My richdreamz portfolio - visit my portfolio to learn together!


(richdreamz) #42

I was looking for “Alpha” when I bought into Cupid stock, looks like the stock wanted to give me “Infinity” instead, on a lighter note.

The stock is locked in upper circuit as I write this, obviously I’m delighted, but I did not find any news yet on the stock exchange for this uptick though.


Cupid Ltd – Helping the world play safe!
(reacher) #43

:sweat_smile:this is where one wishes if he had a higher allocation to an alpha stock


(richdreamz) #44

A new suitor for my portfolio, posted my thoughts at the appropriate thread. Please read disclosure at the below link.


(richdreamz) #45

So far, Gruh, PI Ind, CCL Products, MPS Ltd have declared results which are in my portfolio and all the 4 have more or less declared on the expected lines give or take few crores. I have provided my views on MPS, PI Ind in their respective threads. Repco, Page, Cupid, Virat are yet to declare. Going by other HFC results, Repco, I think should declare good results. Fingers crossed.


(dreddevil27) #46

Your clarity of thoughts on each business you own is wonderful. Love reading your updates in your portfolio thread. Can you briefly put your thoughts on Gruh results. Thanks


(chirag jain) #47

Can you just share your views on PI industries.

Can one enter now around 645 - 670 will long term horizon ( 5 years )

Just asking for your views, nothing more than that.

Disc : not invested but planning to intiate the position


(richdreamz) #48

Gruh results need not be tracked on a QoQ basis because of the super track record the company built over the years. This quarter, the results are good enough.

The business would grow at 25% thereabouts for the next few years barring any unforeseen circumstances. Stock growth is different from business growth, do not confuse between the both. I read somewhere that Gruh grew its net profits at 25% plus over last decade but the stock grew at 43%. So, there might be some consolidation before the stock moves. Typically it consolidates for sometime before starting its run, this time it looks like it’s taking time. It will be expensive when compared to other stocks for sure because of its track record. Typically, it will under go only time correction, price correction on a larger scale in not possible.


(richdreamz) #49

@chiragjain1976 I have provided my views on PI in its respective thread just yesterday, you may take a call based on this.


(MHS) #50

Hi

Your posts are logical and always inspire all here in VP to do more homework on businesses.
Any update on PF or any thing u r buying…or …looking to buy.

Regards


(richdreamz) #51

Thanks @MHS for your kind words.

The reason why I have not been updating this thread has something to do with the SEBI norms though I have been providing my views on individual stock threads. Please take cues from there.

You open doors for fresh air but along with fresh air dust too comes in. The resolution for this is “clean the dust” not “close the doors”. Unfortunately the regulator does not think so.

Anyway, IF the earnings next year would be more than this year and you are fairly confident of this based on your analysis and market has valued the stock accordingly, then there is no reason whatsoever to get afraid and sell. Ensure that promoters are squeaky clean in terms of corporate governance, you cannot lose money when the management is honest, at worst you will only make less money. So, evaluate your portfolio and if there is any black sheep time to make the move.

All the best!


(cathene) #54

It’s been a great pleasure to read your post and conviction you bring to the table on each stock you hold . It would be helpful to the fellow valuepickrs if at least quarterly or bi monthly you impart wisdom to newbies like myself.

With great pleasure
Cathene


(richdreamz) #55

If my experience helps some new investors I would be delighted to share the same here.

I have chosen this time to post as the times are unusual and decisions taken at these times matter a lot in the long term CAGR of your portfolio.

In 2008 when I was a newbie, under similar circumstances I chose wrong stocks but I have realised my folly quite early and invested only in mutual fund SIPs for sometime before I learned and started on my own sometime early 2013. The CAGR for past 5 years has been 31.95% approximately as of today’s stock prices.

  1. Shun low quality stocks like a virus. Turnaround stocks do seldom turnaround as someone said and I have witnessed this a number of times. A high quality compounder is a lot better even if you have to pay some premium valuations. How much premium depends on variable factors indicated below.

  2. Predicability of earnings, Sustainability, Consistency of earnings, size of opportunity, management’s ability in milking it, management integrity has a major role to play in the “P/E ratio” which NO mathematical formula can derive.

  3. Mathematically, P/E ratio should never be looked in isolation, it is a function of numbers like growth, RoE, dividend yield, D/E ratio, how many years the growth can sustain.

  4. Market would like to arrive at the Price of a stock as far as the earnings are visible. If earnings are visible until 2023, then market will apply a PE based on 2023 numbers. That is why consumers are available at high PE while steel stocks are at low PE. With what certainty can you tell me the EPS of Tata Steel in 2021? Not with as much certainty as a consumer stock. right?

  5. Equity investing is about growth, 20% growth at 30 PE is ALWAYS better than 10% growth at 10 PE, all things being equal. Likewise, 30% growth will be at 50 PE. The PE will sustain AS LONG AS the growth sustains. No questions asked, bear market or not. If the market thinks the 30% growth can sustain for 10 years then the usual and sensible PE ratio will be of not much use.

  6. It is better to invest only in such companies where you have the highest conviction otherwise there are chances that you may exit at exactly the wrong time.

  7. It makes immense sense to learn technical analysis along with stock fundamentals. More often than not the exit can be better judged through technicals. Technicals are nothing but what all others think and which I think is more important than what you alone think. There is NO point in living in denial. The market as an aggregate knows better than you do in the short term. Sometimes it is better to exit rather than see a stock fall and bear the pain believing in ones fundamental analysis.

  8. Use steep corrections for churning into high quality and no corporate governance issues companies which will bounce back strongly and more importantly quality companies will PRESERVE the gains while the low quality ones give back all and more.

  9. No 100% concentration in a single stock or 2 stocks so% each no matter how juicy the opportunity is. There are far more factors that influence a business than you or for that matter the owner can ever imagine.

  10. When facts change (e.g. management is fraud, financial wrong doings, sector damage due to govt. regulations), sell swiftly. No points for being loyal to a company and that to a fraud one!

  11. Temporary blips in growth can be excused given that it is temporary. You need to be able to differentiate if it is temporary or permanent otherwise you have no business in owning the stock! You HAVE to work hard on the companies you own and know at least the factors that can damage the earnings capability of a business. Else, look at mutual funds of well known fund houses.

A table which I made for my needs while evaluating companies for entry/exit. Some of you may find it useful.

These are some of my learnings which may not hold true for everyone and I’m not here to prove my learnings and debate.


(richdreamz) #57

The amount of hard work that requires in building a sustainable business that has the below qualities:

(past)

  1. Return on equity (RoE) and return on capital employed (RoCE) of about 50% over a very long time (across business cycles).
  2. Maintain a Net debt of Zero.
  3. Growth of about 25% over such long period.
  4. Grew even in difficult times like demonitisation and GST and did not take an easy way out saying GST impacted the business etc.
  5. Pay out 40%-50% of net earnings as dividends. (The confidence that the balance sheet, PnL, cash flows are real is from quarterly dividends).

is NOT easy. This is NOT easy.

What is much easier is sitting at home and without building a business, no experience over business cycles and then pass comments on valuations! The proof of pudding is in the eating.

The past track record and the assurance of future growth the investors have that the company will keep growing at relatively and comparatively higher growth is what majorly decides the PE of such companies.

Understanding the reason behind high RoE, Growth and its sustainability and investing in such a company at the right balance of valuations vs. quality is real hard work and then sticking onto such businesses even during steep and broad market corrections might be lazy but is the prudent approach.

Why only a certain company is trading at high X times 2020 PE despite such upheaval in many mid caps? Why not any other company? The thousands of stock market investors are biased only towards that ONE company only and that to over such a long period? Is the company their relative? No, right?

Market as an aggregate has NO emotions otherwise companies won’t fall 60% in a day. Market is ruthless when their assumptions go wrong. So you need to do that hard work and find that balance in valuations vs. growth & quality & sustainability.

If a company has sustained a median valuation of high PE over many business cycles but you arrive at a valuation that is 1/3rd that then we must have the humility to understand that we may be going wrong somewhere and try to learn instead of broad brushing that market as a whole is wrong and that to over many business cycles.

There are hundreds of ways to make money in stock market and mine is this and others have theirs but none of our ways are lazy! (as long as they are legal)

Investing in Equity market is about GROWTH and its SUSTAINABILITY. Let that sink in first.

In all humility, am not in for arguments please. These are my opinions backed by experience and good CAGR. I respect opinions that make money otherwise a lot of inexperienced people throw so much gyan, excel analysis and that too with so much confidence these days in forums that the people/new investors who really wants to learn and grow in life are being misinformed and there is a danger of getting influenced at an early stage. Again, the proof of pudding is in the eating.

Do whichever actually worked in real world scenario and not in the seemingly logical writings, including mine.

Nice strategy!


(Divyanshu Bagga) #58

How do you view Repco’s performance vis-a-vis Gruh?
Was it an avoidable mistake or unlucky investment?


(richdreamz) #59

I have sold out of Repco more than a year back about 15% below all time highs. Since I’m an ultra concentrated and full time investor, my mindset and approach is a bit different. This is more to save myself from grave mistakes.

Sorry for longish reply and being preachy.

I’m writing my lessons so you may take it as you would like. This worked for me so far and I’m not ready to fix it if it ain’t broken.

  1. I cannot excuse even an iota of doubt in corporate governance. Even a whiff of it and I’m out of it forever. This I learned from Repco and this turned out good for me as the price more than halved after my exit. So be ruthless and I would sell it even at a huge loss. I prefer the mistake of omission rather than commission. In fact after the CBI raids on the management, I’m very careful about choosing managements.

  2. When the integrity of the management is in question, the culture down the line in the organisation cannot be relied upon which is what separates a great company from the good/bad ones. The culture plays an important role in getting that predictable and consistent growth. The employees should feel that oneness. Only a great leader at top can drive that. All this involves a lot of subjectivity and it depends from person to person on how to judge management.

  3. The benchmark of management for me are HDFCs, Harsh Mariwala, Sunder Genomal, Radhakishan Damani, Sid Lal, Sudhin Choksey etc. I need not find the next Sid Lal as long as I let the current one compound for me with the right portfolio allocation. But, If I were starting now with small amount, I would allocate a certain portion of my PF in the next Sid Lal’s after learning the ropes of investing and not certainly on hope/tips/rumours and I will evaluate the story as it keeps playing and then decide to exit or pile on.

  4. When the management is unable to drive business performance for over a year I would err on the side of caution instead of quoting “WB” long term holding theory unless the management is of point 3 and growth slowed from 25% to 20%, the company is a leader and the slow down is temporary in my judgement, in which case I will hold. If the growth slowed from sustainable 25% to unpredictable 10% a quarter, 5% the next and 15% the next and de-grow the next I will definitely sell and market will not give high valuations at all. It will take really a long time to earn the trust of market for high valuations. 8-10 years or a couple of business cycles of predictable growth.

  5. Inverted thinking helped me: I thought Repco which was being accorded such high valuation only next to Gruh and what incentive did the market have to again accord such high multiples? None. So, I exited.

  6. PE de-rating and growth slow down when happens together - the stock falls real hard and sometime real fast too. When the inverse happens the stock rallies real fast and hard.

  7. My investment in MPS is one such big lesson for me where I have exited at loss after holding for more than a year of being gung ho about it. After implementing the low hanging fruits the management is unable to scale it further. They missed guidance after guidance after guidance and I held on to it on hope after hope after hope and in the process I have incurred huge opportunity costs and loss as well. Double stabbing. I’m not tracking this company now so I’m not sure if things have changed.

7a. EDIT: I have written in my earlier posts that it is better to be humble and exit at a loss rather than stay put in an investment on unfounded belief on ones own analysis comes from this experience of point 7. After I have exited the stock at a loss holding for more than a year and it is 1.5 years as of date that I have exited and the stock fell 30% from my exit price and the company where I have invested the MPS money gave me 45%. If this is not a life changing learning experience for me then what else is (personally at least)? This learning will do greater good for me than reading 5 more books. Of course, you must have valid reasons for the exit and not exit just for the heck of it or because you have an itch to trade!

  1. In fact that’s how I get around paying premium to great managements, consistent, predictable and sustainable growth companies and it is doing wonders to my PF so far.

  2. I’m fine with 15-20% CAGR with impeccable managements rather than risk for 25-30% CAGR with corporate governance issues and you know what my experience taught me the chances of latter working are far more slim as the former approach may give 15% CAGR or even 25% CAGR while the latter (-10 CAGR)!

  3. Willing to change my opinions on an investment and quick to exit has helped me. This is so underrated quality in stock market success.

If I’m successful, there is a lot of luck involved but if I have lost big then being unlucky has no role whatsoever for me. It is my unpreparedness and not being honest with self evaluation, not learning form my past mistakes and not working hard enough.

Disclosure: Companies listed in the post are not recommendations and I may have investments in some and I may exit at my will.


(Divyanshu Bagga) #60

Thank you for the detailed reply, and for sharing the lessons you learned in the process.

I was wondering what made such a huge difference between Repco and Gruh, they are going after similar opportunity in geographically disjoint market. Guess we can attributes this difference to companies internal work cultures, and management quality is a good proxy for the underlying culture.

Glad to know you were able to revise your opinion and make a timely exit.


(gautham1) #61

Always a pleasure reading your posts. One question. Did you sell repco right after that CBI related news ? . The reason I ask is that, sometimes it can be a noise too. How does one handle this?. Also, in this particular case, I dont think it was a big offence. (ie favoring someone to waive off pre closure penalty). Eventually they got a clean chit. https://www.thehindubusinessline.com/money-and-banking/cbi-closes-case-against-repco-home-finance-md-others/article22763766.ece
(Note: I dont hold Repco nor am I interested in it.)


#62

Sometimes excessive pessimism may turn out to be minor issue. And sometimes apparently minor raid turns out a deep conspiracy, Corporate mis governance. Timely exit is extremely difficult, even more than timely entry. This is because entry is guided by fundamentals and valuation. However, such exits are driven more from the gut, IMHO.

I think, its better to exit completely and immediately on such news and wait in the sidelines and track. Just like we block credit cards or change passwords at the slightest hint of fraud.


(Divyanshu Bagga) #63

Just to add some context, CBI raids weren’t the only indicator of bad work culture. Some other signs were

  1. It’s relatively higher level of NPA
  2. It is owned by Repco cooperative bank, which hints at the possibility of inheriting PSU culture.

(richdreamz) #64

Thank you and yes.

After the news the first feeling is that of denial and confirmation bias and try and justify myself that I was not wrong. But soon I have evaluated rationally and wanted to do what is best for my PF and not for my ego.

The basis of selling was:

  1. Valuations: The valuations at that time were more than 5 times book and at that valuations such news is a disaster as perception change is the biggest risk to valuations. If it were trading at 2 times book then the damage would have been much lesser. In my thoughts.

  2. Risk: Reward: It was a doubler for me in 2 years on a decent allocation and there are more chances of falling than the stock breaking above 900 at that point, technically. As indicated earlier, sometimes I use technicals for selling decisions. Profit preservation on bad news at high valuations did it for me.

  3. Also, after such news management’s focus will shift and moreover the company is not known for legendary management anyway (hindsight advantage as I speak today).

  4. In my opinion, the best corporate governance decision at that time would be to step away voluntarily until the case is solved in the best interests of shareholders. I was following for a few days if such a decision will be made or not. Such decisions are important for me. But the management is hellbent on clinging onto positions. As @Divyanshu_Bagga said, may be it is PSU culture?