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Wednesday 31 December 2014

Portfolio Update - 2014

Another year comes to an end - one which has been an eventful year for India, with a new government at the center, one which has a majority in the Lok Sabha, after decades of coalition politics. The stock markets have run up a lot on partly fuelled by overall global equity market rallies and partly by the hope of an economic revival in India under the new government.

2014 was also a great year from a return perspective. My portfolio returned 135% gains during the year as opposed to a 30.75% rise in the Sensex and 81.67% of the HDFC Equity Fund. (As I have explained above, I try to see my performance with respect to this fund just to make sure that I am not wasting my time picking stocks!!)

Most of the great return came from just sitting out on the picks that I had in the portfolio. That is the beauty of having a long term portfolio with good and stable businesses. I continue to hold on to nearly all my long term picks and remain convinced about their growth prospects in the future. 

During the year, some notable changes in the portfolio were as follows:
New additions - CCL Products, Sintex, Symphony 
Reduced holding - Mayur, Cera
Completely booked profits / losses - Selan Exploration, Finolex Cables, Page Industries

I have also updated the Portfolio page.

The case for Mayur was very interesting and I had to spend a lot of time to think through. It continues to be a business which I am most confident about in the long term and the stock performance over the years has been a 100+ bagger for me, so endowment effect was very strongly present. The only reason to sell was I decided to book some profits as it had grown above 25% of my portfolio and was creating risk that I was unwilling to take.

I wish all my friends a great, prosperous and rewarding 2015. 

May the Force be with you in 2015!

Disclosure: I am not an investment analyst. Stocks discussed in the blog should not be construed as buy / sell recommendations. This blog is a chronicle of my actions and thoughts in the markets. Please consult an accredited financial advisor for financial advice.

Friday 5 December 2014

Friday 28 November 2014

Weekend Reading - Curated Links of Interesting Articles

Here are my piled up list of weekend reading :-)

An interesting (and contrarian) take on short term view of markets from one of the best investment thinkers of our time, Michael Mauboussin - http://cdn1.valuewalk.com/wp-content/uploads/2014/11/document-1040753371.pdf

Dan Ariely's tips on managing time & being effecient - http://www.bakadesuyo.com/2014/10/how-to-be-efficient/

Tuesday 18 November 2014

Using leverage in a bull-market

In a bull market, a lot of people get enticed to use leverage to enhance their portfolio returns. Leverage comes in many forms, loans using existing stock as collateral, top-ups on home loans and using them to buy stocks, punting on stock futures etc. 

“Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re clever, and your neighbours get envious.
But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as well learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.” - Warren Buffett, Berkshire Annual Report, 2010
In this context, let me recount the story of Rick Guerin - Buffett's contemporary and acknowledged by him as "Superinvestor of Grahamville". Guerin lost significantly and dropped out of the investment landscape after the steep crash of 1974 when he received margin calls because he was highly levered. He had to liquidate some of his best investments including Berkshire Hathaway stock. Today, everyone knows of Buffett and Munger but hardly anyone has heard of Guerin. (In fact, to be honest I was also not aware of Guerin's history before reading about it in one of Mohnish Pabrai's interviews).

As Buffett said in the quote above some people can become rich but in an alternate history (Taleb's definition) of events can become a pauper. So, keep away from leverage.

Monday 22 September 2014

Don't Build Noah's Ark

We have been witnessing a very strong market sentiment that started with the run up to the general elections and then continued with the once-in-thirty-years win of a single majority by any political party in India. With a pro-reform mindset, the BJP government led by Narendra Modi has promised "acche din" to the people.

I have been bullish on the Indian market since last year and believe that this is just the beginning of a bull market in India. And it has a long way to go. I hear a lot of market players talking about steep corrections in the near future. As long as there is such healthy scepticism in the market, there is unlikely to be any major reversal. Also, intermediate corrections are healthy in a bull market and usually gives the opportunity to investors to get into good stocks of their choice.

A bull-market brings with its in-built  challenges for investors. Sell side analysts and brokerages start aggressively pushing their stock recommendations. Investors get such "multibagger ideas" daily in the inbox, whatsapp, facebook and other such groups & forums. Suddenly, "investment experts" come out of the woodwork and start making recommendations and touting up their "fantastic past records". And people get lured by the easy gains in the market and start "collecting" stocks. Their portfolio starts looking like what I call the Noah's Ark - having two of everything!! Stop. Think. And then only buy those companies which as an investor you are comfortable with; those stocks which are within your circle of competence.

And always remember sometimes the existing stocks in your portfolio and are as good (if not better) than the latest hot stock you are pursuing. So, focus on businesses, moderate return expectations (most errors occur when people try to chase incrementally higher returns) and cut out the noise.

Friday 15 August 2014

Book Review - The Thoughtful Investor by Basant Maheswari

Over the last one month, other than the annual reports and other research reports, I have been busy reading two books, i) The Thoughtful Investor and ii) The Manual of Ideas. Today I am sharing my thoughts on the first one. I will post the review of the second book in a short while.

Firstly, The Thoughtful Investor is not a mere book on investment. It is more a description of an investment journey that the author Basant Maheshwari has undertaken. A lot of retail and HNI investors in India have probably visited the website/forum he started and moderates, theequitydesk.com, better known as TED amongst followers. 

The first thing that stands out is the exhaustive contents of the book. Very few things that a serious investor needs to thing about is left unaddressed in the book. It covers the psychological aspects of becoming a good investor, the pains of holding too long and the use and misuse of leverage. It gives a reasonable overview of fundamental analysis - though you will need to know the basics as that is not really covered here (and that is how it should be - this book is not really for beginners). It also has a very nice section on portfolio construction - a facet I have seen only very senior and serious investors focussing on, and something which is perhaps the most critical for overall returns than individual stock selection. The book ends with a checklist that can be picked up as-is or modified based on your individual experiences.

What is refreshing about the book is that it captures the passion of an equity investor through the struggles of making and losing money. There are very few good books on experiences of individual investors, specially Indian, and this is definitely one of them. 

The only improvement area for the book that I felt could have been better was the editing. There are quite a few typos and grammatical errors, which at times take away from the pleasure of reading a well-written book.

Every good book should provide atleast one takeaway. The main takeaway underlying theme that I felt coming out throughout was of making enough absolute returns to become financially free. I have heard a few folks complaining about the price of the book (it is priced at 999 rupees) and asking whether it is really worth that price. To me, if you are a serious investor investing in Indian equities, you should read the book, if for nothing else, than to just drill the key takeaway from the book in your heads. Being financially free is definitely worth much much more than the 999 rupees you pay.

Saturday 2 August 2014

Portfolio Update

Being a value investor is fun!! It gives one a leeway for being lazy and inactive while putting on a facade of being intellectually stimulated. 

The above is a disclaimer for delaying updating my portfolio at the end of July and doing it a month late :-)

The updated portfolio is on the Portfolio page of the blog.

The performance of the portfolio has been extremely satisfying to me. Luck does indeed catch up sometimes. For the first half of the year:
Portfolio - 89.3% 
Sensex - 21% 
HDFC Equity Fund - 40% 

HDFC Equity Fund is my benchmark mutal fund. My thesis is that if one can't perform better than a good fund over a period of time, then better invest in the fund and pursue other passions.

This time the returns were distributed and came from many of the portfolio stocks - Mayur contributed the most with a stellar rise, taking the price to an uncomfortable territory. Astral also has gone to a level which is making me uncomfortable, but not yet to the point of selling. Finolex Cables, Balkrishna, Ajanta, Alembic, PI Industries all contributed their fair share in the performance.

In the first half, I added Bajaj Finance, PTC India Financial Services, Kitex Garments and Selan Exploration and booked profits from Page & Atul Auto. 

I believe Bajaj Finance is on a very strong wicket and will do very well for a long period and is available at reasonable valuations (more I suspect due to the fact that they did not get a banking license). PTC Finance is also doing extremely well and has good visibility of earnings in the short and medium term though longer term is hazy. I need to do more due diligence on Kitex and Selan. 

Currently, I am relooking at some of my old favourites like Sintex, Shriram Transport and some others like Persistent Systems, Symphony Coolers to see if they fit into the portfolio.

In my opinion, we have just started a bull-market and we have a long, long way to go. So, good stock selection and portfolio weightage can give outsized returns even from these levels.

Happy Investing!