Portfolio Re-Structuring/25% CAGR quality-growth for next 2-3 years

[mkurian]

Request to admins: Please mask identifiers like dp client id next time while sharing, even if the person is willing to share. I’m concerned about the privacy of the party but more importantly security aspects of it. Imagine some hacker scanning these forums for such information to break in or some unscrupulous user misusing it. I’ve been trained to look for these vulnerabilities, so please take it in that sense. Also, please spread the awareness, so next time nobody shares such identifiable information with this forum or anywhere else.

I haven’t tested how hackable nsdl e-services are, I assume they are very secure considering the nature of the data and the multi factor authentication mechanisms such as OTP.

But identity theft is a huge issue in US where hackers assume the identity of real people and claim their tax refunds. Tax refund is the largest amount anyone gets in US as a paycheck, since all taxes are paid and refund claimed unlike in India, where all taxes are adjusted and only extras are paid while filing.

Here's How Many Americans Have Been Victimized by Identity Theft

[SS64]

@Donald

Once we understand the importance of having Cash, this becomes second nature. Mr D’s dictum to me was - in any stage of the Market you should have 20% Cash (near Cash). I took it as a Gospel. So I am always underinvested. I always have my Consulting income cashflows buttressing my fire-power all the time. Each one of us can work out how to maintain firepower at all times (based on individual circumstances), once one appreciates the importance of Cash - being King!

@Donald, I am very much newbie and following this Advice for past many months. Just want to confirm if my understanding on this is correct. Should this amount be in Saving’s bank where amount can be immediately transferred to Brokerage amount or should it be in Debt Funds? Asking as Amount is 50% of portfolio but as I am newbie would like to take it slowly.

Read other post in another thread where its suggested to invest in Large Bluechip companies like HDFC bank etc so that money can be immedailtely deployed. Kindly suggest. Thanks.

[adminph2]

Thanks. That was a slip-up. Noted and Complied.

[HG_6470]

Its only a matter for time before identity theft becomes as common as in the US. There seems to be a casual attitude to these things at this time. e.g. the NSDL guys send out a paper statement of holdings to their customers where they print the customer name, PAN no(wtf!), DP no etc. Identity thieves must be salivating…

[suranjit_sarkar]

Sir, going by your formula is it EPS(per share) or PAT that you are taking. If it is EPS than do DDT should be calculated on per share basis? What is P in D/P of last term?

[pkumar2016]

@Donald, @hitesh2710, @basumallick & other seniors - I have a basic question. Now the stock markets seems to be getting heated and valuation of some midcaps like Avanti, Vinati, GRUH etc are going into unrealtic territory. Given this context, what should a long term investor do ? Should he/seh book profits and exit the positions (based on assumption that market may correct) or should they continue holding their positions ? Are there any tips, rules of thumb that you used for such scenarios ? Any tips will be helpful and greatly appreciated.

[bheeshma]

i found this very interesting spreadsheet on deepak shenoys capitalmind site. Its called magic portfolio. it randomly picks 10 stocks from the nifty 500 and compares it with nifty. The randomly chosen magic portfolio beats the nifty handsdown in almost all iterations!

The Magic Portfolio Builder That Beats The Nifty. Having Fun With Dartboards! -...

Essentially literally anyone could have beaten the nifty by a wide margin in the last 1 yr.

Lesson learnt.

[arvind_aries]

I feel this clearly means we should have a concentrated PF instead of diversified PF

[bheeshma]

Nice point.

Note that 10 stocks were randomly chosen from a group of 500 ( without any bias and by using random numbers). The 500 stocks comprising the nifty500 come from an array of sectors that dont find any representation in the nifty.

From a portfolio restructuring point of view -since that is the topic we are discussing- this has important implications.

It means that your information base should be as diversified as possible. While you may choose to act in a concentrated manner but you should choose to think in a diversified way.

This is where the value of a community like VP comes in. The members come from a broad array of backgrounds, interests, approaches and biases. Every day several look at different sectors and present ideas they find relevant. The information base is diversified but actions are concentrated .

Also the more expansive the knowledge base of stock ideas at the bottom the more efficiently you can restructure your final few stock ideas at the top.

Bruce Lee once said - I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times

I may be wrong but I am guessing Bruce Lee would have been terrible at portfolio restructuring.

With Regards
Bheeshma

[Alphin]

I would like to differ on your point, What I think is that though the outperformance comes from a variety of sectors, Your personal insight inside the industry is what matters in identifying the outperformance earlier than all the other investor. Either that or it should be a consumer facing company whose products you use or you are aware of.

Remember the saying it takes 20% of effort to learn 80% of the stuff and 80% time and expierence to learn 20% of the stuff. In investing anyone can easily learn the 80% about an industry or a company but it is the last 5% of insight that will set you apart from other investors.

So in a way what bruce lee said is quite relevant identify your core competence and then focus on it to find the outperformance.

[bheeshma]

Hi Alphin

Lets say my core competence is pharma. I am the leading expert on it and know everything that there is to know. However, the industry is in the doldrums and is expected to remain like that for the next few years. How do i outperform in this scenario?

With Regards
Bheeshma

[VIFL]

I read this on Alpha Ideas blog yesterday.

What I Learnt from Mr. Suresh Shetty - Alpha Ideas

Let’s assume an individual’s core competence is pharma, & he has been investing long enough. He would have made a lot of money by investing in Ajanta, Lupin, etc. Even before the USFDA problems, he might have noticed earlier than others the trend of price erosion in US. And now, it’s a case of either holding on, or adding more, or switching over to other stocks. Here again, he probably has better insight than others, especially while making the decision to sell off a winner.

For the sake of balance, let’s assume he isn’t good at assessing the financials of a company. He might have invested in Opto Circuits, and burnt his finger.

If we assume this individual started off only a few years ago. He would likely have Shilpa, Natco, Biocon, etc (Basically, identify the potential for companies manufacturing Oncology drugs) & his portfolio would do just fine.

In terms of diversification, he could look into Hospitals, Diagnostics, Health Insurance, Medical device companies.

At the end of the day, it’s simply a case of sticking to one’s circle of competence. When this competence is exceptional, the probability of landing that huge winner goes up. In my opinion, Bruce Lee would do just fine.

P.S. I acknowledge that this reply has a degree of hindsight bias.

[Alphin]

Let me reverse the scenario and add that suppose new investor starts investing and studies a variety of sectors by following so called experts. He will get a basic understanding of various industries. And basis this he invests, his performance will not be exceptional because all the information would be priced in and stock would be well discovered.

Certain sectors such as Pharma, IT, Banking, Chemicals, Mining, Oil and Gas etc need a deep understanding and only a core professional will be able to understand such sectors and also the cyclicality of the sectors. A new investor will have a higher chance of losing money as he will be too late to understand the change in cycles or downtrend in the industry.

It would not be recommended that a person with just a basic understanding of the industry should invest in such industries. To get the outperformance the stock has to be studied in detailed and the conviction developed. This may lead to a lot of lost opportunities as you have mentioned in the case above. But the outperformance and minimum loss of capital would be well worth it.

[bheeshma]

I think that bruce lee analogy did the trick of bringing this important topic into discussion again

Coming back to my post what i meant was this

@bheeshma

While you may choose to act in a concentrated manner but you should choose to think in a diversified way.

Whatever your core competency is - pharma for instance, you should obviously look for good businesses in the pharma sector and they should rightfully be a part of your portfolio.

But you should simultaneously , in my opinion, also acquire information about several other unrelated (or related) industries or companies esp demand, supply and competition. Even if it is at a superficial level it helps. Ultimately I believe all sectors are connected to each other in some form or fashion. Arraying these byte sized unrelated small bits and pieces of information on various sectors or companies come in very handy when you want to make opportunistic bets. Also these “minion” sized slices of info help you understand your core industry even better as you find patterns.

This jack of all trades but master of one kind of thinking makes for a very useful patterned style of thinking.

Btw the way bruce lee died at the age of 32 due to cerebral endema. May his soul rest in peace!

[bvr007]

Sir , looking at the vast money coming from FII and new investor joining each and everyday through new public issues , mutual fund industry is the biggest indian investor entity now beating LIC of India is also flooded with large amount from small investor’s SIP Method of investing in stock market , BSE Ltd. is the only listed “playground” where all these players will play their part and this stock exchange along with its CDSL subsidiary will be a major beneficiary in coming years .In next few months value unlocking through listing of CDSL is also on cards. So can we consider BSE ,MCX, & some of the listed companies having interest in insurance ,broking , mutual fund business as next avanti, ajanta etc. Please provide your SWOT Analysis and thoughts. Hope i am adding some value to this lovely forum …! Thanks.

[mkurian]

Tax Id Number is a highly sensitive field and is typically stored in financial systems in encrypted format so not even employees/db admins have access to the value. It should always be treated with the same sensitivity, no matter in what format - physical/digital.

PAN is the userId to income tax website, so there.

[Lotus]

NIFTY 500 return is 25% in the last one year (as on 15/5/2017) as opposed to 19% for NIFTY 50 index. The mid and small caps outperformed the large cap hands
down in the last one year. This is the reason for the out performance observation.

I have not seen such a market behavior before (Not sure if small and mid cap
outperformed large cap during such stretched valuation levels).

[Yogesh_s]

Small and mid caps usully outperform during bull markets and underperform during bear markets. Investors know this and they dump small caps whenever there are signs of the bull market ending which only exacerbate their fall and that makes them ready for outperformance in next bull market.

[bheeshma]

Portfolio losses work geometrically against you just as returns work geometrically for you. That’s why its important to cut losses when restructuring your portfolio. Following is a theoretical example of various types of portfolio managers who managed to generate an x% of return in the first two years & incurred the same x% of loss in the third year. The impact on the CAGR over the span is geometric & not linear.

[kb_snn]

Hence the key is to look at Downside risk for any portfolio . Both probability and quantum of loss are important .

Often in Bear market PE can shrink to 3 to 4 also . Imagine you are holding 40 PE levered financial company whose earning can shrink by 50% in adverse Business cycle . Too Risky .

Same happens to all chemicals , pharma ( US focussed ) etc stocks

Only Top FMCG companies may have less earning volatility , but even there PE can shrink by more than 50% .

So while plotting returns , one should plot probable downside in adverse years . Hold some cash ( Min 20% ) and have some defensive large cap plays ( & yes PI and Bajaj Finance are not defensive large caps )