Changu Mangu The Bull - Portfolio

[deevee]

@valuestudent

I initially came to get rich and then when I saw what can happen I moved last year November to start building a list of good businesses. Only building that list took me one year. I don’t understand these very smart people who can build an entire portfolio the moment they enter the stock market. Plus people enter the stock market when they are valued irrationally. So they keep losing.

Hi @valuestudent

This is a very apt point you have raised. Suddenly I have seen a spurt of new threads of starting new portfolios. Either I feel some of us our quite dumb and slow that it has taken years to build a portfolio or we are doing it wrong.

I am also holding a lot of liquid money since January and it has taken a toll on me. But I think the small cap space is something we need to be aggressively exploring. The only reason I say this is that the small cap space valuations have really cooled off. The index is also down considerably.

Also a nice article I read in The Economist yesterday, pertinent for us.

The perils of trying to time the market

I am sure you are studying multiple more businesses in this space.

I would love to know more on your rationale of investing in 3M, given its high valuation levels compelled you to pick this in your portfolio. Thanks.

@valuestudent

I have not come to the stock market to get rich and I have not come here for returns. Others need to find their own answer.

Nice point.

Rgds

[valuestudent]

Hey @deevee

@deevee

Either I feel some of us our quite dumb and slow that it has taken years to build a portfolio or we are doing it wrong.

We probably are dumb Deepak. All the smart people are getting rich! To take a word out of your twitter post, you are the head of Darpok Capital and I am looking to become a whole time director. Currently I am running Bhaag Milkha Bhaag Capital.

@deevee

I am also holding a lot of liquid money since January and it has taken a toll on me.

Honestly, I am quite at peace with it. Inflation is low, FD is giving real return. Is that not the reason to risk capital? To do better than inflation or FD in the bank will not be able to keep up with inflation and money loses it’s value over time? So if relatively risk free we are beating inflation why take a risk if there is no risk premium?

@deevee

But I think the small cap space is something we need to be aggressively exploring.

I am exploring it and I agree it has cooled off, thus I bought a little bit too… but there is very little there that offers both valuation comfort and management comfort. Only either one of the two is available; so I would prefer to wait for management comfort stocks to become valuation comfort as well.
I have managed to time the small cap market once. I do not expect to be able to do it ever again. Then I know I got lucky and now must move into good quality businesses so I can hold them through up’s and downs over decades. Then that puts lots of intensity in what to include. Any type of cyclical is out, anything that is not secular is out. Then there is nothing reasonable as such.

@deevee

I would love to know more on your rationale of investing in 3M, given its high valuation levels compelled you to pick this in your portfolio. Thanks.

valuestudent:

Most fast growers fizzle out after a 3-5 year period. This is one company where I feel that they can continue to grow and grow. I have been doing business with this company for over a decade and they just keep innovating and never cease to amaze me with the products they keep launching. So I have made an exception and finally bought it, but a small amount. I am ok with one very overvalued stock in my portfolio considering the pedigree of 3M. They are present in so many verticals, so many products it is mind boggling. So this is my one stock that I touched at high valuations. This is a buy on every dip stock at least for me.

I have also included a couple of potential turnarounds like INEOS and BASF. And these three are ring fenced by slow and steady growers. So three are outside the regular spectrum. That much I am comfortable with.

[homemaker]

In my view, the recent spurt in New Portfolio, is a sign of financialisation of household savings. With Gold being flat for a long time, real estate slow down since 2013, FD and govt saving schemes giving 5 to 7 % only, has prompted Indian retail investors or huge Indian Middle class to look at equities as an option. May be as the only available option. Post Demo there was a spurt in MF SIP. Even bitcoin caught the fancy… Now it seems direct equity portfolio uptrend is visible. Its a systemic change in my opinion and nothing to do with being smart, greedy, hasty or dumb.

[hitesh2710]

@valuestudent

Great to see someone having the discipline to hold such a high percentage of cash over such a long period of time.

Regarding the portfolio stocks, most of them are MNC kind of stocks which hold firm during bear markets but then dont do much during bull markets as well. These are the kind of stocks which move suddenly in spurts for a couple of months and then remain sideways or cool off for next 6-12 months. Trick lies in buying them at the right time.

Coming to @deevee comments about small caps being the place to look at I agree with that. These prolonged boring kind of corrections offer the best times to find out the big multibaggers. There is strong apathy to small caps since almost Jan 2018 and that lasts till now with the ocassional bump ups which also lose steam quite quickly. In the past too there were similar times when there was lot of fear and apathy to small caps. case in point being the time of periodic call auction when people were scared to buy small caps because they were worried that the small cap they buy might next be in the list of Periodic call auction.

Currently one can take enough time to study various companies, read ARs, listen to concalls (if available) or do scuttlebutt etc and then take a call and stagger purchases over weeks and months and build decent positions in small caps and midcaps which appear promising. I think this phase could last till next May by when election outcome could be out or even later if we dont find a stable govt.

But one thing I can feel quite instinctively and based on previous experiences, is that these are the times when one needs to shed some fear and start looking and nibbling at promising small caps.

[nav_1996]

Look at historical valuations of smallcaps. They are down but far higher from historical valuations.

I see lot of people talking about smallcaps becoming cheap. Most of them have higher PE compared to their own history that too when profit margins may be at their peak due to lot of one off or recent factors/

You ought to be super careful.

Compared to that lot of large caps like HDFC twins, ITC, Infosys are trading in range of their long term PEs.

So watch your steps. Some people have been smart lucky to ride 2013-18 small cap boom and we may not be one of them.

[valuestudent]

Dear @hitesh2710 Sir

Thank you for the kind words.

I have been nibbling now a little bit in some of the names mentioned above.

I will take your advise seriously and relook at my longer list of potentials.

Best Regards.

[deevee]

Hi @nav_1996

Thanks for the headsup. I am trying to be super careful.

Just wanted to share a few data points without hijacking Value Student’s portfolio thread.
For all the data available on NSE for Small cap indices, which are three in number I think we are fairly on the left side of a probability distribution curve of PE valuations.

Here is a snapshot below:

So I do think not just the small cap indices which have corrected but valuations have also cooled off.
I also see 2 fund houses launching a ‘Small Cap Fund’ ie Tata Small Cap and Invesco Small Cap (managed by Taher Badshah). Also I think DSP and SBI small caps have reopened their SIPs into their funds.

Also on having a cursory glance of what Smallcap MFs hold. There are 16 MFs in Small Cap space which have over 100Crs of AUM. The top 30 stocks across these 16 are below. For instance if you look at the top 5 holdings all have been trading at cheaper valuations, some even at PE levels of 2015/16. Its not fair to compare an evolved business such as say Maruti whose median PE will be around 21-22 for ~10yrs, as in Small caps re-ratings will happen and if you go far into the past these businesses will be trading at <10 PE easily therefore misrepresenting median numbers for smaller caps.

Orange ones are those whose PEs are above the least of index median PEs as of today. So 20/30 holdings even by MFs that is. Obviously we are looking more deeply.

I do think Small caps will be a good fishing ground.

Rgds

[nav_1996]

Median for how many years

[homemaker]

I partially understand your analysis. I actually think in a crude way. Small cap index approaching 10 year previous level. Fallen almost 30% from High. Individual stocks are down anywhere between 30 to 70 %. Clearly since Jan, continuous selling has hammered the small caps relentlessly. Valuation wise it ought to be attractive compared to midcap or large cap. It is for sure.

What is rather a concern is finding quality, non cyclical and good management from the huge universe. Somewhere, small caps due to extreme cyclic nature and frequent corp gov issues has lost the trust of investors…

For me, even looking at some of small cap share charts with steep rise, followed by avalanche breakdown, is enough to instill significant fear

[kkpatel1924]

Indian Markets go up significantly and then go through a huge correction. Average corrections have dipped to the tune of 60% which is close to the Fib correction level of 61.8%. Now, the large caps may not do this and the SmallCaps do a bit more.

Once an investor does what is written about in terms of collecting stocks that have great potential by doing all of the HW and attending concalls / reading AR etc, you arrive at a place where I am at. Almost 80%+ invested status in stocks that have done well in the last 5, 10, 15, 20 years. Now, all I can do is go 10% in cash upto a max of 20% in cash without losing valuable stocks to a fear of correction, and NEVER being able to buy them back.

So, staying 80%+ invested is an easy situation since it is hard to empty out a ship full of passengers, and then board them quickly when the correction is over…Sure, I do not believe in holding 5 to 10 stocks either, which allows me to be in multiple sectors as they show value, and as they mature, start selling out in the same way they came into the portfolio (slow in and slow out) using TA, 200dma, and also 400dma + most importantly SnR levels with HTL and UPL/DTL. It is still an art and one can never time the buys and sells perfectly, and one always get caught into finding the bottoms to buy since stocks will correct more than you and I think and will go above the highest high of what the TA analysis will tell you.

In short, being in cash is OK and works when the portfolio is small, but when it becomes sizable, it is hard to do, although some of my trader friends hold a smaller number of stocks and are able to get to 50% cash whereas, I cannot get over 20%.

KKP

[Investor_No_1]

@kkpatel1924

Almost 80%+ invested status in stocks that have done well in the last 5, 10, 15, 20 years. Now, all I can do is go 10% in cash upto a max of 20% in cash without losing valuable stocks to a fear of correction, and NEVER being able to buy them back.

Thanks for the insights. Would be great if you can share what are those stocks that you hold or what are your top 10 holdings. If you have a portfolio thread would love to read. Thanks!

[kkpatel1924]

There are no Top 10s since my top 10 will mean nothing to you, and what if I give you the ones that I am holding for 10 years and have gone up 2000%. They are not good investments.

It is best to find the ideas yourself by looking around, reading a lot, researching those ideas, and then building conviction yourself.

For example, in the recent deep fall off, I asked a lot of questions about Bajaj Auto, Hero, and Maruti. Felt that the selling was overdone due to lower sales affected by monsoon. Got into them for first time with conviction of charts, a bit of value / fundamentals etc.

I really feel good about IT stocks and any pull back would be good to get in with a patient 5 year view. Same with Pharma. Same with Real Estate / Developers / Cement / Construction but with a slightly more risk with this last sector.

If Trump is no appointed, IT and Pharma will have a clear road ahead…Again, these are not my Top 10 holdings cause top 10 are already doing too well (HUL, RIL for example, and not good to jump into them without a good size correction in them which may or may not come).

Hope this helps.

KKP

[Investor_No_1]

@kkpatel1924

It is best to find the ideas yourself by looking around, reading a lot, researching those ideas, and then building conviction yourself.

My idea to know about ur top 10 holdings were to know more about your investment thought process and with how much weight I should take your posts in this forum. It was more to know about you irrespective of buying eras…and obviously learn from your much larger experience as I liked ur earlier post. I have my own convictions and do not believe in borrowed items or free lunch. Thanks

[Investor_No_1]

Thanks. I see we have some common thought process in Auto and IT for long term! Although currently I am not invested in either of them and neither intend to except some select madcap IT if I want to put in more cash into market. Thanks

[valuestudent]

2018 Year End Musings and Thinking About 2019 - Notes to self, not for debate

This is a business of speculation. At best what one can indulge in, is intelligent speculation. To that end, we must think about the picture as much as possible to come to a conclusion.

The one big sector which has held up in 2018 has been FMCG consumer. The FMCG consumer is now closely what the original Nifty Fifty in the US was nearly 50 years ago. I think that too much money has flown into the safe haven of FMCG consumer and that, finally in 2019, we will for the first time see the breakdown of this sector like we have never seen before. The FMCG consumer has become the consensus trade among fund managers led by large doses of cash from retail.

So what did we see in 2018?

We saw the breakdown of anything that lacked quality of business, we saw the breakdown of anything that lacked quality of management, we saw a breakdown of anything with even a hint of trouble brewing, in short, it has nearly become a stock market again. Some more way to go in 2019 and it will become a stock market again.

In the history of stock speculation (across the globe), the retail has never won. Ever. I do not think that the retail herd will win now. Retail only wins on paper. Mass delusion is at play in FMCG. The FMCG crash of 2019 should cause an overall further breakdown in the mid and small caps.

In the stock investing business, avoiding drawdown moments is as important, if not more, in growing capital. We should invest when we see total and complete apathy to the stock market, when we see the participants do not see the owning of stocks as desirable and when the discussions around stocks is limited to stock brokers. That is truly not the case right now. Even though small and mid have taken a drubbing, I think the current holders of those stocks are just nursing their losses and hoping to sell them at break even. Hope still exists. Hope still exists that things will get better.

I do feel that things are about to maybe get better for a few months and a few speculators will make a killing. But this turnaround will be like a large flame that attracts the moths and then scars them for life. It will be a brilliant flame and it will be an irresistible flame, it will need large doses of willpower to avoid the flame, and it will be a flame that will take blind many a speculators.

Then there will be true carnage. That is the time I will look at investing more than the interest of my FD’s. Until then, I do not wish to speculate.

People have been seeing the stock market as a game of “Who wants to be a millionaire” whereas it is a game of “Khatron ke khiladi”. I want a time when people understand that stock market is a place only for “Khatron ke khiladi”, that might be an ideal time to play for “Who wants to be a millionaire”.

Hope must die before I can hope.

Happy new year to all .

[Divyanshu_Bagga]

@valuestudent

We should invest when we see total and complete apathy to the stock market, when we see the participants do not see the owning of stocks as desirable and when the discussions around stocks is limited to stock brokers.

Yes, we should invest when there is apathy, but we should not invest only when there is apathy. Time in the market is just as important as timing the market.

[777]

I think he was kind enough to honestly share his thought process. It’s upto all of us what we make out of it , as he also said he isn’t wanting any debate on it. Let’s respect that.

Thanks @valuestudent for sharing your thoughts. Makes much sense to me.

[Divyanshu_Bagga]

I agree. My intention was not to have a debate. Actually I can associate with what he is going through, as I have gone through the same, seen the bubble form from the sidelines, hoped that it will burst and give me some decent buying opportunities, only to see it inflate even further. Now I realise that instead of waiting for the top, enving from the sidelines, and risk being swept in a late entry, I should have gone long earlier. There is enough time to sell, even after the first crash, as long as you are not in the delusion of it not being a bubble. Deflation of the bubble is a long drawn gradual process, with its own vicious rallies.

I am also learning.

[kkpatel1924]

The big macro themes is what I focus on and then invest in the best of the best companies that show a dip. I have a diversified portfolio of INFY, TCS, Mindtree, LTTS, LTIT for example, but I did that investment during a dip. Same with the Pharma theme where I used to have DRL, and then added Sun, Cipla, Lupin, Suven, Granules during the dip. I am now doing the same with the Auto theme with addition of Bajaj Auto, Eicher (not added, but soon), TVS, Maruti, Minda (not added) and Motherson (not added).

And, so on and so forth. Cement and Real Estate will become my next theme watching their charts, and getting good names (FA and Mgmt basis) from experts.

Hope this helps.

KKP

[kkpatel1924]

Buying when there is blood on the streets is the best time, which is when TA Value and FA Value shows. TA Value is something that TAs understand as SnR levels. It is best to find the best names, and invest when there is TA Value. Best Companies at the Worst Price = BAD Investments. Only way to avoid is to do TA Value analysis. Not easy to do, and may not be right all the time, but for that SIP is a good way around it.

I rely on experts on VP and other forums to tell me what are ‘good or good enough companies’ that are really down right now (Eicher is a good example on 2/1/2019) and then start doing the TA Value analysis on it. Since this is a ValuePickr forum with a deeper view of value from a FA standpoint, I will leave the TA Value definition outside of this forum to avoid any comments from Moderators.

KKP