Thanks for your kind words! I appreciate it very much…but frankly, I have a long way to go before I reach anywhere near your clarity of thinking and judgement.
Yes, HMVL was the first one to go because of capital allocation issues and I felt there are better opportunities available in my opportunity set
In terms of my mistakes, I have many mistakes of commission! Sintex, HIL, GRP, GSFC, Kaveri- luckily did not lose much because most of them were bought at very attractive valuations.
Mistake of omission- Symphony remains at top! I was too stuck with P/E range and did not give enough weightage to the quality of business. Page/Astral remain other few mistakes of omission - again valuation always acted as barrier.
However, over a period of time, am trying to get over that valuation barrier. Another thing that I have realized over time is that different businesses should be valued differently. there is no single valuation matrix that can be applied to all businesses equally effectively. It is the art part of an investor to have right judgement on which way a particular business should be valued.
That’s why in a recent interview Ridham Desai shared that doctors can be best investors, as every illness and every patient needs different medicine, what suits it, same is true for stocks.
Every stock or sector needs different approach as practiced by a very experienced physician
Housing finance is a well discovered theme now and was couple of years back too. Few years back the valuations were also quite attractive. And now it acts as a good compounder for those who have bought few years back.
Did you or why didn’t you consider any HFC stock? Was it that you had something like Gruh but sold out or maybe you thought other opportunities were better?
Not sure if you have already answered this question in the past. Pardon me for the repetition if any.
Dhwanil is one of the most hardworking investors that I have come across and a voracious reader. He along with @hitesh2710 have helped me a lot in shaping my investment journey (I consider them as my Gurus). We have worked on few of the cos together and I have always been amazed by the additional insights he brings onto the table. Very few investors can match his methodical approach towards developing a management Q&A (He knows how to prioritise the questions). Two more things which I really like about his investment approach are risk assessment for any business and portfolio allocation where he is extremely careful of not allowing any particular allocation to grow beyond a certain mark. It would be great if he can share his insights on both these points.
To be very honest, I have been typically very scared of investing in financial service business because of two reason - first it is one business where there is a possibility of combination of negative black swan (something blowing up which you would have never thought off) and leverage. I think, it is a scary combination, the moment it plays out, it has the potential to wipe out many balance sheets. Secondly, I have always felt that that, no matter how hard you try to get idea about quality of the book, it is always a futile attempt as it is typically very opaque. So, one has to rely on the management’s ability to manage risk and growth with lot of prudence. And, I somehow have not been comfortable with many of the managements/businesses. And for some which I am quite comfortable with, they were too pricey. So, even today, only a very small part of my portfolio consist of financials and in all the cases where I invested two things have to be in place
I have to have a good comfort on the risk management capability of the management
Valuation has to be in my favour.
So one inertia was my pre-occupation with risk involved in FS business. Another thing that typically excites me to invest is that there has to be something “different” about management and/or business than its peers, that differentiates itself from its peers. In lot of HFCs such differentiation is not present (May be Repco/Gruh). So, I had double inertia to overcome…which I could not and hence missed the bus on HFCs. But, then that is perfectly alright with me. we don’t have to be part of every winning stock/sector to make money right!!!
Thanks for your good words. I appreciate it…but I am still only 5-6 years old into investing and learning the ropes…so by no stretch of imagination I can be Guru to anybody. Having said that, it has been a wonderful journey with you and whole Gujarat VP team to work together and learn.
On risk assessment- I think, I am inherently a risk averse person. Moreover, Buffet’s two rules about not losing capital, has stuck with me too strongly. Hence, the first thing that I look for is I should invest only if the probability of losing is low. Howard marks, is another Guru, who has imparted the importance of managing risk FIRST in investing process. So, I am naturally inclined to look at what all can go wrong in a business…first! Now, it has its limitation as it eliminates large opportunity set for me and also makes me pass an investment, where there are reasonably good chances of generating return but there exist a risk (which may not materialize over time) of losing capital.
On restricting my portfolio position, I think one has to take an approach that suits him/her the best. Even within our group we know people, who run extremely concentrated portfolio and have generated phenomenal returns. The reason I want to restrict my allocation to a certain level (typically 15%) is because I strongly believe, that no matter how deep your understanding of business and management is, there are factors in internal/external environment which you will either miss or are beyond your control or are not dealt with rationally always by stakeholders/management (We are not even considering our making mistakes!!.) Shit happens! Thus, you have only two ways to protect yourself against such eventuality, one valuation (price you pay) and second capital allocation. I prefer to manage it through both, typically!
Another thing that capping allocation does is, it lets me sleep easily at night, even if there is blow up in any one of the businesses.I think, that is a big motivator too!
I infact asked the question 'coz I got a feeling looking at your PF that it looks like a conscious decision to have restricted exposure to financials (despite having decent allocation to Edelweiss in PF1 which looked like a good value buy at 48-50 levels).
Agree with your views above (despite financials ballooning to become 35% of my current PF post run-up over last few years), especially the statement “we don’t have to be part of every winning stock/sector to make money”
I am an amateur investor and therefore don’t understand valuations etc., as you do, but as I said I am in agreement with your views and maybe that is the reason that I personally am able to buy financials only when they have been beaten down and/or expectations are very low to non-existent.
One more question again out of curiosity and if you are comfortable answering it. What would be the ratio between PF1 and PF2? I also personally have 2 PFs, but I treat my Wife’s PF (with Wife’s money) as very sacred and treat it like a self created mutual fund
I too am keen to write on blog but in between regulatory haze prevented me from writing on the blog. Thanks for prodding…will take it as motivator and hopefully will come over the inertia of writing on the blog.
@desaidhwanil A few things to think about. The base rate for regulated financial institutions going bust in India is very very low. Similar for the world. Also, if you look at Buffett’s long term holdings, Wells Fargo and Amex feature very prominently in that. In addition to Geico, General Re and all other insurance companies. Also, companies like Markel or Fairfax have been excellent compounding machines over a very long period of time. In the Indian context, we have the obvious examples of HDFC twins, Kotak Mahindra, Shriram & Sundaram finance etc.
thanks dhawanil for sharing the details. very impressive.
one question. are you fully invested in equity or do you also invest in debt instruments? (fd, pure debt funds etc)
please ignore if this is personal.
The PF1 is much larger than PF2 as the vintage of the portfolio is more and ofcourse, luckily a large part of it was created during the most opportune time for Indian markets (2011-11).amply reflected in some of the average buying prices in the portfolio! Beginner’s luck you know…
PF2 is much smaller because it has started only two years back and capital has been deployed incrementally…as available. I do not distinguish in my approach in either of the portfolio…as for both of them the objective remains to generate superior risk adjusted returns…while minimizing the probability of losing capital.
I agree. That is quite a strong construct…both base rate world over and in India make a strong case against excluding FS business. Infact, that is one of the reasons why I do look at FS sector now and evaluate opportunities. Though Piramal was a special situation turning into FS company, Edelweiss was a conscious choice. So, the inertia that I mentioned, is definitely waning.
Having said that, my central point is that it is one business where there the impact of things going wrong has such large impact that it can wipe out the company in one stroke…and we have umpteen examples of that too! Moreover, you have almost zero visibility of the book (and hence the risks). So, as a matter of prudence, I would like to invest only if everything seems to be in my favor (valuation, management quality, track record,). Then, to top it, I would also like to manage risk through capital allocation.
Well, that is the thinking at the moment…but I am sure with time that too will evolve!
@desaidhwanil
Sir being am amateur investor, many times I fell into prey of not investing in high PE companies. If feasible could you please throw some light on how do you value a business.
Thanks in advance
Sunny
@desaidhwanil - thanks for posting
your avg buy price of MCX reflects how agile/watchful you are, on those stocks, where you develop conviction
when FT/MCX & related issues evolved some years back - i distanced myself from those as I was unable to develop a conviction - this to my mind was my error of ommission
It kind of answers. I had assumed that PF1 shud be larger and your approach maybe is the same in both. I had asked the question as I was wondering that in the above scenario was it the case that conviction levels are RELATIVELY lower in PF2 stocks as compared to PF1 stocks, as normally allocation would be higher in high conviction stocks. But its ok, I think I get the point.
I am really impressed with your thought process and your approach to stock investing. Thanks for sharing your portfolio on ValuePickr forum. While going through your portfolio, I am curious to know your investment rationale about 2 stocks .1. Shemaroo Entertainment 2. Aym Syntex. I am more interested to understand your thoughts about their respective managements. Do you rate them high on integrity, honesty and share holder friendliness?
While going through latest concall of Welspun Syntex, my understanding is they need to correct a lot of internal things - plant up-gradations, quality improvement etc. They will incur maintenance capex for same.
Also, company is running at 90+% utilization, so double digit volume growth isn’t possible either.
Looks quite a few headwinds to me.
Would love to understand your bullishness, despite these issue.
There is only one change - I have exited Arman Financials and have bought ISGEC heavy engineering at avg. price of 4400. Also, I have trimmed my position in AYM syntex/Amara Raja Batteries and exited opportunistic bets/most of tracking positions. In portfolio 2 I am sitting on 25% cash due to exits plus earlier cash calls of 15%.
Disclaimer: This is not a buy or sell recommendation. I am not a registered research analyst. Please do your own due diligence or consult a certified investment adviser before making investment decision.
) Shit happens! Thus, you have only two ways to protect yourself against such eventuality, one valuation (price you pay) and second capital allocation. I prefer to manage it through both, typically!