frame for about Rs. 400, which finally gets sold at the large stores for close to Rs 2000). And glasses are a repeat buy. People have to buy, there is no alternative. I can go without buying a watch, but cannot without a glasses.

      Similarly, there are also getting into fashion-wear and accessories through the fast-track brand, which again should do well.

      Add to this great management and a Tata pedigree, so overall you should do well if you just buy it and forget about it for the next 10 years :-)

      Delete