Amit's portfolio - 2018 to 2020, comments invited


(VP_amit) #1

I am in about 75% cash and am creating my portfolio for the next 3 years (2018-2020).

My objectives are the following:
a) 12-15% compounding for 3 years from the current levels
b) Defensive:Enterprising - in favor of defensive, or 50/50. (below classification is at 57.5% defensive and 42.5% enterprising)
c) Only well known stocks with great managements
d) good diversification based on GICS classification
e) I am not the one to actively monitor, so would want a 3 year buy and forget (as much as is possible) portfolio

Questions:
a) Is my defensive/enterprising categorization ok, or would you differ?
b) Total number of stocks is 13 - would you suggest pruning it down to 10?
c) I am still confused on IT and Pharma, but am including them to diversify my portfolio and the inherent assumption is for the next 2/3 year IT and Pharma may outperform the market considering how badly they have been hit
d) In IT and Pharma I have intentionally kept 2 stocks each - is that sensible or would you think having one is better.
e) If I had to choose one from a 3 year perspective - what would you advise for IT: Infosys/TCS and what would you advise for Pharma: Sun/Ajanta (or any other)

  • Please share your comments

Stock % of portfolio Defensive/Enterprising? Which GICS sector? Rationale
HDFC Bank 25% Defensive Financials a) Strong Anchor, b) predictable growth blue chip
HDFC 7.5% Defensive Financials predictable growth blue chip
HDFC Life 5% Enterprising Financials Insurance will grow, great pedigree
Eicher Motors 10% Enterprising Consumer Discretionary Earnings visibility and current market leader in its segment
Maruti Suzuki 10% Enterprising Consumer Discretionary Earnings visibility and current market leader in its segment
Marico 7.5% Defensive Consumer Staples has been a 10 bagger for me, implicitly trustable management
Kaya 2.5% Enterprising Healthcare?/Consumer Discretionary? low mrket capital with Marico’s management - great combination
Page Industries 10.0% Enterprising Consumer Staples predictable compounder
Avanti Feeds 5% Enterprising Farm ? good runway, market leader, capable management which has demontrated great performance
Infosys 7.5% Defensive IT IT to rebound. Clean Management. Market Leader
TCS 2.5% Defensive IT IT to rebound. Clean Management. Market Leader
Sun 5.0% Defensive Healthcare Pharma to rebound. Great Management. Market Leader
Ajanta 2.50% Defensive Healthcare Pharma to rebound. Mid-size Pharma with proven record
Total 100.00%


(Amit Jain) #2

I agree with the broad picture you are trying to paint. However, the following points I would reconsider.

  1. Now is not a good time to start any portfolio. Nifty PE is at 25.27 on a very higher side. Correction in price or time is very highly likely.

Assuming we ignore this point, lets proceed to other points to mull over.

  1. 25+7.5+5; around 40% exposure to HDFC group. If the group were to go in for a price or time correction, your portfolio will suffer the whole decade. It has happened with HuL ACC and most other large caps in the past.

  2. 10% in Maruti is not defensive at all. Maruti is at its life time high PE-wise; 35.75 has not happened in a very long time. It is a good buy around 20ish PE. At this price, it has the next three odd years of growth factored in.

Why dont you wait for a correction. It is a great company otherwise.

  1. TCS is better poised for growth than INFY. PEG wise TCS is 20% cheaper.

  2. In pharma, Aurobindo appears to be better than Sun. Better growth and price tag. Biocon appears to be buzzing, read up.

  3. Since 2014, investors have made mediocre returns from Page Inds. This may continue, since its PE 75, huge.

Interesting choice of companies.


(VP_amit) #3

Thanks a lot for your comments @jamit05 - these matter a lot since you have been one of the participants not afraid of calling a spade, a spade during the crazy run over the last year :-).

Well - some clarifications to your points and some additional questions are as follows:

Clarifications:
a) HDFC - I agree with your point and have considered the 37.5% allocation. However, I really want a strong anchor to my portfolio without worrying about some major crash. Cannot think of any group better than HDFC which still has a good runway and ofcourse has a great management. So the answer to your question is: yes, I am aware there is a big allocation to HDFC, but that is deliberate and am ok with taking that risk
b) Pharma and IT - I did consider the companies mentioned by you and am more than open to them, so I will certainly evaluate the names again
c) Maruti - I have mentioned it as a Enterprising stock and certainly not a defensive. I understand PE is high, but just love the ability of management to keep a 50% market share continuously over such a long period of time. Nobody knows India car customers as Maruti does.

Questions:

  1. You say this is no time to create a portfolio and I should wait for a correction. This is one point I have really thought about, however I do not see more than a 4-5% correction going forward and especially for the stocks I am interested in, there is generally not a lot of correction. So I want to start accumulating (sort of a SIP with each fall). This is Option number 1, and is currently my preferred approach as the stocks I am interested in are solid stocks and there will not be a huge fall in their price (of course this is my assumption)
  2. Option 2 could be to put all the cash in FDs and wait. However, inspite of LTCG - option 1 (as far as I understand) still trumps this option. Other issue with this option is, how long to wait before getting in again?
  • I am not a gold investor, so that is not an option for me. Is there any other option you see that I am missing?

Thanks
Amit


(Amit Jain) #4

This is how they convert the last bears into bulls, and then slaughter them like pigs.

What data do you have to back the fact that the stocks on your list won’t correct at a higher beta than the index.

Historically speaking, HDFC Bank has corrected over 20% several times in the past. In fact in 2008 it sank 50%. Please dont take your investment decisions while being influenced by the recency bias. Much too recently though, HDFC bank lost 5% in last 11 days! Proving that it is not bear proof.

Maruti also tanked 50% in 2008. Then on, from 2009 high to 2014, it gave zero returns. The stock went through time correction for six whole years! Honestly, thats an a grossly wrong decision. Again, in 2016 it corrected 30%. It is not bear proof either. This covers pretty much the entire spine of your portfolio.

Your enthusiasm is well placed, but ill timed. You have waited out this far, what is a few more months. I assure you that you will not be missing much. Because, People who invested in 2015 highs of Nifty 8800 have still only made 5.50% CAGR ! This is the price you pay for buying high.

The very first principle of Index Investing is that you MUST BUY LOW. Don’t compromise on it.


(Vijay) #5

Why did you choose a 3 year period? Why not look at a longer period to avoid selling in a bear market? If so, your portfolio might be very effective!


(1.5cr) #7

Consider buying a strong set of mutual funds. 12-15% is something that a strong set of large cap mutual funds can give you with ease. If you find an anamoly in the market then pull out some money and buy them directly.
Buy and forget is a myth that just cannot be busted a very good investor once told me.
So consider looking at MF for that rate and you wont need to do any tracking whatsoever:)
Or just use your common sense, India will go from a 2T to a 5T economy in the next 10 years. For an economy to grow banking has to grow. Buy some strong BFSI stocks track them once a year you should compound at 14-18% over the next decade.


(Saji John) #8

I like the way you quoted it…a scary reality though…


(VP_amit) #9

Agreed @jamit05 - can stay out for 2-3 more months, though I must admit it is quite tough. :slight_smile: You are right, no point catching a falling knife. However, not sure till when will the correction last. So certainly will require patience.


(VP_amit) #10

Hi @Uservijay - good point. 3 year horizon is not to sell, but to re-evaluate and see if churn is needed. Ideally I would not like to churn for 3 years. My expectation is to get a 12-15% return from this portfolio without churn over the next 3 years - is the expectation misplaced? If nothing goes really bad - would like to keep this portfolio long term - 10-15 years


(VP_amit) #11

@1.5cr - I actually gave a good thought initially to a completely non diversified, single stock portfolio - HDFC bank (heard Ramdeo Agarwal also once suggesting such a portfolio. How the returns would have been great if someone bought only HDFC bank over a long period of time). Actually it can turn out to be great without much tracking. However, as a retail investor, not sure if I can really go in with 0 diversification and still sleep well.

  • Mutual funds: are an option, however, I am more inclined to a no frills stock portfolio and hence this exercise.

(1.5cr) #12

Hey if it makes you comfortable you go can go ahead and do that. Investing is personal. It is different for everybody. We have to stay the course so you have to do whatever makes you comfortable.
That will not be possible. Like I said, buy and forget is a myth that cannot be busted. There will be long periods of time corrections holding these cos.
Thing is the dividends will keep flowing in from hdfc bank. And if you had bought them those days then those dividends in itself amount to a wonderful annual rate based on your purchase price. That logic would apply to HUL and certain other mega caps too.
Another option is to give your cash to a pms. There are some good funds and fund managers that dont charge an incentive fee and have a very low mgmt fee.
In that sense you might as well just buy the index as you have exposure to all the mega caps in various sectors and capitalise on the India story.
Just look at MFs and put some money on your own if you find an opportunity that can do well for you. Put % of your portfolio in HDFC and rest in MFs. If hdfc fails to perform sell them and put money back into your MFs until you find something else that you like…


(Vijay) #13

If you won’t churn or sell during unfavourable market situations, the portfolio looks very good.


(Jayantrichur) #14

Valuation is also as important as the quality of the stock. Some of the stocks in your list like Page, Eicher etc are expensive and Sun is going through a rough patch and I feel better option is Aurobindo.
Hope you are having a 7 + years holding tolerance. From HDFC umbrella, you have 3 and from Marico 2. Perhaps you should consider dropping 0ne from each umbrella as your portfolio is highly concentrated. I like Jyothi Labs from consumer products category due to its better valuation and decent growth. Ajanta too is a bit pricey.


(KKP_Investor) #15

Amit, here is the issue with doing it NOW vs Later in Correction.

In the USA, the markets have kept on going with ‘intermittent’ correction for almost 4 years now. It is NOT expected to do that for another 4 years, but if the definition of a correction is a 10%+ correction, and it does it violently in 10 days, does that mean correction is over?

What if India is doing the same thing?

If you buy into this theory that you do NOT know when the correction is going to happen, and your timeframe is 1 to 3 to 5 years, then you will want to do the following:

  1. Pick the BEST sectors 3 to 5 years from now.
  2. Find stocks that have deeply correctly due to their current story, earning, beating (Modi or Trump or Contract or Competition or Announcement)
  3. Start taking your amounts, and allocation to that sector, and start putting 11/12the portion into it staring Feb’2018.
  4. Now, if the ‘correction is coming’, then you will not have patience beyond 2018 anyways, and now you are saying that I like Motherson Sumi for Auto Ancilliary and I want to put Rs10L into it (all assumptions), then, I am going to buy 11/12th of Rs1L into Motherson. Now, if that thing goes up or down, you do NOT care. You will have an average done and handled, feel good and not have the FOMO feeling (Google it).
  5. Picking a ‘diversified sector base’ and ‘diversified stock around those sectors’ is key to doing your HW.
  6. Pick stocks only during sell-off, and when they are at Support Levels. For example, look at the chart of Snowman. What a perfect stock chart to buy NOW for a 3 year outlook. Macro of that company is that food is getting spoiled, and transporting it, storing it, and doing it efficiently will avoid food-spoilage/wastage. Micro of company is that they will improve in 1-2-3 quarters. We might get a correction, but stock in correction now. Company chart is good, unless more cockroaches show up in the company.

Good luck.

PS: I have to make it a habit to come to ValuePickr, but do not find time, or forget. I will try to come here more often to learn.

KKP Investor


(Dakshina) #16

Valuable discussion. I am also struggling to build a decent portfolio. My interpretation of ‘correction’ is opportunity for a ‘Sensible Pricing’ ( once good stock is zeroed on). I am learning to be patient for a sensible price tag which can partly offset any erroneous assumptions


(KKP_Investor) #17

The key is further define your words “Sensible Pricing”. Sensible to who, with what method, and for what timeframe, and do you know it has worked in the past for this sector / stock? Taking one small point of that, what is the “Sensible PE” for this stock you had chosen? What are the typical “Sensible Support Levels” where buyers come back to the stock and start buying?

So, it is easy to say ‘sensible’ or ‘reasonable’ or ‘value buying’, but hard to define it quantitatively and then sticking to that methodology.

KKP


(skg) #18

Hi Amit, I agree with your points. I have also started building my portfolio with some small quantity. I am waiting for correction to build below portfolio. Do you have any suggestions on it? One thing I see in below is that there is no pharma company and NBFC company here.

Bharat Electronics
Exide Industries
Amaraja Batteries
Maruti Suzuki
M&M
ITC
HDFC Bank and/or ICICI Bank
Yes Bank
HDFC
Jindal Steel and Power
Asian Paints
Cera Sanityware
Kajaria ceramics
Eicher motors
Escorts
Persistent system
Infosys
Dilip Buildcon


(Amit Jain) #19

The core idea of any successful portfolio is to buy a Good company at Low prices. Now, defining “Good” and “Low” requires some wisdom, which comes from reading and self-experience (and some vicariously)

IMO, these companies are overpriced. All of them. Furthermore, for each company you must work-out a price-range at which they are a good buy. This should factor in, future prospects, risk, current scenario.

Only then, a list of companies makes sense.


(skg) #20

Thanks for your feedback Amit. I understand that most of them are overprices. But companies like Bharat electronics(trading at 132) and Persistent system(around 700), Jindal Steel and Power are around their discounted price. I will wait for other companies to get corrected and will buy in small quantities on 15-20% dip of current value. I have prepared a list of intrinsic values of these companies(using other websites). But price might not go down so much for these companies. So I was planning to buy some quantity of them on market correction.

Again thanks for your feedback

Bharat Electronics - 100-120
Exide Industries - 100-120
Amaraja Batteries - 400
Maruti Suzuki - 5000
M&M - 450
ITC - 120
HDFC Bank and/or ICICI Bank - 1200/150
Yes Bank - 250
HDFC - 1200
Jindal Steel and Power - Already below book value
Asian Paints - 500
Cera Sanityware
Kajaria ceramics - 250
Eicher motors - 12000
Escorts - 400
Dilip Buildcon
Persistent Systems
Infosys


(Dr Manoj) #21

Really,I liked the selection. I felt like someone is thinking like me.The number of stocks in my opinion is quite good,stocks are also well chosen.I can only suggest you to consider adding one good stock from Infra sector. I suggest so, keeping in mind the period mentioned by you,and in this sector we do have some stocks with strong fundamentals and consistent return.
For IT,my suggestion is TCS,as it does not require monitoring-good management,backed by Tata group and good returns.
For pharma, my suggestion Ajanta-good margin,low US exposure,niche player etc.