Permanent Buy and Hold Portfolio


(Sameer Wakude) #1

Hi,

My current portfolio is 100% in small and midcap portfolio. I am thinking for a portfolio, which I don’t have to work on forever (Zero maintainence portfolio - Buy and don’t touch that demat account ever). This could be 40% of my portfolio (thinking of 40% Permanent/this portfolio, 40% midcap, 20% liquid funds).

Model Portfolio (I am thinking):

Please feel free to offer your suggestions. Thanks.

P.S. Except Pidilite, all stocks are from Nifty 50 Index.


Coffee can method
(sivaprakasamp) #2

Hi Sameer, quite a good attempt. Buy and forget portfolios should have a resilience for 25 years approx. Ramesh Damani in a recent presentation explained about a few sectors which may exist after 25 years too. He pointed out that auto may not exist. Say centuries ago we were reliant on horse carts. Then cars now the future could be anything. My best guess is mass transit or hyperloop. That will make auto redundant. Far fetched but likely. Similarly he says banking may not exist given new advents in technology.

So I would pick the ever green portfolio from the following sectors only - FMCG, Sin stocks (liquor and cigarette), anti pollution, airlines, real estate, gaming, quick service restaurants and leisure. All these are consumer centric and will remain forever.

Based on this my model portfolio -
NESCO - 5%
Suntek - 2%
Kolte - 2%
Oberoi - 3%
Indigo - 10%
Domino’s - 7%
Delta Corp - 8%
ITC - 15%
Praj - 12%
Wabag - 5%
Jitf - 2%
Ion exchange - 4%
Wonderla - 7%
Shemaroo - 8%
Piramal - 10%

Discl: have started allocating cash to a few of the above


(Saurabh) #3

@dcoolsam: I think your portfolio is apt if you are looking for long term hold. These are some ever green stocks. But wait to hear from other experts in this forum.

@sivaprakasamp: Do you mean Suntek, Kolte, Oberoi, Dominos, Indigo, DeltaCorp, Praj, Ion, Wonderla, Shemaroo would exist based on your thesis of 25 years ?

According to my limited understanding, even 5 years is not guaranteed. @dcoolsam has much better stocks in his portfolio.

Can you give your thesis on how this is good for long term ?

Do you still think that after 25 years:
A father will give his kid a flat from kolte patil developers,
by signing sale deed by coming to Mumbai on an Indigo flight,
eating dominos pizza in airport lounge,
and going to Goa on a weeked to enjoy casino gambling,
while kid is enjoying at home watching movies on TV copyrighted by Shemaroo ??

Can you justify why Hero and Maruti and HDFC would not exist after 25 years and stocks mentioned by you would exist.


(shreys) #4

Dear @dcoolsam,
Per my limited understanding we’re in a state of perpetual motion. In my opinion, there’ll be a massive change in the market leaders over the next decade or two. The industries they operate in will flourish. But, the market leaders will be different.
The Sensex components today are very different from Sensex components in 1992.

Hindustan Motors, Mukand Ltd, GSFC, Bombay Dyeing, Century Textiles, Cummins, Premier Ltd, Indian Rayon were components of Sensex in 1992. They were bluechips. Top class quality, completely reliable. But, today they’ve fallen from grace and are a shadow of their former selves.

In 1992, the same question would’ve been asked why they wouldn’t exist 25 years hence. No one could’ve imagined their fate. But, that’s precisely the market. Totally unpredictable.

Hence, I think its impossible to know which companies will exist 10 years hence, let alone 25 years later.

In such a dynamic environment, it’d be a good idea to periodically monitor the business and auxiliary factors.


(Arun S G) #5

For a company to last multi decade, one useful criteria would be that the company’s fortunes are tied wholly, or majorly to fortunes in India. This is simply because having trans national interests, there is always a possibility of Indian interests and shareholders getting second preference. Witness Maruti’s actions in not too distant past about royalties and contract manufacturing for parent with its own investment. To me, this criterion rules out Maruti Suzuki and HUL from the portfolio. An alternative for Maruti would be M&M.

Another criteria for rejection would be to look for companies that have survived a change of guard, i.e. second or third generation of promoters running the company. This shows resilience in succession planning, and ease of continuity into next few decades. Thus a Dabur (2,3 gen Indian) would be preferred over HUL ( MNC). Similarly, Lupin preferred over Sun, Other than generational handoff, Dilip is also investing in business that shareholders might not easily understand. It may be in his personal capacity, yet his focus would be diluted.

Hero Moto - seems to meet both criteria of Indian and 2nd generation. But then also consider TVS and Bajaj. TVS went through the divorce with Suzuki much earlier than Hero with Honda, and has shown remarkable resilience and innovation to capture significant market share. Auto will see major shakeups in next few decades as new technologies emerge and current ones die. It might be worthwhile to invest in next gen ancillaries…like selling shovels in the California gold rush. Which ancillary? Research needed here!! And luck.

TCS and all the other major vanilla vendors are at the end of the day people companies. More people, more business. With business models changing, the linear correlation of bodies to revenues does not hold good any more and this model is surely set for major disruption quicker than even a decade. The symptoms have been around for a decade already and the change will come within the next decade. So, what does one do? Look for companies that have the courage and skills to build products, not merely ship bodies and collect revenues in XL sheets.

Finance companies…HDFC/HDFC Bank/Bajaj Finance. In addition to the points mentioned above by another member, this is another sector set for disruption. IF low cost housing becomes reality, then the business models of all the HFCs will drastically change. Also, I dont believe we have fully understood or exploited the power of crowd funding. Finance sector is roaring right now, but will it do so in next 20 years? Hard to imagine that.

Ok, I’m done spreading cheer around :grin:

Cheers,
Arun


(Ankur Lakhia) #6

I think trying to build a permanent portfolio is futile exercise. There is nothing permanent on earth. Besides, in rapidly changing world, it is impossible to imagine life after 20 years. Think of life 20 years back and now. Todya’s world dominating names (Google, Facebook, Amazon etc) did not even exist back then. Even if today’s blue chip stocks exist 20 years from now, they might be declining or their growth prospects might be dramatically different. Hence, I do not see any point in trying to build permanent portfolio this way.

If at all you want to build something resembling to permanently built, you could attempt to do it with Nifty ETF. That way you get automatic churning without any active efforts on your part.

Another semi-active way of building permanent portfolio is to decide fixed percentage allocation towards various asset classes like equity, cash, bonds, Gold etc & do annual re-balancing. You can use various index ETFs for building such portfolio.


(Sameer Wakude) #7

Hi Siva,
thanks for your reply.

I think Damani has a vested interest in this kind of portfolio. In his numerous interviews he has pointed out these themes you mentioned.

Also, my target is mostly Nifty 50 companies. If you noticed except Pidilite (which is from Nifty Next 50 index) all the companies are from Nifty 50. Another characterstic I would like to see in the portfolio is the proven management.

I personally like Nesco, Kolte, Oberoi & Piramal, they are on my watchlist for Midcap portfolio.


(Sameer Wakude) #8

So true Shreys,
Your point is 101% valid.

I think I will have to take 10 year view (sort of a coffee can portfolio) and check once a year.


(Sameer Wakude) #9

@Ankur_Lakhia
Valid point. I will take a call for next 10 years then instead of forever.
I had tried creating a permanent portfolio at the start of the year. Equal weighted portfolio was giving me a CAGR of 8% or so. It wasn’t motivating enough. I tried various combinations to optimize the returns, max I would get is 12-13% CAGR.
Below is the equal weighted portfolio simulation.

@arunsg
I consider Maruti as Maruti is the leader in PV space. It sells about 50% of the cars sold in India. I was agnostic that this would continue when I first heard about its market share in 2007-8. However 10 years past, I am convinced even after 10 years Maruti would be leader in India, may not sell 50% but certainly market leader position it would be able to maintain.
Dabur is an excellent company, don’t mind swapping Dabur with HUL and Bajaj Auto with Hero.
TCS I have worked in IT for 14 years. I can vouch by TCS’s skills at winning deals and keeping their people even at below par salaries. They invest a lot in training and cross training their people. A friend moved from being a C developer to SAP and he is happy that he made his transition. Also, I personally worked on a couple of big deals (more than 500 millions) and we lost those to TCS. They have people for every skill you name , ready to deploy on the bench at any point of time. Nobody keeps 20% people on bench these days. So clients are happy to give them the business. In my opinion TCS is the best largecap companies on all these counts. They quickly get into any technology. Their model for new technology is get 20% people at good salaries from outside who are experts, get very high class trainers to train rest of the people and leverage 20:80 model till at least 20% from those 80% have reached a better stage and then move them in new projects.


(Ankur Lakhia) #10

If you are trying to create permanent portfolio with different asset classes then giving equal weight to all asset classes is not optimum approach.

I see that you have used Gold, Equity, LT Gilt and cash. In this case, I think you can consider Equity as predominant asset class whereas other asset classes are valuable only as insurance against large losses in equities. Therefore, equity weight should be say 60%-70%.

In my opinion, in inflationary economy like India, deflation is highly improbable scenario. Hence, my allocation to LT Gilts will be Zero.

Gold is unproductive asset and useful only in hyper-inflationary scenario which has low probability. I will not allocate more than 10% to Gold.

Rest remains in cash.

Also, the correct vehicle for equity allocation of permanent portfolio would be Nifty ETF.

These are just my thoughts on permanent portfolio. For the disclosure, I do not follow such approach. I am happy actively managing my portfolio.


(Arun S G) #11

@dcoolsam

My comments were based on your original question of forever/very long holding time with zero maintenance.

And that may well be the case. However, will it be the case for 20 years? Also, it is worth pondering whether the majority shareholder will consider the interest of investors based in Tokyo, or Thane as a first priority. When we start to think VERY long term, its not the CEO, the current market leadership, or cost advantages that matter the most. Its something more intrinsic, something to do with the DNA of the people, the company, the geography. As someone once said famously on this forum, never underestimate the intensity of a single powerful risk. This was said in respect of FDA, but equally applicable elsewhere, and here.

This just emphasized my point, that TCS is a people company, although an efficient and effective one at that…for internal purposes. This is also why the product MNC I worked for had a revenue of 1/3 that of TCS with 2% of headcount of TCS. We are again speaking different time frames. I am speaking 20 years into the future ( as relevant to your question) , whereas your response is what has been thus far, and what exists today. . All the perceived advantages that TCS or any Indian company enjoys today may not be durable. Lot of lower end jobs are already migrating to countries like Philippines, Mexico and higher end ones to Romania, and other Eastern EU and Baltic states. And AI/automation may further damage the economics of the business…again this is not something very far in the future, its happening today already. “trained employee” cannot be a sustainable advantage or even a survival skill. Culture of innovation is an advantage.

But thanks for posing this question…it has really helped my own thinking. We always look for …“Will this business survive”…but the question that we can alternatively ask is, “What businesses will survive?”. The two frames of reference are very different ! First one is a micro question loaded with biases and missing the bigger picture and thus more risky without realizing it. The latter is a more macro question, with insufficient data and knowledge and more difficult to make decisions. The payoffs of getting it right can be much larger than the former though. Who would not want to own Amex, Coke etc?!

A Dabur or M&M may not give the heady returns of a nippy Cera or an Astral, but for sure will last the distance. The goal after all is to find a balance of returns and safety with bias towards the latter without sacrificing too much of the former.


(mylu) #12

My suggestions are

CDSL
ITC
Infosys

you may need to decide on portfolio percentage.


(Hitesh Patel) #13

Starting off with a portfolio for next 20-25 years seems a bit far fetched. As we have observed over past two decades the pace of disruption is frantic. And at present we dont know what is going to stay relevant for next 20-25 years.

Basic human needs are unlikely to change. So sectors worth looking could be food, water, entertainment, sin etc.

A more prudent way would be to select good companies which have a good visibility for next 3-5 years and keep reviewing things as the story unfolds.

These 20-25 years portfolio kind of topics are very good for theoretical brainstorming but practically not of much use.


(Arun S G) #14

At least in US, Coca Cola and Amex are good examples of 20-30 year stocks, and choosing them over an high growth midcap is a function of investor psychology. The original post was inclined towards a low/no churn portfolio and while it can be an academic exercise for many investors seeking more aggressive returns, to me, the appeal lies in making a few right decisions over a lifetime rather than making 100s which requires skill, knowledge and emotional solidity not many are blessed with :slight_smile: So yes, stocks catering to human needs are unlikely to change very rapidly, so also transportation, ( albeit the underlying technology itself might change), entertainment and…healthcare. I’ll stick my neck out a bit and say water will be a scarce resource going ahead, so that is another area to look at.


(Saurabh) #16

Food, housing, clothing, consumerables, etc. would stay till manking remains.
But within each segment, there can be many themes and many proxy plays. It is not just a single segment.

In my opinion, even the stocks in this safe and evergreen segment needs regular monitoring. They are not buy and forget type of stocks.

I think the OP has understood and agreed with the view point of others.


(sivaprakasamp) #17

Thanks for your critical view. The idea is we are closer to basic needs as someone else pointed out. Real Estate will remain forever. I am not stuck to Kolte but open to change my real estate player. For now I believe Kolte Patil will have a long runway. Mumbai urbanisation is almost complete and now its redevelopment. Oberoi Kolte and Sunteck are leading players there. So after 25 years if some father offers a flat in Andheri to his son, you think he will refuse?

I always see India as a developed nation 25 years from now. Either it could be like US or Japan. Or take any developed nation as a prototype. Don’t you see ppl using metros for mass transit and flights and bullet trains for long travel? Or maybe hyperloop? Won’t personal cars be discouraged? Airlines will have to exist since its the quickest way to commute very long distances. If hyperloop were to replace airlines then I will exit the airline plays. Either ways cars won’t grow at this feverish pace for sure.

Domino’s I don’t have an alternative now. I can see a better consumption play later.

Casinos will exist since there is no alternative. Ever since men existed gambling existed. Similarly ppl smoking and drinking will increase. With women working these days leisure is one industry I will bet on.

Shemaroo is for older ppl, 40+ pls the actual thesis is based on Nostalgia. It will kick in 10 years from now and content owners will remain forever.


(shreys) #18

In my opinion, businesses that cater to vices such as gluttony, greed, pride, sloth, envy, pride could be good long term investments.

Gluttony: Excessive consumption of food or alcohol. The obvious beneficiaries are food manufacturers and alcohol producers.

Greed: The beneficiaries of our greed will be get rich quick schemes.

Sloth: Most humans have an innate characteristic of being lazy. Any service that makes it easier to buy a product will be hugely successful.
Example- Amazon

Envy- It’s envy that we harbour that fuels our decision to acquire materials, which boosts our self importance. Any product or service that helps attract eyeballs and in turn elevate our status will exist as long as humans survive.
The obvious beneficiaries are luxury goods manufacturers. At the end of the day, luxury goods are status symbols and status elevators.
White goods and automobile companies could also be beneficiaries of this emotion of envy.
Also, the travel and leisure industry. Most importantly, the housing sector. Better the house, better a person feels about oneself.

Pride- What humans wouldn’t give to feel better about themselves? What boosts our ego?
Jewellery, Clothing, etc.

There certainly will be evolution of tastes and consumption patterns will change. But, finally, most buying decisions are triggered due to either one or many of the aforementioned emotions.
An industry catering to these desires of humans should do alright.


(Darkwanderer79) #19

I simply liked what you wrote, because it has a fresh approach…something which clients appreciate when you come from an advertising background :wink:


(Sameer Wakude) #20

@hitesh2710
25-years are like a million years in fast moving world, I agree. So many distruptions happening all around us. Lehmen vanished in 2008, It was fortune 10 company. EVs make take over conventional PVs/CVs. Online retail may take over completely over brick-n-mortar stores. People may go asset light, buy lesser cars and homes. A lot can happen over 25 odd years, I agree. I think you’re right, it’s a prudent approach to buy quality names and keep reviewing then. I think I will stick to midcap/smallcaps and review every quarter.
food, water, entertainment, sin themese are absolutely good themes to play. In Food, I have a small quantity in Venkys. Entertainment is an exciting theme, I like PVR in this theme. Sin, I have som distillieries, their hunter beer is doing well and is launched in 4 states in US and will be expanded to all 50 states in FY19 per their MD.

@arunsg
I know I wish we had companies like Coca cola here. I think it’s safe to assume HDFCBank & Kotak Bank are that kind of stocks. Dabur is an exciting company in FMCG space, I personally like their products. I beg to respectfully differ on IT story of India, most Indian companies have a big moat (TCS, Infy, HCL). These companies are Debt free, have huge NPM, we have lot of skilled cheap labour available. Yeah, you’re right themes would change there, there may be more AI, DevOps, Automation, more focus on SMAC, but these company will mast that too and they are already doing that. I also like Cyient in this space (it won’t qualify for this portfolio as it’s not a Nifty 100 company).

@saurabhricha
Food: I m eyeing Venkys in this space and will add if it falls more. One business that entire India loves is Food business. I think I would be able to buy n hold Venkys for very long, unless their auditor quits :wink:
Housing: Eyeing Kolte Patil n Oberoi. Both came with awesome numbers. I think Oberioi will do better as they’re into premium segment, which is quite immenue to slowdowns.
Clothing: Some good companies here (Page, Dollar, Lux, Rupa), but very expensive space. Won’t buy looking at the valuations.

@sivaprakasamp Only problem I see in Real estate is the slowdown. All builders have huge unsold inventories. Builders are forced to sell at lower prices. It’s a classic demand supply problem. Unsold inventories show that demand is less, supply is more. In this scenario, builders are going to sell few flats at sub par prices, which would reduce the margins. I see many builders going asset light model (Kolte, Oberoi), which is a good thing. I am really tempted to buy Kolte/Oberoi at the current valuations, but I would wait n watch for a while before buying big.


(Mukesh Tolani) #21

@shreys
I loved your out-of-box ‘vice’ based investing pattern. :slight_smile:
Makes sense surely.
Well., if you see, almost every business is based on that… (except pharma, IT & Fmcg)