BULL in BEAR Market


(Shailesh) #1

There are times when you don’t have choice and there are times when you have choices which make decision making difficult .

I tried playing BULL in BEAR three times in my life : 2001–2003 , 2008–2009 and 2012–2013 and have made many mistakes …

Buying best Quality @ peak prices — In 2001–2003 bear market, only stock that seemed unshakeable was Hindustan Lever. Management quality was great and great business franchisee and most of my friends wanted to join and work for that company . I bought it when it fell by 10% from all time high and loaded up as it kept falling. For next 4 years stock hardly moved while India had greatest bull market of all time.

Position Sizing : In 2008–09 bear market , I had matured — with over 9 years corporate experience and as business head , I knew what are great business and what makes them tick . This time I was extra careful not to buy at peak valuation . So I could avoid all landmines of poor quality stocks and bought tracking positions in quality FMCG and pharma stocks at reasonable valuation . But the biggest mistake was I so anchored with 2003 prices that I kept waiting for big correction and tracking position never expanded … expect for one stock which I understood most as I worked for that company . So subsequent gains from 2009 onwards for other stocks expect one hardly made any impact on my overall networth.

Buying Junk stocks : In 2012–13 bear market, I was more confident as I had made good money in earlier cycle on account of being lucky on one stock ( my employer ) in which I had decent allocation . but I thought I should learn more about investing . I started reading Ben Graham , Mr Marks and many blogs that talked and preached value investing. For first time I started buying Junk business with good dividend yields ( because I wanted to increase my passive income ) — so called penny stocks mostly in areas on auto ancillaries , OMCs , Retail , packaging , telecom, textiles , commodities etc… Then 2013 Fed announced tapering happened and these stocks fell by nearly 20%-30% and I was scared for first time . My broker came over to my place and told me to sell all my stocks and buy Quality FMCG and Pharma stocks . I kicked myself for shifting to mid caps and small caps. But I did not sell as when I checked the prices the dividend yields on my stocks moved to near 10% . Now suddenly I started “Justifying” my purchases saying it is better than tax saving bonds and I shifted fixed income money to these so called junk stocks … This could have been disaster move as many stocks had avg. business quality …

For some strange reasons post 2014 onwards these stocks moved up became 5/10/20 bagger and I found experts calling these avg. businesses as “Quality stocks with Moat” — this is the point I gave up believing Investing is a skill and some person can become better investor with time . It is game of probabilities and luck . All one can do is increase probability of success , but luck will determine your returns …

So will I try to be BULL in 2018–2019 market … Yes as this game is addictive … tough to get out unless thrown out


(sainkar) #2

Even assuming that you have purchased HLL at 250 levels (adjusted price for split/bonus if any) during 2001-2003, you have beaten the NIFTY index by now with around 7 times return. Also the current dividend 20 Rs can be considered as 8% annual tax free income.

Yes, luck plays vital part and it will be surely in your side if you have done your homework and your stocks are sticking with your investment framework.


(Shailesh) #3

TRUE > but in 2003- 2007 it seemed like a big mistake . At one point HLL fell to near Rs 100 while during the same period 2003-2007 less quality / worse quality stocks moved by 20X - 100X . The opportunity cost of holding HLL was huge …

Today when you see HLL at PE 65 odd , I see history repeating one again…


(sambandham82) #4

Yes. you are reminding all of us that though the FMCG business is not cyclical in nature but investment returns from FMCG can be cyclical based on valuation.


(Shailesh) #5

In next three posts I will be analysing my own behaviour of trying to be BULL in 2013 Bear market with example of trades in 3 scrips ( one that was successful , one that was failure , one that I was lucky ) .

SUCCESSFUL TRADE : HPCL

This trade had a fundamental background .

I was travelling with PSU OMC senior management for setting up petrol pumps at my employer’s retail stores . During the period I asked them how can private oil marketing companies succeed if Govt controlled / intervened in gasoline pricing and provided subsidy to only PSU OMCs . He said in that case PSU OMC will always have upper hand as private OMCs will always be scared to expand aggressively as they will not be sure what will happen in high oil price scenario . Indirectly he said PSU OMCs will have a moat / monopoly in oil marketing so long as CRUDE OIL prices fluctuates widely .

I came back and then analysed OMC stocks and found they had not moved for last 10 years , and among them HPCL was cheapest had very good dividend yield , < 0.1 price to sales ration and PE of < 4 . The entire company with > 200000 crores TO had market cap of near 10000 crores . Plus my prop. stock analyser gave BUY call with score of 30 .

So I bought HPCL first in FEB 2013 @ 314 prices . But Look what happened

TradeBook-Sheet 2.pdf (89.6 KB)

*HPCL kept on crashing in next 8 months - it moved from 314 to 160 and I kept averaging down … I was scared as it started becoming one of bigger stock in my portfolio .

When I look back I start thinking

  1. Why I averaged this stock down so much
  2. Why I bought BIG lots when prices crashed by almost 50% ( 320 to 180 )

I had no idea then oil pricing will be deregulated … I just thought what worse can happen , I could not think of any reason . Plus I knew unlike other markets where private players have destroyed PSU monopoly - here it will be slightly more difficult …

Plus the strongest driving point hence was attractive dividend yields . Since these stocks had great dividend track record , I thought I can get quasi bond which can appreciate … Plus my prop software score expanded to 40 - indicating very strong buy …

That got vindicated – HPCL announced 2 bonus issue and my purchase price came to < Rs 50 and current dividend at Rs 17 per share is like 30% dividend yield …

So was it a Successful or LUCKY trade ( I leave it to readers ) … while there were some lucky triggers , I still classify this as successful trade as I knew there was limited downside to stock , Business was rock solid & real , Numbers were real and not cooked up . Cashflow was real - supported by dividend yields .


(Shailesh) #6

TRADE THAT FAILED : CORPORATION BANK

Unfortunately this trade too had fundamental background

Unlike today In 2008 -09 financial crisis - when people were scared of private lenders and banks , PSU banks seemed to good safety net . Just look at following data of corporation bank

In 5 years Net income had grown by 3X, Net profit by > 3X , Look at ROE and NPAs , these are better if not as good as todays Favourite . " BAJAJ FINANCE "

I knew these banks were had weak management width but sovereign rating , high dividend yield and past performance convinced me to take tracking position in these stocks .

Suddenly in 2014 these stocks started collapsing and dividend yields started becoming even mouth watering … I knew NPA issues exist but I thought this was temp and will get sorted in couple of years …

I kept averaging down … but new issues in NPA , new RBI regulation in disclosures kept happening . I Missed GOLDEN RULE " When Facts change one should his trade positions /views " , While in HPCL case I added when facts changed for better , in this stock I kept adding even when facts moved to worse and my own prop software was telling be to sell . In other words I fell in LOVE with wrong stock . Emotionally it took be long to get it off …

I sincerely hope I don’t make similar mistake in this BEAR MARKET . Be bull and if fundamental facts change like Regulation or industry structure , one needs to rebased their opinion…


(sambandham82) #7

what is prop software ?


(Shailesh) #8

I used my own valuation algorithm for stocks . It gives me two inputs

  1. When to buy , when to sell ( price targets ) - by analysing past 20 years of stock reaction to positive and negative news .

  2. How much capital to risk ( position sizing ) depending upon balance sheet strength

Disclosure : . I am not a financial advisor nor I manage other people money .


(Bhaskar Jain) #9

Very nice posts, thanks for sharing. Third one?


(Shailesh) #10

Thanks . Planning to write tomo


(nabilmoideen) #11

Great posts @kb_snn . Dil Mangee More :grinning:


(LTInvestor) #12

"…calling these avg. businesses as “Quality stocks with Moat”"

Totally agree. Something which I had written in a different topic (see below in bold). Unfortunately, could not participate in pre-2013 bull markets as joined job only in 2006 and did not know much. As they say, the first bull market, you don’t even know, second bull market, you don’t have any money, it is the third money you make (that is if you stick around). Hopefully will get a chance mid-2020s to make a ton.

To be sure most of us just got lucky and then became value investors. I remember buying IRB when it was at 4x PE and Cera at 12x thinking it should trade at 18x. And it went to 40x PE and we all became value investors. But the bottomline is earnings have been a no-show for last three years and we are running out of excuses. Demon / GST. You cannot be valued at 60x like consumer electronics companies and grow at 10%.


(Shailesh) #13

Interesting . I too missed 2003-2007 big time and I got lucky multiple times in 2009/10 and 2013/14 and I will share couple of them …

But one should remember things can go wrong BIG TIME – I re-read this again and again -

**"After successful 15 years in market ( 1914 - 1929 ) Ben Graham lost everything in 1929 -1932 crash .

He did not lose money in 1929 , but he lost money in 1930s and 1931 when he tried averaging stocks as he thought they have become undervalued …

Untitled

Imagine if HDFC bank falls from Rs 2200 today to Rs 1200 in 2019 . Many of us will try buying it and what if it keeps going down ( LIKE GE DID IN 1930s ) to Rs 20 . This kind of market movement is unimaginable for us …

Hence Ben Graham made a Golden rule that under no circumstances Asset allocation of debt should fall below 25% …

I live by this rule …


(Shailesh) #14

LUCKY TRADE :

In late 2012 , I had reached financial independence (passive income > my annual expenses ) on account of 2009 - 2012 FMCG bull run . My net worth had grown multiple times , I thought I should learn to invest beyond my core- competence and diversify beyond FMCG stocks .

But I did not know how to invest like pro as earlier I used buy business I understood when they were at 52 weeks or 3 year low . That Simple … No ratio analysis , I did not study annual report – Nothing whatsoever …

So now I started reading investment books of Ben Graham , John templeton , Marks and also WB and lot of investment blogs by Indian and International experts. But one person who left a mark was John Templeton . I found his idea of investing in 100 penny stocks when market is at historic low pretty interesting . I thought I should give this strategy a try before quitting my day job .

So in 2013 I started constructing ETF of near 20 ( with option to increase to 25 ) stocks . The criteria was stock had to be @ 3 /5 years low with Avg dividend yield > 2% ( though in some stocks like GMR I ignored dividend rule - BIG MISTAKE ) . That is lesson - when one decides a rule he/she should stick to it.

So I picked lot stocks which I thought were “JUNK STOCKS” and where i Iiked the names of stocks … It was that crazy … I decided I will allot max 10% of my PF to this as I should not regret losing this money …

STOCK and their avg buy prices

ALOK INDUSTRIES @ Rs 7
BAJAJ HINDUSTAN @ 20
COSMOS FILMS @ 58
DAMODAR INDUSTRIES @ 54
DEEPAK FERTILISER @ 150
FUTURE LIFESTYLE @ 59
GABRIEL INDUSTRIES @ 17.33
GRAPHITE INDIA @ 77
GMR INFRA @ 18.2
ILFS INVESTMENT MANAGERS @ 10.2
INDRAPRASHTHA MEDICAL @ 35
NIIT @ 21.5
NILKAMAL @ 123
NOIDA TOLL @ 20
PNB GILTS @ 15.5
PAPER PRODUCTS ( PPL ) @ 35
RATNAMANI @ 133
REPRO INDIA @ 151
SUNDARAM FASTNERS @ 36
SJVN @ 24.18
SONA KOY @ 9.2

Suddenly in late 2013/ early 2014 market took a U TURN and some of the above JUNK stocks became multibaggers esp Gabriel , Sundaram fastners , Sona Koy , Ratnamani etc … within matter of 6 months .

That was the time I started studying these stocks and checked them through my prop software and exited stocks with scores < 25 like Aok , Bajaj Hindustan, GMR , Future Lifestyle etc … and for rest I thought I will sell only if my software gives sell signal …

Well to cut long story short this was kind of LUCKY GAIN and it helped me get my Dividend income > annual expenses . That meant my fixed income interest became extra bonus that I could reinvest in stock market … So I finally quit my day job in April 2015 …


(shyamutty) #15

Wonderful

Can you please let us know which software you are using?


(Bhaskar Jain) #16

:slight_smile:

More than 10 bagger if you had held on.


#17

@kb_snn,
Can you share your PF and the returns that you generate?


(Shailesh) #18

I sold out GI @ avg price of Rs 350 … Yes early but again it was as guided by my software .

No regrets …


(Shailesh) #19

First phase 2009 - 2014 the focus was on Wealth creation and my portfolio was aggressive ( high % in equity ) ,

From 2015 once I quit my day job the focus is on Wealth preservation so portfolio is conservative ( high concentration is in large caps and I have increased fixed income % to Min 25% of PF )

CAGR 2009 till date is > 40% + but most of this return happened because of my purchases before 2014.
Post 2015 till date the portfolio ( debt + equity ) returns are more moderate around @ 18% ( post tax ) .

In long term I will be happy to have PF CAGR of 18% - 20%


(Shailesh) #20

I have received multiple questions on my current portfolio . I think I would like to put some points in perspective which I think is very important …

I AM NOT SEBI AUTHORISED FINANCIAL ADVISOR NOT I INTEND TO BE ONE .

DISCUSSING CURRENT PORTFOLIO IN PART OR FULL CAN BE DANGEROUS IF READER DOES NOT UNDERSTAND WHY I BOUGHT IT AND WHEN I WILL SELL IT IN PART OR FULL…

MY RISK PROFILE MAY NOT BE SAME AS YOURS . HENCE ANY SUCH PORTFOLIO OR STOCK DISCUSSION SHOULD BE USED AS CASE OF LEARNING AND NOT AS RECOMMENDATION

I WOULD LIKE OTHERS TO POINT MY MISTAKES TOO SO THAT I CAN LEARN

With above considered as read … I will initiate how I have tried to work out my PF for 2018 … in terms of principles . The stocks referred in subsequent posts will be only to illustrate these principles …

I will try to move discussion on PF to new thread Portfolio Analysis - Shailesh . so that here we can discuss only on what are risks and rewards being bull in bear market …


Portfolio Analysis - Shailesh