My portfolio and rationale


(Investor_No_1) #1

Friends I am a long term investor and I believe only in having your own convictions, even if it means losing opportunities, what it gives you is learning. I am still learning. Would welcome feedback from the seniors here. My current portfolio is as below with percentage of holdings -

  1. L&T Finance Holdings - 18
  2. Marico - 12
  3. Pidilite - 11
  4. Tata Global Beverages - 10
  5. Godrej Consumer Products - 10
  6. Britannia - 5
  7. Max India - 5
  8. Max Financial Services - 5
  9. Dabur - 4
  10. HDFC Life - 4
  11. ICICI Prudential Life - 3
  12. L&T Infotech - 3
  13. Bajaj Corp - 3
  14. Max Ventures & Industries - 3
  15. Agro Tech Foods - 3
  16. Godrej Agrovet - 2
  17. Aditya Birla Capital - 2

Let me know your views on these for long term perspective like 5 to 10 years.

Rationale for each -

  1. L&T Finance Holdings - Reliable, Dynamic and Ethical management. Walking the talk
  2. Marico - Visionary Promoters and company. Premium products. Evolving with time. market leaders in most category
  3. Pidilite - Market Leaders. Most Innovative company
  4. Tata Global Beverages - Ethical management turning dynamic now. Huge opportunities in the three categories they operate
  5. Godrej Consumer Products - Ethical, Dynamic management. One of the most innovative FMCG company capable of creating new products and categories
  6. Britannia - Leader in fast growing categories. Huge opportunity in areas they operate
  7. Max India - Somehow I believe promoters in the long run have been doing good for shareholders. If I am right then current time is biggest opportunity to buy this. I initially bought it only for Health Insurance.
  8. Max Financial Services - Max life has created something amazing without being a bank. HDFC knew this and so wanted the merger. The management and promoters know exactly what they are doing
  9. Dabur - Rural India, Heritage company
  10. HDFC Life - Most reliable promoters in insurance business
  11. ICICI Prudential Life - I had bought it as when it listed it was only insurance company. Evaluating if I should keep for long term
  12. L&T Infotech - Excellent management, midcap IT which can become big in next era
  13. Bajaj Corp - I had bought it as one of my first companies. Sold most of it when promoters pledged their share. Still hold some.
  14. Max Ventures & Industries - Only because of belief in promoters that they will do something big eventually with this new company of theirs
  15. Agro Tech Foods - RJ had it, I read about Con Agra one of biggest company, liked Act 2, had liking for FMCG so ended up buying. Not sure
  16. Godrej Agrovet - Excellent management. Hidden potential in long term
  17. Aditya Birla Capital - Excellent management. Hidden potential in long term. I got my buy price wrong though

(Investor_No_1) #2

Dear Members…I was expecting some detailed feedbacks from many of the fellow and senior members so that I can know if I am doing something wrong…still to get even one feedback :slightly_smiling_face:

Is my portfolio so boring and full of well known companies that it doesnt excite any of us here?


(Hitesh Patel) #3

Hi

Most of the stock picks are solid companies with good past track record and decent managements. Max India and Max Ventures could be considered laggards but since you have very high conviction it seems, these could be given a longer rope.

Top 5 remain good companies. I think you can work on nos 7 to 17 to find out where you have highest conviction and increase allocation to them. AB Capital after a decent correction seems interesting though valuationwise it may still appear expensive. I like the growth in NBFC with good asset quality, mutual fund business, insurance besides other businesses.


(Investor_No_1) #4

Hi Hitesh

Thanks for your views! I agree I need to consolidate my portfolio…will definitely think on those lines and act.
Solid companies are good but they will not give me returns like multibaggers specially like the ones where good investors in this forum invest. Should I include such multibagger stocks as well in decent percentage in my portfolio?

Regarding Ab Cap, it is indeed a fast growing NBFC…some things I am keeping eye on is equity dilution…its EPS did not increase much even after great profit growth…i think EPS decreased YOY. Also, they are doing ordinary in life insurance…however recent tie up with HDFC bank should do good…AMC they are average…Health insurance is a new venture…also ARC business a new venture. So potential is indeed lots and lots is work to be done…NBFC/Banks…key is the promoters/management…if they work in right direction with right ethics and risk control…we have a winner


(Investor_No_1) #5

Regarding Max India…I bought it for health insurance…ended up stuck in hospital business…will sell some at better price. Max Ventures…need to think on this…


(Hitesh Patel) #6

About buying multibaggers, if u stumble upon one the let me in too.:grinning:

We cant buy multibaggers as they are not out there in the open. What we can do is to find out small companies with good potential for the next few years and do a bit of digging on them. If we can find out triggers lined up for earnings to go up then we are on the right path. A bit more digging is warranted to develop conviction in the company.

Another important aspect in getting big returns is to look at the perception reality mismatch. In the beginning phase of the journey of a multibagger there is usually disbelief and people often keep quoting the negatives related to the company or the sector and so on. What we need to do is what the tagline of valuepickr says ‚ÄúSeperating the wheat from the chaff‚ÄĚ In this age of information and newsflow overload its very important to maintain your balance and composure and try cut through the clutter and have a clear vision and have our own opinion. Try to focus on information through authentic sources like company‚Äôs annual report, website, results and investor presentation. If needed its always a good idea to try and meet the management either on a one to one or go to an AGM and try to talk to them or see how they talk.

There are multiple checklists people use for their investment thesis. We can formulate our own based on what we can decipher out of the information we have and what our circle of competence is.

Once all these things are done and we are convinced about the company and its story its always a good idea to prepare a short write up on the company and condense all the learning we have about the company.

Next comes the allocation part. Once we have identified a company worthy of investment the more important question is about how much of your total capital to allocate to this company. Some companies which have had multibagger journeys are often very volatile in their early phases. Even what we perceive to be good news would induce corrections in the stock price of these companies. During these times we would need to have high level of conviction to hold on.

Allocating a small 1-2% of the capital after doing all the hard work on the company is not going to mean much even if the stock is likely to go up 5 or 10 times. One needs to allocate a decent amount to the company. For that we have to think about entry point and make sure that our downside is as low as possible.


(Susindar) #7

Hi @Investor_No_1, I think some of us are licking our wounds and waiting in the sidelines refining our investment strategy in the recent small cap and mid cap correction and hence are not willing to share the opinion. I am definitely looking to fine tune my strategy.

I find a number of positives in your portfolio holding, well diversified, well known names and leaders in the pack. A high percentage holding in B2C and retail is a huge positive as well.

My comments on your portfolio would be:

  1. what is your investment style? Finding multibaggers or looking for steady compounders? Your portfolio looks good for a steady compounder. But if you want to find multibaggers, then you may have to adopt a more riskier strategy and look in to small and mid-caps.
  2. I always find a stock quoting above 50PE expensive. I accept that PE is not the best metric to value a stock. But a large cap quoting at more than 50PE in a normal year is in my view expensive. You can continue to hold them if you have a very high conviction on their moat to hold on to competitive advantage for a long period to come (>10 years).

(mylu) #8

Very good choices… I was also tracking Marico sometime back and agree with your comment about it :slight_smile:


(Investor_No_1) #9

Hi Hitesh

Thanks a lot for such a detailed explanation and the complete cycle from identification to allocation!
I completely agree with you it is a journey to find and keep multibaggers until they become one for you. Since 2010…8 years of my investing I have had maximum 3 baggers, but good thing is that they were from my maximum allocations. Surely, I will keep in mind and share with you new ideas. :slight_smile:


(Investor_No_1) #10

Thanks for your comments. Yes, I have intentionally chosen consumer focus companies. My strategy is -

  1. First and foremost look at management, their holding percentage, history and top public shareholders, whether long term shareholders are present in the company. Promoter holding, pledging shares, if any, its reason.
  2. I look for strong brands. I love brands which can grow even if the company/promoters are in trouble. Consumer facing companies attract me to them for investigation and looking into them.
  3. I did a research on different sectors over a very long period of time in US economy. What I noticed is something very interesting. For long term investors, if a person does not buy and sell and make use of cyclical nature…the best bet someone would have done is buying simple FMCG consumer focus companies…come war or recession or any promoter/management issue…they have grown steadily…and buying them early they have become multibaggers with good dividends and still no jittery to the holder to sell…Auto companies have become bankrupt (Ford), General insurance (GEICO) became bankrupt before rising from its ashes…so all these have at some point of time given huge returns but only to those who were smart enough to buy and sell them at right times…only FMCG and simple brands have been steady performers. Therefore, I believed that a significant portion of ones portfolio should be such simple brands FMCG companies.
  4. Next, I want to be part of strong india domestic infra, real estate etc story. Now, how can I do that with my first point of promoter integrity. So that could only be done via Financial proxy…also in US finacial companies until big crisis have given enormous returns. They are never steady and overnight can destroy you but I had to take this risk, otherwise I am better off with mutual funds. Therefore significant allocation to financials. I wanted to have banks, solid banks but felt could not buy them early (maybe a misconception depending on how much they have grown since when I entered markets)…so ended up buying NBFC.
  5. Now, I am very scared of NBFCs…even though management is top class…someone from my family shared his experience of buying ITC promoted ITC Finance (I never knew such a company existed)…then I read its history and it is scary to have the fate of ITC finace from such a reputed house of ITC…they face promoter issues and company was destroyed , finally merged with ICICI at a huge loss to minority shareholders…so I still think that it is better to be in solid banks than in NBFCs over long term (even if they are from top promoters). However, times have changed since then, I took the risk of maximum allocation in my portfolio to NBFC.
  6. I believe Insurance companies in due course will be bigger than banks. Therefore I want to increase allocation to insurance. Now, with Insurance a General Insurance company can go bust if management is not good. With Life insurance there is some protection.
  7. Next as Hitesh Sir pointed out, sometimes I see the value mismatch and exactly what this forum stands for…seperating the wheat from the chaff… and my reason to join this forum is to enhance this ability…However, I tend to see qualitative aspects more as my strength is not in financials, numbers, balance sheets etc. For this reason probably I am buying Max India, IDFC bank and AB capital last couple months.

(Investor_No_1) #11

Marico is indeed ahead of the pack in some aspects. Always innovating and not scared to try new things like Kaya and now an Online only brand…Studio X! It is not multibagger anymore but should be a steady compounder with an upside surprise if any innovation works out big in future


(jayantmum) #12

Hi,

Some very interesting thoughts which you mentioned as learning from US markets. Would be great if you have data points/ sources which you can share.

I see lot of similarities with my own investment style in your portfolio choices - sticking with good names, good managements, large market opportunity, long term investment view, etc.

What would be interesting to also figure out is the amount of time you have been willing to spend towards studying your portfolio, both at the time of building it and for review. I have personally found it difficult to find time to regularly review the company performances in my portfolio for more than 10 companies.

Of course, with time as constraint, it is probably best to manage expectations in terms of returns. As @hitesh2710 mentioned, finding and ‚Äėstaying‚Äô with a multibagger needs effort to build conviction and go against the grain. However, I have also personally felt that statistically, its not possible to hit a home run every time if you are looking to invest in multibaggers and thus, being nimble and close monitoring of portfolio for validation of hypothesis is ‚Äėvery‚Äô important.

would be nice to have your thoughts.


(Investor_No_1) #14

Unfortunately I do not have data points at moment to share with you about comparing with US. I remember long back what I did was took example of market leaders in individual sectors and also top 10 market cap companies in US and saw their long term charts and read history of some of them via old articles, Wikipedia, common sources. Although two countries and time will never be comparable still got lot to understand. This was just one part. Second part was reading book One up on wall street and reading to the great threads of The Equity Desk at the same time…All of these three reinforced my belief in simple comsumer branded B2C companie


(Investor_No_1) #15

Other than consumer and finance, I believe there is huge sustainable scope for companies in India in waste management and water management. I liked Vatech Wabag and the work it can do…however I think water management is currently not B2C…it is government projects…and same waste management. Anyone is aware of any aspect of waste or water management which is B2C in nature and any listed company catering to it? If not, then I think this can be huge business opportunity also…with water and waste crisis in most urban cities…


(Arun S G) #16

@Investor_No_1, The comment from @hitesh2710 about multibaggers was rather tongue in cheek :wink: though its certainly useful to share MB ideas!

Coming to your portfolio, it strongly resonates with some of my own ideas in another thread captured under Permanent Buy and Hold Portfolio. Your #4 about a strong India focused story and management integrity is very true. Your points about Insurance as well as Water management are also somethings I believe to be opportunities in next few decades; one difference being my preference for Ion Exchange versus Va Tech Wabag. Another new industry which might be listed in future is Education-for-profit. Imagine having an Edu index where IIT-C and IIM-B are the blue chips :sunny:
As an aside, ITC Classic Finance had partnered with Threadneedle to offer ITC Threadneedle Top 200 fund, which was later taken over by Zurich Finance and re-named Zurich Top 200 fund. One more aquisition many years later transformed this fund into HDFC Top 200…and having held this fund through all this change, I can vouch for holding blue chips long term.


(Investor_No_1) #17

Thanks for your comments. Pls note Vatech is not my preference anymore…I have given it a pass as big dependence on government orders. I will only put money in Water management business if I see a B2C player with good management. Government orders and policies I am scared of :slight_smile:


(Investor_No_1) #18

Wow! Really appreciate your insights. You seem very experienced in markets and an avid reader! Is there any thread where you have shared your portfolio and rationale? Would really like to read it. Thanks


(Investor_No_1) #19

I have burnt my fingers in Oil producers - ONGC, Oil Inida, RILs and in Public Sector banks for few years when I started investing first. Have sold all of them. managed profits and dividends in ONGC, OIL and RIL but big losses in Public Sector banks. Ever since, I have put a firewall to stay away from companies dependent on government orders, policies, regulations… recently burning fingers with Healthcare…somehow never expected government to come into such strong regulations in this space…also entry to healthcare was by chance as bought max India for Health Insurance reasons…
I had MCX for long time…it was in good profits then suddenly started falling…I didnt race it much until all profits eroded and then I realized that Government has come up wih Universal exchanges…so in a day the so called moat of my company got threatened by the big brother NSE…all fundamentals and moat went for a toss by one policy change…scary! :slight_smile:


(Arun S G) #20

@Investor_No_1, I’ve been around market long enough I guess, though the early years lacked enough learnings due to lack of information dissemination as easily as today, i.e. pre-internet days! I dont have any thread where my portfolio is shared, but I have mentioned my holdings in different threads as disclosures and my biases!

Coming to your fears about Govt policies and their changes thereof, yes its something to be very concerned about. All the companies you mention - the Oil companies, PSU banks and even the listed MTNL are what I would call G2C, Government-to-Consumer and the weakness here is that the consumer is also electorate, which means the best interest of the PSU might or might not always align with the consumer/electorate. But if you can find a company which is G2G, you might have something worthwhile to think about. As an example take Bharat Electronics where I have a starter position currently. This is a pure play government company, but supplies to Defence which is another arm of the Government and thus meets the strategic need for the country. There are other positives around BEL, but suffice it to say here that this is very different from an oil company. Another example might be Engineers India Ltd.

Water management might be an area of increasing significance in future. Ion exchange where I have a small holding also has a B2C element in addition to industrial/governmental exposure. I might increase the holding over time if the ‚ÄúC‚ÄĚ part of the business grows more than the other areas.

About your other holdings, I am curious to understand whether or not you see the risk of companies like AB Capital and L&T Finance holdings seeing their parents’ finance needs in priority ahead of their share holders? Why would L&T Infotech grow higher than any other established company and what are its unique strengths that are not seen elsewhere? Another question I have is, why L&T Infotech, and not L&T Tech Services?

Cheers,
Arun


(Investor_No_1) #21

Interesting, never thought on G2G, will keep in mind next time I analyze any business.