Review request for my portfolio

(Yatharth) #1

Hi, I am about to retire, relatively new in equity. For the sake of yield post inflation and taxes, I want to keep 75% of my net-worth in equities and 25% in property. Currently, I am getting very little time for my investments but hope, post retirement, I will be able to bestow close attention. Need your guidance hence. My so called philosophy has been past track record, management perception ( may not be reality) , consistent growth in profit, Sales and good RoE. But I have not been able to really validate these. Portfolio is large so that dividend can take care of basic home expenses. My portfolio is as below:

  1. Amara Raja – 7% ( Expect it to become leader. Market potential for auto / batteries will continue to be high. Capacity enhancement plans are a positive).

  2. Cera Sanitaryware - 4% ( Demand for housing. Move from lower to middle class)

  3. Eicher Motors - 14% ( Aspirational upgrade for youth across the country )

  4. Granules - 12% ( Pharma contracting, API potential)

  5. Gruh Finance - 7% ( Most consistent in Housing Finance. Though valuations are high. A compounder )

  6. Repco Home - 13% ( For next 5 years, my belief in housing Finance)

  7. Motherson Sumi - 6% ( Auto ancilliary leader. Another 3-4 years of good performance expected )

  8. PI Industries - 10% ( Agri focus. Rural income boost due to direct transfer will boost demand if Monsoon is good)

  9. Page Industries - 13% ( Despite slowing of growth, it can remain a compounder for long periods. Large population yet to go in for branded wear).

  10. Sun Pharma - 7% ( Consistent performer till a year back. Depressed current scenario. May give good returns post a few quarters)

  11. Symphony - 6% ( Large population yet to be covered)

  12. HDFC Bank/ Aurobindo / Yes Bank - 1% small quantities

Humble request to please advise.

(Abhishek Basumallick) #2

Excellent stocks in your portfolio. Since you have mentioned that you will be putting 75% of your networth in equities post-retirement, I would request you to consider your overall financial situation carefully before you do. Equities can go down and remain down for long periods (the 1929 depression highs took another 25 years in US to be overtaken), and companies can stop or reduce their dividend payments in adverse situations. The world is in an uncharted economic territory, with zero or negative interest rates in a large number of developed countries. Investing a part of your networth in income yielding bonds to cover your basic expenses may be worth looking at. You can always invest the surplus in equities.

From a portfolio perspective, you have very good stocks which should do well in the medium to long term.

(Yatharth) #3

Thank you, Abhishek. Point worth pondering. I will seriously consider putting some amount in bonds.
I am stuck as I have a mental block. Post inflation and taxes, barring tax-free bonds, net income is negative in bonds.

However, some diversification may be warranted. Will start buying Taxfree ones. Appreciate your advice.

(Abhishek Basumallick) #4

Better to have an income post retirement than to see your portfolio drop by 30% :slight_smile: Remember the Sensex fell from about 22000 to 8000 in 2008. That kind of event is not an impossibility in the markets. Better be safe than sorry.

(Vivek Gautam) #5

Yatharth ji

You have excellent set of stocks.

If you are retiring from a govt/PSU job entitling you to an inflation linked pension then nothing to worry.If not please think of investing in tax free bonds and cos giving consistent good dividend yields so that the combo of both takes care of your running expenses. Taxfree bond in Feb March 2016 were an excellent opp and i had requested VPers to allocate big time to them on VP itself.

What abt your health insurance and children education?Nowadays education has become v expensive and children want to study abroad as well which is extremely expensive.

Invest 80% of your portfolio in steady compounders which you already have but try to find a quality smallcap with big opp size founded preferably by a passionate first gen entrepreneur full of passion,integrity and execution track record.These stocks give a big boost to your portfolio by multiplying .For me stocks like Avanti feed,Manappuram Fin,Satin Credit,Garware wall has been recent examples.Some of them started as high div yield investments and then market took over.Even 1-2 such discoveries every year are sufficient.Make a fixed ticket size investment to them and then forget for 2-3-5 years.

How interested are your children in stock market?

(Yatharth) #6

Hi Vivek,

Thanks. Can one still buy tax free bonds? Will the secondary market yield be too low? Or shall I wait till financial year end? My child is settled and not keen on stocks though broadly aware. Not likely to help me and may not ask for help either. No pension as this is a private job for me.

Are these stocks suggested by you still good to be multi bagger? Though look excellent but price has gone up substantially. My few queries:

Garware Wall - Sales growth - how is the outlook? It seems more of operating margin story or is it?
Satin Credit - Big miss after identifying sometimes back. will consider if it comes down.
Mannapuram Finance - Mental block
Avanti Feed - Need to study.

Two questions. As I will not be able to put more money in stocks, I need to reshuffle for new ones or bonds.

  1. Which stocks can I sell?
  2. What could be new ideas other than above?

Sincere thanks again.

(vaibhav) #7

Yatharth Ji,

Very good portfolio!

For a quality smallcap with big opp size which Vivek Gautam and you are discussing, I have picked Arman Financial Services ltd. (Market cap. ~200cr.). It operates in micro finance space through its wholly owned subsidiary, Namra Finance Ltd. Arman also operates in 2 wheeler financing space. Active in Guj. and MP and expanding in UP and Maharashtra. I own Satin as well (Arman happens to be the larger bet). And till a few days back I held Manappuram. May have made a mistake by selling Manappuram too soon. Motilal oswal (aspire home finance, asset management and stock broking businesses) is also an excellent co. (again sold recently, may be a mistake) which I would look to buy again.

(Yatharth) #8

Thanks Vaibhav. Will look at these options.

(Hitesh Patel) #9

You have a good portfolio of companies in the portfolio list.

If u want to invest more funds in the PF esp in equities post retirement, I think the best option would be to deploy the funds at a staggered pace over say 12-18 months period so that you tend to average out purchase price of the portfolio stocks.

One has to decide what kind of an investor he is and what kind of pain bearing capacity he has if portfolio were to correct in line with market corrections. If equities returns/dividends are not the main source of livelihood then pain bearing capacity increases.

Best option would be to invest part of proceeds into liquid/debt funds till some compelling new opportunity comes around or the existing companies become attractive due to time/price correction.

I have observed that since the 2008 major bear market, every year there are good corrections offering excellent buying opportunities. One just has to be patient to grab the opportunities when they present themselves. And at that time if one is ready with full homework and a workable buying list, then it should be a great time.

Having said all that I am nearly always fully invested almost all the time (and its worked wonderfully till now) and trying to learn the art of getting in cash at stretched valuations.

and all the best.

(bantidilli) #10

Yattharth looks a good portfolio. Better if you would have provided some fundamentals alongside weightage.

(Yatharth) #11

Hi Bantidilli,
I follow some basic fundamental metrics in general. Like, RoE, profit & sales growth for 3 years to be > 15-20. Also Current Profit/Sales Growth normally > 0. I also check ROCE & ROIC and prefer all that to be better than 20+. I look at the sector and company for the last 3-7 years and normally want to give 1 year to a company that is not performing well. I miss most multi-bagger in a year kind but try not to pick those that can go down by > 50%.

So far this has worked but I have missed too many opportunities in new stocks and also turn-around stories.

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(nehago) #12

Your model portfolio is really well balanced and I don’t feel like suggesting anything further. However , I am a little worried with the high exposure to equity at 75% that you have opted for. As you have informed that you are not entitled to pension, I think dividend income won’t be enough unless you are investing a handsome amount.
One more fact needs to be considered … as we age, we should take a balanced and modest risk while deciding on investing for regular income. I do not want to discourage you in any manner whatsoever but would certainly consider investing in bonds too for a steady regular income. Wish you good luck ahead though you hardly need it as you have chosen your scrips wisely.

(Yatharth) #13

Thanks a lot Nehago!

Sincere appreciation.

As suggested by you and other gentle persons, I will shift some amount to liquid funds/bonds. I have a small rental income too and alongwith that it may be okay.

However, I am just cannot accept that with age one should go in for bonds. I think post retirement, I will have more time to read, analyse, comprehend the businesses and I may rather not like to give major part of my gains to inflation and taxes. This is against the conventional wisdom but I would like to be an exception than follow all others.

The amount of portfolio size is adequate but any 2008 kind of fall can create issues. Will follow the advice.


(Yatharth) #14

Actual portfolio, not a model one.:slight_smile:

(Yatharth) #15

Abhishek / Hitesh ji and other friends,

What should be my reasonable expectations of returns from my portfolio? If I go on twitter/forums or social media, every one is talking of multi-baggers. Need to understand what kind of % CAGR can be there in my above portfolio going forward and also if I reshuffle a lot, what more can I expect? Please.

(Abhishek Basumallick) #16

Haha… loved your point on multi baggers on social media. People don’t talk about their losses so freely :slight_smile: … I think one should have a conservative return aspiration. That prevents a lot of mistakes from happening. The other thing I believe is not to have any target return in mind. Again for the same reason.
I don’t know what cagr you can get in your current portfolio. What I know is the more the churn, the higher the possibility of poorer returns. There is always reinvestment risk. You need to find a better investment than the one you currently hold in your portfolio, which is a difficult thing to do on a regular basis.

(Shailesh) #17

Dear Yatharth,

I am concerned looking at your portfolio .

  1. First of all there is no fixed income allocation . You need to have instruments that can not only provide income in tough market but also that will not depreciate in value in market downturn so that you can convert the same in cash and buy your favoured stocks . The allocation should be between 25% - 50% depending upon other source of income and general market valuation . In current market you can increase fixed income allocation

  2. Regarding stock in your portfolio . These are in fashion stocks and overvalued . Past ROE and returns are no guide for future . Excellent example is HUL and Ranbaxy in 2003 which had best 10 year ROE , ROCE and growth ( 1993 - 2003) , but gave near zero share holder returns in bull market of 2003 - 2007 . If you cannot discover undervalued stocks I suggest you invest in Mutual fund or Index - ETF .

Best of luck

( s das) #18

Different opinion makes a market.I feel his portfolio is constructed very well and he can expect a 20% cagr for at least 3-4 years.

(amolk) #19

Excellent portfolio. When do you want your money back? This would be an important factor to decide how much you should invest in equity (specially when you are about to retire). As other members have mentioned, down cycles in stock market can be last for several years. So I definitely would be careful in putting 75% into equities at the retirement age (unless you intend to hold the stocks for very long term)

(Yatharth) #20

Thanks Amol.

When I want my money back? - Perhaps never, except in medical emergencies. I think once I sort out my property things right, I can manage adequate rent from two mid-sized flats. This along with some dividends will be enough for basic expenses. However, I am inclining towards investing some amount for liquid funds/bonds. Great advice by many here.

However, If I had some more freedom, I would have gone in for 90% in equity. What else is there that can at least 3% extra above inflation and taxes? Which investment? Please do guide.