Gurjot Portfolio

Q&A: Questions & Answers Portfolio Q&A
49

Given the ferocious bull run we’ve had since 23rd March and the “so-called” money lots of retail investors have made since then, I wanted to analyze my portfolio performance (Coffee Can + Satellite) as well and really understand how it’s done in comparison with the benchmarks.

Portfolio vs Benchmark indices performance* since 23rd March till today (at that point portfolio was very financials heavy and broadly down 40% in-line with the benchmarks)

CAGR % Absolute%
Portfolio 258.96% 73.37%
Nifty 167.30% 53.05%
BSE Midcap 183.12% 56.91%
BSE Smallcap 235.85% 68.95%
BSE 500 174.00% 54.70%

*Doesn’t include dividends and transaction costs, can trim 0.5-1% from absolute returns effectively

Some Thoughts

  1. Portfolio has performed much better than all major indices and also somewhat better than the smallcap index which has rallied the most since 23rd March
  2. Portfolio performance would indicate that I have a small cap heavy portfolio and few big winners in that

Now sharing my Coffee Can and Satellite portfolios:

Company Name Mkt Cap Buy Avg P/L % Allocated % Current %
BANDHANBNK 51,556 424.9 -24.70% 6.68% 4.57%
ICICIBANK 270,448 292.7 39.90% 3.35% 4.25%
DIAMONDYD 1,471 510.3 22.90% 3.72% 4.15%
ICICIPRULI 64,787 335.0 34.60% 2.87% 3.51%
VMART 3,629 1678.1 19.60% 2.52% 2.73%
SIS 5,754 361.0 9.10% 2.73% 2.71%
HDFCAMC 53,283 2327.6 7.60% 2.39% 2.34%
HDFC 337,718 1830.8 2.70% 2.49% 2.32%
HDFCLIFE 118,948 447.1 31.80% 1.92% 2.29%
INDIAMART 10,237 2241.8 57.20% 1.51% 2.15%
POLYCAB 13,399 864.8 4.10% 2.29% 2.16%
ALKYLAMINE 6,812 1154.3 189.30% 0.82% 2.17%
ITC 240,681 181.5 7.90% 2.20% 2.16%
PAGEIND 22,421 18719.2 7.40% 2.14% 2.09%
ICICIGI 58,221 1062.0 20.60% 1.82% 1.99%
MASFIN 4,723 719.3 20.10% 1.80% 1.96%
INOXLEISUR 3,117 300.5 0.80% 2.15% 1.97%
KOTAKBANK 291,007 1193.0 23.40% 1.70% 1.91%
TCIEXP 3,131 581.0 40.20% 1.41% 1.80%
HEXAWARE 12,305 239.0 71.60% 1.11% 1.73%
POLYMED 3,733 220.4 91.90% 0.99% 1.73%
INDUSINDBK 45,562 1297.9 -47.80% 3.71% 1.76%
BERGEPAINT 54,743 430.8 30.70% 1.35% 1.61%
SYMPHONY 6,296 813.8 10.60% 1.45% 1.46%
CHOLAFIN 20,482 292.5 -14.70% 1.78% 1.38%
TITAN 100,772 888.7 27.80% 1.18% 1.37%
DIVISLAB 86,823 2148.4 52.00% 0.92% 1.27%
MINDTREE 19,494 757.3 56.50% 0.87% 1.23%
MARICO 48,311 262.8 42.50% 0.92% 1.19%
CERA 3,295 2211.5 15.50% 1.11% 1.16%
3MINDIA 23,579 17685.0 18.00% 0.76% 0.81%
GODREJAGRO 9,411 358.8 36.60% 0.59% 0.73%
LALPATHLAB 15,159 1401.9 31.10% 0.44% 0.52%
PIDILITIND 73,556 1231.9 17.80% 0.42% 0.45%
Coffee Can Portfolio 61,319 16.20% 64.11% 67.62%
Company Name Mkt Cap Buy Avg P/L % Allocated % Current %
MACPOWER 75 49.3 51.3% 1.79% 2.47%
DELTACORP 3,135 160.2 -27.1% 3.56% 2.36%
EDELWEISS 7,501 125.9 -32.8% 3.44% 2.10%
RADIOCITY 728 15.6 34.3% 1.45% 1.77%
IDFCFIRSTB 18,095 49.6 -32.1% 2.69% 1.66%
IBULHSGFIN 9,387 462.6 -51.7% 3.47% 1.52%
BHARTIARTL 285,595 538.2 -2.9% 1.65% 1.46%
PSPPROJECT 1,559 378.9 14.3% 1.14% 1.18%
RKEC 92 37.3 7.4% 1.06% 1.04%
NEULANDLAB 1,233 707.5 35.7% 0.81% 1.00%
KAJARIACER 7,185 341.0 32.5% 0.80% 0.97%
SAMKRG PISTONS 127 117.6 9.7% 0.94% 0.94%
BETA 83 59.0 38.1% 0.67% 0.85%
EICHERMOT 60,464 1359.1 63.0% 0.58% 0.86%
DBCORP 1,419 64.1 26.6% 0.73% 0.84%
WORTH 68 36.6 17.2% 0.78% 0.83%
LAURUSLABS 12,475 1015.7 14.6% 0.78% 0.82%
SUNTV 18,859 392.2 22.0% 0.72% 0.80%
INSECTICID 1,039 507.0 -1.0% 0.94% 0.85%
APLAPOLLO 6,095 1174.4 108.5% 0.42% 0.79%
LGBBROSLTD 824 213.7 22.8% 0.69% 0.77%
ACRYSIL 312 74.9 56.1% 0.51% 0.72%
RACL GEARTECH 119 66.5 66.3% 0.47% 0.72%
IGL 28,767 394.9 4.1% 0.76% 0.72%
SOLARA 2,561 655.8 44.6% 0.52% 0.68%
FIEMIND 795 273.4 121.3% 0.33% 0.67%
PAPERPROD 2,131 207.4 36.1% 0.49% 0.60%
MMP 229 50.7 77.5% 0.36% 0.58%
SHK 1,194 51.5 63.9% 0.37% 0.55%
BANCOINDIA 716 74.7 29.1% 0.35% 0.41%
MPTODAY 7 15.8 -4.1% 0.45% 0.39%
GOLDIAM 256 106.8 7.9% 0.38% 0.37%
SECURCRED 8 205.0 -92.4% 1.76% 0.12%
Satellite Portfolio 14,337 -0.60% 35.89% 32.38%
Mkt Cap P/L %
Combined Portfolio 38,179 10.10%

The marketcap of the portfolios are an average and not weighted average. I did some analysis (rounded off the numbers below) to find the average market cap of Nifty, BSE Midcap and Small Cap indices as of today:

  1. Nifty - 182,000 cr (50 constituents)

  2. BSE Midcap - 20,000 cr (101 constituents)

  3. BSE Smallcap - 3,300 cr (716 constituents)

  4. BSE 500 - 30,000 cr (501 constituents)

Key takeaways

  1. Given my average portfolio constituent market cap is 38,000 cr - it is best compared with BSE 500 performance since 23rd March. It’s pretty satisfying to see the portfolio having delivered close to 20% out-performance in these 5 months as compared to BSE500

  2. Satellite Portfolio is where the majority of the out-performance has come from given it holds most of the small, micro, nano cap companies. Also carrying a few scars of the previous bull run (NBFCs) still in the portfolio. Most of those have recovered more than 100% from the March lows. Price anchoring has prevented getting rid of them so far. Still working on overcoming those biases

  3. Coffee Can portfolio has remained absolutely rock solid and performed significantly better than Nifty and Midcap indices. Mostly used Saurabh’s book and Marcellus philosophy for stock picking (one thing which I don’t really agree with them is on the average growth 100+ P/E businesses considered as reasonable investments)

  4. Total portfolio of 67 stocks - the Coffee Can companies will mostly remain. However, the Satellite portfolio is going to be run down slowly in the next 3-5 years - I see significant money to be made in mid/small-caps over the next 3-5 years. The small cap index has given barely given 6% CAGR in the last 15 years versus Nifty 11% CAGR - I see some serious catch-up here over the next few years.

  5. I’m invested in almost every single sector you can think of - Banks, NBFCs, Pharma, Chemicals, Agrochemicals, Telecom, Infrastructure, Internet, Print Media, Radio, Auto OEM, Auto Ancilliary, etc. - as long as the company is good with a solid balance sheet, good track record and shareholder friendly management, I’m happy to put money on the line. Managing and tracking so many companies is definitely a difficult job and reasonably time consuming - but the peace of mind and good night’s sleep which it gives is way better than one single sector or company taking down my portfolio.

Am I compromising returns with overdiversification? I don’t know the future and maybe a broad based bull run has helped me outperform the market so far. Anyway, I’ll be be doing this activity on a monthly basis so let’s see how it goes from here.

6 Likes
50

Hey Gujrot,

Interesting to see your portfolio - there are about 60+ stocks.

I just would like to share my experience : I did try doing a portfolio of 60 stock during March and observed that the total mean growth rate of the stock was just 20%
whereas in other counter of my family accounts - i had just invested in 2 stocks : Balaji amines and varroc engineering
wherein Balaji amines gave me 200% return
varroc 100%return
making it more than 250% returns with some (±). - I can say that its purely luck due to markets run.

Can you share your thought process of churn and how you will handle average profits with some unexceptional cases of some doing better than other while some failing to perform.

Checking for companies doing not so exceptional and shifting the low growth to top performer - is one case in this case the wait time + loss/notional + adding to top performer will disturb the process of retaining a good CAGR.

Am not sure how to account on this - catching 1 or 2 winners in 10 stock portfolio is people’s luck.

Everyone has their own style of investment thesis but love to hear your thoughts so that i can gain some experience.

1 Like
51

Hey Nithin,

Everyone has a different risk appetite based on their age, net worth, equity capital, etc.

My equity portfolio is a very high% of my net worth >75%. So let’s assume I have a net worth of 10 lacs and capital available for equity investments is 7.5 lacs.

Will you invest 7.5 lacs in just 2 stocks - Balaji Amines and Varroc? Majority of the people wouldn’t do that.

Now if you only invest 5% of your networth i.e. 50,000 - you can easily invest 25k in each.

So the kind of risks you can take is highly dependent on the risk appetite of each individual.

That said it also doesn’t mean you divide it into 60 stocks. That’s just my style of investment currently driven by a couple of factors:

  1. I get a monthly income which I keep investing. However, stock prices don’t remain the same for a month. So if I find it difficult to add on to any of the current companies - I end up adding a new company in the portfolio with a minimum 15% CAGR over 5 years return expectation
  2. I want to avoid losing large sums of money because of any 1 company or sector. As you can see, most of my losses are currently in Banks and NBFCs. The 2018-2020 post ILFS period really hurt my portfolio. Learnt some very harsh lessons from that
  3. Given the 60+ stock portfolio is outperfoming the benchmarks - I’m more than happy to continue this style of investing till I see underperformance for any significant length of time

Hope this helps.

3 Likes
52

True Well said Gurjot

Agreed, well going ahead we might some corrections in some sectors which has headwinds at least for 6 months from now is a period wherein i believe most business will deal with uncertainties in business and might have to choose for alternate such as loan, raising capital.
On the other side business may face getting cash into firm, due to liquidity issue in market and rest the stories goes on.

I have sold all stocks such as auto, fragrance industries, OEM and switched to pharma & API as per advise of senior in this forum - my knowledge graph is too low as am part time investor

Thank for your input - this will be a great learn for me and others… Cheers all the very best

53

Although I try not to do much guessing or analysis on future market movements but if I need to put that shoe, I would agree with you here on above asessment. Have you evaluated of being in small and midcap funds as an alternative or add-on to satellite portfolio? Would be good to know your thoughts. Thanks

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The objective of the Satellite Portfolio is to try and take advantage of market situations which can provide quick / high upside with acceptable level of risk irrespective of market cap (not a high risk high reward strategy as risk and returns are not proportional). Basically, any company wherever I find huge valuation comfort or growth at reasonable valuation or both but do not have more than 3-5 years visibility.

Hence, my satellite portfolio contains many larger companies as well like Airtel, Eicher Motors, IGL, Sun TV which are not small caps.

With regards to MFs - that’s the route I originally took in the last couple of years 2018-19, invested in a couple of small cap funds - Nippon Small Cap and HDFC Small Cap. However, the market thrashing of mid/small caps since 2018 meant their performance has been really bad on absolute basis (although still better than benchmarks). I’m still invested in those funds but want to try my hand as well - big fund houses have certain limitations, I’m invested in a number of SME companies as well which they would not invest in.

Over the next few years - it is also possible, I may upgrade some of the holdings from my Satellite portfolio to my Core (CCP) portfolio based on business performance.

So over the next few years, I will compare my portfolio performance with these MFs at periodic intervals and if I find my portfolio significantly lagging, I will shift it to MFs myself.

3 Likes
55

Portfolio Update:

Added Alkem Labs (2735) and Bharat Rasayan (9020) in Coffee Can Portfolio. Both have delivered outstanding financial performance in the past 8-10 years and have been covered very well on the separate threads so not much new information for me to add. The key monitorable on Bharat Rasayan around Cash Flow Operations was taken care of with Q4 results. At that time it was trading around 7000 and I was dragging my heels waiting for the price to correct. However, even at 9k it is still at a very respectable multiple given the past few years growth and strong future growth levers.

Also booked part profits in Alkyl Amines and Poly Medicure. Both seem to be going through a big PE rerating phase - not sure how long it lasts.

Making 2x-3x returns in just 4-5 months of investment easily allows me to meet my 15% CAGR target over 10 year period.

5 Likes
56

Portfolio Update

Coffee Can
Today received the proceeds from Hexaware delisting, completing a successful investment operation with ~100% return in 4-5 months. It was a typical Coffee Can investment identified based on Coffee Can Investing book filters. Company had a last 9 year consecutive >10% revenue growth and ROCEs in the range of 30% almost every year. Thanks again to Marcellus team!

I’ve aggressively added onto ITC in last few days and weeks with the rationale that India’s extremely favourable demographics means cigarette consumption should be relatively stable over the next decade (assuming low/no growth) + FMCG operating leverage will keep kicking in as demonstrated in their latest investor presentation.

Also added to existing positions in

HDFC AMC - HDFC group companies will always demand premium valuations given the stellar growth and management track record. The company has best in class operating margins reflected in obscene return ratios. If equities are going to move up over the long term - this is a great play on the whole financialization of savings theme.

Bharat Rasayan - Expecting the collaboration with Japanese company to provide the next level of scale and growth with much higher export contribution for business (can read more if you’re Moneycontrol pro subscriber)

Added HDFC Bank back in the portfolio - believe this is too good a bank to miss out at current valuations (lowest in history) and do not want to time the market anymore even though I had talked about the potential underperformance of financials 3 months back and luckily that’s how it’s played out. However, having dialled into HDFC Bank’s latest concall with JP Morgan - they’re not seeing much impact on the loan book and continue to guide NPAs well below the global financial crisis range (2% if i’m not wrong). They said that was a much bigger issue in terms of the impact on the company.

Completely exited from IT - also sold out Mindtree. Did not have sufficient capital to fund the above purchases so booked 60% profit here. Given the positive outlook on IT - don’t think this was the best decision and might regret it later.

Satellite
Completely sold out IDFC First Bank at 40% loss - another reasonable sized loss after investing in it from Capital First days.

I just thought about it logically - if I want to be in a leveraged business like banking, I should be with the best in class market leaders having a strong liability franchise, manageable leverage and who would be the first choice of customers for any type of loan requirements with lowest interest rates as that is the only USP or competitive advantage if customer service levels are ~equivalent.

IDFC First cannot compete with the likes of HDFC, ICICI, Kotak trying to build a liability franchise with 6-7% SA/FD interest rates vs 3-3.5% of others. Yes, India is an extremely large market and there is enough room for growth for most with different target segements. However, in a leveraged business - believe it’s better to partner with market leaders who have the “creme de la creme” educated, qualified, salaried customers of India in terms of asset side of B/S with little to no effect on their cash flows during crisis such as demonetization, Covid-19, economy downturns.

Also sold out Banco Products - not sure why I bought in the first place apart from just the dividend yield. Bad thinking!

Satellite Watchlist - Associated Alcohols, IRCTC, Aavas Financier.

5 Likes
57

Hi… When u made ur point in June it all made sense…
But the whole point of coffee can is to let the winners ride for a decade or so without interupting isn’t it.
Time and again market teaches us ’ the more active u are lesser will be the returns’…
In the hindsight it makes us regret what we did…
That’s what markets are… Right… I am sure u never got a chance to reload at ur original price…
What I am curious to know is…
As the performance of company starts improving, the historic prices won’t come back…
At what price to book multiple are u willing to reconsider bajaj finance in ur next years coffee can

1 Like
58

I agree with your thought process and also believe the more inactive we are, the better our returns will be with the caveat that we’ve identified Coffee Can type businesses for the long term.

Now coming to my post from June 22 which you’ve referred to above, I booked profits in 3 companies whose performance since then has been:

  1. Bajaj Finance - 72% up in 5 months
  2. Sirca Paints - 2% down in 5 months
  3. Aavas Financier - 15% up in 5 months

Since that day my portfolio compares favorably with any of the major indices:
image

Now coming specifically to Bajaj Finance:

Do I regret selling Bajaj Finance?
Definitely yes. I saw my 3 year profits (bought at 1600-1700 in 2017) on Bajaj Finance disappear in thin air with the crash from 4900 to 1800. Given the leveraged nature of business along with highest valuations in the FS sector, I wanted to capture the profit this time and got lulled into short term thinking rather than the long term i.e. business still remains a very good one with long runway of growth and my investment levels had a certain degree of MoS.

So the risk which I had called out that time has played out.

Did my selling Bajaj Finance have any impact on portfolio returns till date?
Hard to say. I’ve invested in few other Coffee Can type companies at that time like Divis Labs, Indiamart which have also given me 65-120% returns. On the satellite portfolio as well, invested in many of these API/CDMO plays like Laurus, Neuland and Solara which have given handsome returns of 50-70%.

This is a very difficult question to answer and for leveraged financials there is an added element of market volatility vs peace of mind tradeoff. The simple answer on price to book multiple would be a function of the potential length of the runway for growth.

But hypothetically even if you assume a 20 year runway of 15-20% earnings growth and are willing to pay 7-8x price to book, will you be able to stomach a 40-50% drawdown soon after your investment due to any macro related market crash? Believe me, leveraged financials will always fall brutally due to any global economic shocks as they have a big debt component on their balance sheets. And any economic stress or sector problems are indirectly their problems.

Hence, for me anything more than 4-5x P/B seems excessive as I start to expose myself to many other risks.

PS: Will be sharing a post on my portfolio performance for year 2020 on 31st December.

7 Likes
59

A suggestion, ask yourself the following question -

What are the kind of businesses you will not invest into, and for what reasons?

The answer to this question often provides a lot of clarity in terms of the investing process you would want to follow over the medium/long term. Once the high of the current return profile settles down, this aspect becomes very important in minimizing mistakes.

Since you follow the Marcellus folks, am citing something about them I have observed. They have tremendous clarity on what they will not buy but the media harps only on what they buy. The real crux of their process is their clarity on what they will not buy, in their own words their investment universe for the CCP hardly consists of 30 stocks. If there is one thing I have learnt from these folks, it is their clarity on the reduction filters and their consistency in communicating this all the time.

14 Likes
61

My investment process and methodology is still developing, I have spent 7 years in the market and even though I’m bowled over with the philosophy of Coffee Can investing (a simple investment process with phenomenal results over the long term) - I’m pretty sure that’s not the only way to make money in markets. So I want to test out the waters and try different approaches whilst keeping a solid core portfolio.

Coffee Can investing is the base foundation for my portfolio (~70%) comprising market leaders across consumer brands, FMCG, financials, etc. But can it be complemented with other philosophies to generate higher alpha? Something like this which I had mentioned 3 months back:

I don’t know how many people have noticed or seen this performance for 2020 YTD. And this includes the savage correction in March 2020. But I believe this can easily continue for the next couple of years at least:
image

Coming to the Marcellus team, they definitely have a phenomenal filtering criteria and investment process. The depth of work done by their analysts to understand business moats and competitive advantages in conjunction with management meets, scuttlebutt - channel checks, plant visits, etc. is truly outstanding and it provides them the clarity of what to buy and what to avoid.
I’m not sure if an individual investor can match Marcellus’ depth of analysis with our limited resources and understanding of most businesses. Hence, I don’t blindly copy every investment of Marcellus PMSs and especially struggle to buy some of their low/slowing revenue growth companies at extremely elevated multiples like Asian Paints, Pidilite, Nestle, etc.

They have helped improve my stock filtering process by leaps and bounds. I’m now mainly looking for businesses with strong track record of superior financial performance (consistent YoY revenue growth over 10 years along with high ROCEs >15% each year) along with excellent corporate governance.
But given the rout in mid/small caps in the past few years, can we also look at some cyclicals like autos, auto ancilliaries or pharma players in high growth businesses having done a lot of capex in past couple of years or capital goods / infra plays with strong execution track record and multi-year order book visibility - believe we definitely can if the market sentiment towards mid/small-caps improves or even remains as it is now.

If I find that my other approaches don’t yield similar or better results as that of the Coffee Can, then would have learnt the hard way and will stick to the single approach only.

3 Likes
62

As promised, I’m sharing my performance update for this once in a century tumultuous year 2020! Apologies in advance for the really long post but want to give everyone a sense of how markets can humble and delight you in just months!

Let me begin by sharing some perspective and in what light I would look at my portfolio performance.

I started this year with close to 50% of my portfolio in dangerously leveraged financials such as Yes Bank, Indusind Bank, Indiabulls Housing, Piramal, Edelweiss, Bandhan Bank, Motilal Oswal along with some decent ones such as HDFC, HDFC Bank, Bajaj Finance, Chola Fin, ICICI Bank etc.

Having close to 50% leveraged businesses in a porfolio is almost a guaranteed recipe for disaster. Even before the real disaster i.e. Coronavirus - my crazy stock picking (one of my top 5 bets in terms of allocation) required me to manage a 40-50% YTD crash in Yes Bank with the announcement of moratorium and book an overall loss of 70%

And soon after, it was absolute carnage towards the end of March with my portfolio cut down more than 50% from the top in Feb 2020. No leveraged business was spared - no matter the quality!!!

Stocks like Indusind Bank fell 80% in 3 months!!! From 1500 to 250 in just 12 weeks!, still holding this btw along with few other unfancied leveraged businesses, and pretty much every leveraged financial business got the stick like the world is about to end tomorrow!

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Other relatively better leveraged ones like Bajaj Finance and Chola suffered 60% erosion in market cap!!! And then I had a few other high conviction businesses like Inox Leisure and Delta Corp which became Corona casualties. As expected, they also lost 65-75% of market cap!!!

So as mentioned above, this was a horrific few weeks/months for me dealing with such significant MTM losses (mostly leveraged ones).

However, this was also the month where I got sick of holding most of these sub-standard leveraged and pseudo cyclical businesses and I started booking losses left, right and centre! So anything where I lost 20-40% capital like Piramal, Motilal, Care Ratings - I started replacing with much better quality businesses (structural growth stories) and managements in the belief that those businesses have some floor to their price and will definitely recover back to their all time highs faster and keep growing with future business performance. Also getting some fresh capital every month has helped me enter some great businesses at good prices. But I definitely have some room for improvement in terms of being able to also cut down businesses like Indiabulls and Edelweiss which lost 90% market cap from recent highs. It just seems too difficult a pill to swallow especially given my original allocation to such crap businesses.

Anyway, I had already done lots of work in trying to identify Coffee Can style businesses by that time and it made it very easy to buy those during the crash. Although it was not smooth sailing as I kept rebalancing, trimming, adding, booking out of some good businesses till May / June until I gained high confidence that the worst phase is over and I should only sit tight on high quality businesses instead of being hyper active!

During April-May, I also realized the kind of carnage small caps had suffered from the highs of Jan 2018. So I started turning over more and more rocks to see if I can find some good small caps or even micro/nano cap SMEs with some Coffee Can type characteristics. So many reasonably good businesses were selling at throwaway valuations (2-5 P/E) even upto end of May. And I started building a satellite portfolio with small allocations as I thought that high quality businesses like Titan, Berger Paints, Page, HDFC Life, etc. cannot go 2-3x in months which some of these small caps can with the slightest recovery.

So finally, coming to the portfolio performance for 2020 and also sharing my current portfolio as of 31st Dec!

In terms of % returns, my portfolio has done reasonably well comfortably beating most of the major indices barring the small-cap index. But this outperformance really needs to be sustained on a long term timeframe before I can draw any conclusions about my investing skills. However, given the way this year started for me - just beating the Nifty gives me immense satisfaction.

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Coffee Can Portfolio

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Satellite Portfolio

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Before anyone has to count, this is a combined 75 stock portfolio. Let me be the first to admit - yes, managing this is not so easy! However, I have talked about the portfolio strategies in my posts above over the last few months and you can go through that. However, I definitely plan on cutting down to 50-60 positions at max over time.

PF Update: Have done some minor profit booking in 2x-3x stocks like Alkyl Amines, Indiamart, APL Apollo, Poly Medicure and big in Berger Paints as valuation just seems to be getting crazier by the day.

Wishing everyone an even more terrific year after a splendid 2020!

14 Likes
63

It may be a good idea for you to run another simulation assuming if you would have continue to hold shares of those companies which you sold in March/April time frame. (as many of those also have run up quite a bit post May). The difference between two scenarios will show you real value of your actions of portfolio churning. (Kind of opportunity cost analysis)

3 Likes
64

Thanks for the suggestion. I can run this simulation in a slightly different way than what you suggested and still get to the same destination.

My portfolio return is 21.5% for the whole year 2020. So I can simply look at the yearly return for combined weighted portfolio of stocks I started this year with and sold during the crash. This is how it would look like for the whole year 2020 if I had not sold these stocks and held throughout the year:

image

The weights are not the portfolio weights, just the ones which I have sold out in the crash. So if I had Rs 100 invested in these 6 companies - I had Rs. 33 in Motilal Oswal, Rs. 29 in TV18 and so on.

As you can see, I’m much better off having sold these businesses when I look at the chart below:

image

Apart from the returns, just the quality of these businesses does not inspire much confidence from a long term perspective. The one business which I regret having sold in June is Bajaj Finance which has doubled from those levels but on 2020 year basis has provided 25% yearly return.

PS: As I’m not running my portfolio on a replacement opportunity basis (like some who only keep 10-15 stocks and just replace the last best idea with the next best one) - it will be a very tedious exercise for me to track what all stocks I’ve bought after selling in the crash as there will be many new stocks added in that timeframe.

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65

Coffee Can Portfolio Update -

Alkyl Amines - Stock’s provided 10 year target returns in 10 months! Sold half quantity at 4x of buy price and earnings would have only grown 40-50%. Operating margins seem to be at unsustainable highs. With new project and ignorable stock split announcement, PE rerating / price multiples are now at consumer business levels. A little unsure if I should book out completely due to lack of many other good opportunities.

Berger Paints - Sold 2/3 thirds with 70% gains. At 120x FY20 normalized earnings and 85-90x FY22-23 earnings, valuations are way too colorful to sit in peace.

Indiamart - A 3.5x story in 6 months, continue to book minor profits.

Addition
Embassy Office Parks REIT - 3.5% allocation at Rs. 349.5. Read quite a lot about REITs over the weekend and I think this is a great way to diversify the investment portfolio along with exposure to the growing commercial real estate market (especially Bangalore). Embassy Office Parks has close to 50% rentals from companies in technology sector and 40% from Fortune 500. Even during the worst phase of the Pandemic Q1 FY21, it collected 99% of rentals. 10 year Investment objective - Expect yearly cash distribution at 6-7% yield along with 10-12% CAGR capital appreciation as investors and markets get more familiar with REITs. Can expect more and more REITs to hit markets over the next few years and potentially have a REIT bubble few years from now (happened in USA in mid 1990s). Interesting fact - REITs form 96% of the total Real Estate market cap in USA.

Satellite Portfolio
MMP Industries - Was a small position and sold out completely at 70% profit and redeployed in Embassy REIT.

PS: Even though one of my portfolios is named as Coffee Can, human behavior and psychology is winning currently and I’m finding it hard to just buy and forget everything for 10 years.

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Hi Gurjot,
Interested to know your thoughts about Embassy vs Mind space REIT. And what made you go for Embassy versus Mind space which has a larger portfolio in Hyderabad which was a very fast growing micro market.

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Hi Rushil,

I actually like both the REITs and I’m not averse to investing in both. However, there are a few reasons I’ve chosen Embassy for now:

  1. Valuation - Trading 8% discount to fair value where as Mindspace is at par or higher than fair value
  2. Cash Distribution - Embassy has been very good in more than 99%+ distributions. Mindspace has not yet started the cash distribution, expected from Q3 onwards - so a little uncertain on what the yield will come out to
  3. Mindspace is a relatively new listing and while it’s income growth appears a little better in RHP, would really like to see it continue as a listed REIT before taking the plunge
  4. Bangalore market and personal bias - Bangalore is the tech hub of India which is still growing at 7-9% CAGR in commercial office space. Also I’ve personally stayed inside Embassy Tech Village for many months while working on a project in Bangalore. Have seen first hand the quality of offices and tenants occupying their offices.

Will relook at Mindspace as they come out with Q3 numbers and may also invest in it.

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Coffee Can update

Embassy Office Parks REIT

They have successfully secured 2600 crore debt funding at a coupon rate of 6.4% for the ~10,000 crore acquisition of Embassy Tech Village (prime asset on Bangalore’s Outer Ring Road).

“Given the attractive 6.4% quarterly coupon, the proposed refinancing of ₹2,641 crores of existing debt at Embassy TechVillage would result in a 328 bps positive refinancing spread”

Raising funds at just 6.4% shows the strength of the REIT. Even better than private banks like IDFC First and better than the best NBFCs.

Abbott India
Started nibbling at this low volatility essential business with strong earnings compounding engine amidst the relatively subdued stock price performance since March lows. Divis has touched the 1 lakh market cap figure, expecting Abbott to reach there in 10 years.

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Just about tripling in market cap in ten years :thinking:! Why so low expectations?

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