Known golden words but very difficult to adhere on a bear market 
One small addition would like to include is patience holding quality stockā¦
A quick update on the PF as we near the end of 2018, thereās been a lot of changes over the last 2 years. Its currently Pharma heavy (Top 2 in the Industry) added in the last 6 months along with Tata Motors given its historic low valuations. From holding a 40+ portfolio to getting it down to a comfortable number of companies to track and decide has helped. The focus has been more on sectoral leaders, reputed brands, trying to get a mix of domestic focused and export oriented companies.
Itās a continuous learning process and thanks to all the senior VP members for their feedback, guidance and constructive suggestions. Personally, I used to have āprice anchoring biasā, āloss aversion biasā, being in love with a stock bias, which have all reduced considerably.
| Company Name | Average Buy Price | Gain/Loss (%) | % of PF |
|---|---|---|---|
| SUN PHARMA | 494 | -13.1 | 22% |
| LUPIN LTD | 834 | 2.4 | 14% |
| INFOSYS LTD | 475.6 | 40.2 | 11% |
| YES BANK | 220 | -15.1 | 9% |
| SKM EGG PROD | 55.71 | 21.3 | 8% |
| IDFC BANK LTD | 55.38 | -20.8 | 7% |
| HDFC | 1,225.00 | 61.4 | 7% |
| BAJAJ HOLDINGS & INVSTMENT | 1,975.00 | 50.4 | 5% |
| ASIAN PAINTS | 890 | 60.5 | 5% |
| AXIS BANK | 477.5 | 32.6 | 4% |
| ADITYA BIRLA FASHION & RETAIL | 140.2 | 43.8 | 3% |
| ENGINEERS INDIA | 103 | 20.8 | 2% |
| TATA MOTORS | 188.75 | -6.7 | 1% |
Cheers.
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Letās try to understand diversification and concentration from a different perspective. Suppose you are part of a bet where the probability of winning is 50%. Payout is 3x of your bet amount if you win, making it a favourable bet for you but you risk losing the entire bet amount if you lose the bet.
How many such bets should you make?
The right answer is as many as you can. In any one bet, you might lose the entire bet amount, but in large number of such bets you are almost guaranteed to make money.
Before you decide to put money into a bet, first determine whatās an acceptable payout for you. Only you can determine that for yourself. Some people want 3x, while some people may want 10x. Then determine how much risk you are willing to take on each bet i.e. what are the odds of winning or losing.
Once you have decided your acceptable payout and odds, divide your money into as many such bets as you can.
Applied to stocks, you must first determine what returns are acceptable to you and how much risk you are willing to take. Then divide your money across as many stocks as you can find that meet these criteria.
This will yield a fairly concentrated portfolio if your return expectation is high but risk is low (Warren Buffett style investing as you wonāt be able to find such ideas very often). A moderately diversified portfolio if return expectation is high but risk is also high (Small/mid cap investing as you can find such ideas but there will be some red flags/lack of history) and fairly diversified portfolio if return expectation is low and risk is low (Mutual fund style investing/ as there will be plenty of ideas that are tried and tested but their high valuation will yield low returns).
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If you expect returns of lets say 20% and risk is more or less same across your selected universe of stocks, then how does it matter if you select 10 stocks or 50 stocks? If returns are going to be same then average returns of 10 stocks is also 20% and average returns of 50 stocks is also 20%ā¦am i missing something in my calculations?
Even if individual risk is the same for each stock on average, that risk may play out very differently for each individual stocks. Two bets where you both have 50% chance of losing money, might play out in such a way that in one bet you might lose entire money and in other you wonāt. You diversify to minimise the effect of probabilities on your return. A 50 stock portfolio therefore, as a whole, has lower overall risk (or less variance) than a 10 stock portfolio, if all stocks has similar risk/reward potential.
Where the mistake lies is diversification for the sake of diversification. What people do is compromise with their risk/ reward potential in order to diversify, and unknowingly make the portfolio worse. Finding stocks/bets with similar risk reward potential is hard, and takes enormous work, and the more work you do, the more you can afford to diversify and thereby reduce variance in your portfolio returns.
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What is your personal view about ideal number of stocks, considering you want to include atleast 10 sectors of the economy in your PF and also you want to give exposure to mid and small cap too alongwith large cap in a given sector
I have one querry .How long term investor who is doing regular investment through out the year can make concentrted portfolio?
First , something about my strategy:
1ā¦I am long term investor with vision of 5-10-15 yrs investment horrizon.
I had sold <5% stocks in last 6 yrs.
2ā¦I usually prefer small cap (1000-5000 cr mcap) companies having 15-30 P/E ratio.
Not more than 35
3ā¦I believe in concentrated portfolio of 10-25 stocks depending on size of portfolio.
4ā¦I have regular cash inflow every week for investment in market
=I have invested regularly on weekly basis through out from sept 2017- nov 2023 .
5ā¦Since last 1- 2 years, i have invested in my own stocks to make portfolio concentrated.(I have invested in my own stocks even they were doubled or tripled)
Now , coming to the problem
At present, many stocks i own, have been re rated and are available at highr P/E and higher mcap .
So, where should i invest my future 10yrs cash from my professional income ,so that i can have
concentrated portfolio for next 10 yrs without doing switch over to other stocks?
What other long term investors with concentrated portfolio do?
Please share your strategy.
Thanks.
I believe that depends on what are the stocks that you hold
Based on that , you can decide
Thanks
Kumar