The Learning Curve - drgrudge Portfolio


#1

Investing and Mr. Market has thought me a lot. I'm a newbie managing money for past one year and wanted to document my journey here.

This is how my portfolio looks like today:



Ajanta Pharma
11%
Lupin
9%
LIC Housing Finance
8%
ITC
8%
ONGC
8%
TCS 7%
Tech Mahindra
7%
HDFC 6%
Hindustan Unilever
6%
Mayur Uniquoter
5%
Amara Raja 5%
Shilpa Medicare
5%
HDFC bank 5%
Avanti Feeds
3%
Power Finance
2%
Tata Motors (DVR)
2%
NMDC
2%
Sun Pharma 1%

My portfolio is a work in progress. I invite Valuepickr junta for their suggestions and comments.


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#2

I love investing and I feel there is a lot to learn. Got to love the learning curve. Though I’ve a day job, I spend a good amount of time at office reading, researching, looking at markets live, etc.

My Investment Philosophy

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1). Holding period is forever or till the business is doing well. This is partly a reason why I don’t sell some stocks even though I was not able to buy substantially (like Sun Pharma, just didn’t sell though it hardly moves my portfolio). I might change this stance as opportunity cost comes into picture. Selling 1-2% weightage to high conviction businesses seems right.

2). Finding some PSU with high cash in their book and paying consistent good dividend yield helps. I bought NMDC and PFC at multi year lows. 8-9% tax free yield (at my buying price) every year along with capital gains, if any, seems a low risk strategy.

3). I don’t understand technical analysis and don’t indulge in trading. I try to understand the business, do research, build conviction and then buy.

4). Management quality is a must.

5). I don’t get stuck in strict value investing philosophy. I understand that market assigns high P/E to certain businesses those which tend to have higher ROCE, ROIC, low debt and less capex intensive, better earnings visibility etc. That is the reason why ITC/HUL finds place in the portfolio. Buffett says it is better to buy wonderful business at fair price rather than fair business at wonderful price.

6). Market is supreme. Market is always right. Well, almost 95% of the time. We have to find that small window of opportunity and wait for the perfect fat pitch.


(surya kanth) #3

If you allow me I will reshuffle your portfolio to separate wheat from chaff.

HDFC bank - 20%

Lupin - 20%

Ajantha Pharma - 20%

Amara raja - 15%

Tech Mahindra – 15%

TCS – 10%

This will be a portfolio which can generate 20-25% returns overall keeping the downside risks almost to null.

But if Want more and if you can discuss with me on the stocks I mention I think we can take it further like this:

You can replace HDFC bank with GRUH finance.

You can replace Tech mahindra or Lupin with Repco Home finance.

You can replace Amara raja with Kaveri seeds.

You can replace Lupin with Page Industries.

You can replace TCS with Kajaria ceramics returns.

I think that will be a dream portfolio. And It can generate 25-30% returns long-term.

I am not a newbie to investing but a newbie to valuepickr. You can check my portfolio at:

http://www.valuepickr.com/forum/portfolio-q-a/878769250

We can discuss a lot.


(Sagar Saxena) #4

No matter how much value they offer,PSUs are poorly managed companies,subject to all sorts of policy making.And since you are making good gains.,exiting would make even better sense.You can maybe exit Sun Pharma or Lupin,since you are already high on Pharma.Also,having both HUL & ITC seems a bit impractical.Otherwise,your pf seems very good & should do well.


#5

Surya ji-

I’ve seen your PF and it looks tight.

)- I thought of GRUH but HDFC holds GRUH (along with HDFC bank, Mutual fund & Insurance business; a third of the revenues come from these businesses). Further, GRUH seems expensive vis-a-vis other HFCs. I’m already holding LICHF and HDFC. Not sure about Repco or GRUH. Why these than CAN Fin (seems undervalued) or the market leader HDFC?

)- I recently looked and researched Kaveri Seeds. It is at 17x TTM. My thinking is why get into a business which will fetch returns by earnings growth and perhaps not P/E multiples re-rating. Same the case with Page.

Sagar -

)- I’ll book profits and exit Sun Pharma.

)- My PSU basket (ONGC, PFC and NMDC) is for dividend only. I know I’ll not get 25% CAGR returns with these. I’m waiting for correction in Avanti Feeds. Planning to take the portfolio weightage to 5-6%.

Thanks for the comments. The portfolio is a work in progress and I know there is some trimming to be done.


(surya kanth) #6

Good that you are looking for PE-rerating stocks. But let me tell you the way I think. There are different kinds of businesses but only certain businesses are fit for larger holding. For example see Atul auto in my pf. It went up actually 60% from my first buying price (I loaded later again). **But the nature of the business doesn’t allow me to hold 20-25% in the portfolio. **

** The point I want to make here is 60% growth on 10% portfolio allocation is equal to 30% growth on 20% portfolio allocation.**

This is the same thing I am discussing with Subash nayak on another thread.

** GRUH finance can grow at 30% with 40% dividend payout. The Loan book growth is around 33%.** There is big scope for operating leverage in GRUH. The cost to income at 19%. There is a big scope for improvement there. And moreover Rural incomes are multiplying. That is the reason why even the Kaveri Seeds and even that VST tillers is running fast. The theme is rural. Rural. Rural.

GRUH, Repco are literally risk-free businesses. I can take them 20-25% portfolio. Yes I want a multibagger but I want a multibagger where I can play a fat pitch in your words. Like that of Page Industries. I made one such in VST industries. And in IndusInd bank. But VSt tillers has moved up 150% or Kaveri moves up 200% or Atul Auto moves up 1000% It does not make me so much money since I cannot play a fit pitch there.

This is the most critical point in portfolio management.

**Most people waste energy unnecessarily to pick a multibagger stock without understanding this “fat pitch” concept. Even I did that. **

Since you are a newbie, your view can change, but it is very tough to stay flexible in investments. Just ponder over it. “All Multibaggers are not MoneyBaggers.”

Next 25 years in India, As ease of business “eases” and consumption increases there will be many many risk free multibagger stocks that can come up. **We must keep our eyes open. **

Keeping the current interest rate environment aside, If GRUH can start growing at 30-35% I think PE will easily cross growth rate in a couple of years. And Repco - I think it is a fat-pitch multibagger. I think the stock should see a four figure price in 2- 2.5 yrs.

After a brief lull I think NBFC’s will make a comeback.

We can have stock by Stock Analysis too. Let’s start with you. Give me a stock you want lets analyse one by one.

Thanks,

Surya.


#7

Thanks Surya. That is some food for thought.

I agree with what you are trying to say wrt portfolio concentration. Personally, I can’t just go and buy just because someone says it is a good pick/hot stock etc. Stock picking is a lot of hard work (but very enjoyable). So, to have just 5-6 stocks, I need to be dead right. Building conviction might not be easy. But this portfolio needs somepruningfor sure.

I like certain businesses like Nestle, Eicher, Page, GRUH, Asian Paints but not comfortable to buy at CMP. With established businesses, downside risk might not be high.

Regarding GRUH, I already own HDFC which has stake in it. GRUH’s performance will reflect indirectly in HDFC. Right?

I looked up on Kaveri seeds. I feel is fairly valued. What is your view. Can it be bought at CMP?


(surya kanth) #8

on Personally, I can’t just go and buy just because someone says it is a good pick/hot stock etc:

That is good. I recommend it to the world.

On Page, GRUH:

Page and GRUH are standard 30% steady compounders. Unbelievable stocks.

HDFC owns GRUH. But GRUH doesn’t add much to the performance of HDFC. See GRUH’s Loan book. It is small. HDFC’s loan book is big. I prefer owning GRUH among all my stocks. Because of its steady compounding nature.

Nestle, HDFC, Asian Paints, ITC, HUL, Sun pharma,HDFC bank are zero risk but the upside is too capped.

In GRUH I think I think there is a silent upside.

kaveri Seeds:

I was looking more on healthcare business models than Agri ones. Agri and Auto stocks cannot be taken to 20-25% portfolio allocation. I recently started looking at seed companies.

Seeds companies are in Rural Theme. I think you can take it to 10% of portfolio at CMP and build conviction as you build knowledge on seeds and Agri in general.

15 PE for Kaveri looks OK to me. I am going to put up a note on Kaveri seeds on valuepickr in 2 or 3 days.


(vinay ambekar) #9

Brilliant way of putting it Surya. In fact I was grappling with issue of trying to play the economic recovery theme with “betting” on beaten down names (good ones) like IDFC, Tata motors, ashok leyland, etc. but was always wary of betting hard. I was willing to take a 5% allocation given that if Namo does not happen, these stocks can sink like a stone in water. Looking at it the “fat pitch” way changes everything. Like you said, a 20% allocation growing at 25% for 2 years infact provides more money than a 5% allocation that triples in 2 years, and, most importantly, with lesser risk.


(surya kanth) #10

Thanks Vinay.

As Investors we must focus on making Money ( technically Portfolio returns) Than running behind Multibaggers and all that. We will definitely find “fat-pitch” multibaggers. We will find so many that we have to miss so many.


(Hitesh Patel) #11

@surya… With the level of work that has been done on kaveri I think many guys had successfully allocated more than 20% of their portfolio (I personally had more than 50% at a time and I know of a guy who had 80%) and made a killing… Same goes for ajanta… So one has to get out of the mindset of only backing page, gruh, repco… and so on…

there are many more reliable stocks out there… problem with the pages and gruhs i see is that there is too much consensus on them among market participants…

Problem with page, gruh and so on is that they are already well discovered stocks… they are great for hefty allocations but not for multibagger returns in short times as we at valuepickr have been able to generate… those who follow valuepickr will be easily able to identify with the big returns generated by stocks like ajanta, kaveri, shilpa, atul auto, pi inds , mps, …just to name a few…

I like your investment style too. Reminds me of buffett’s style…

regards

hitesh.


(Gautham U) #12

hi hitesh,

one question. how do you stay calm after hearing some noise?. for instance, take ajanta pharma. i remember reading some tax raid and there was a bit of panic. i sold out immediately. (because they say there is no smoke without fire. :-)). for kaveri, after the q1 someone was questioning earnings numbers. (considering the low div payout). to add to that, the stock didn’t move despite the great set of numbers. generally they say market knows something we don’t know. one more thing with kaveri was promoter selling before q1. all these , will leave the retail investor confused. i had a small allocation. although i didn’t sell, i didn’t add further after reading that.

it would be great if you could throw some light on this. it will help us.


(surya kanth) #13

Thanks Hitesh. The style is more of a Peter Lynch and Jesse Livermore and partly buffetology.


(Hitesh Patel) #14

:))).

gautham,

Ignoring noise is often difficult for investors… I think main focus should be on the gravity of the kind of noise… And the source of the noise… For kaveri… promoters selling, rumours of some funds selling etc was a routine matter… bcos we were on top of kaveri and hence that part of news was worth neglecting.

ajanta was a serious matter but donald thankfully talked to the guys at ajanta and got a clarification in quick time so we were able to dispel our doubts.

I think having a high level of conviction (not over confidence) helps. When conviction is borrowed form someone else or from some subscription services, there is usually panic.

regards

hitesh.

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(Gautham U) #15

thanks a lot hitesh. very well explained. i have a related question. will ask in an other thread which is more relevant. agree about the borrowed conviction part. i myself have experienced it. fortunately no damage done.


#16
Exited Sun Pharma and ONGC. Added Kaveri Seeds and some Avanti Feeds. Used all of the cash as well.

Portfolio:



Ajanta Pharma
11%
Kaveri Seed
10%
Lupin
9%
LIC Housing Finance
8%
ITC
7%
TCS 6%
Tech Mahindra
6%
HDFC 6%
Hindustan Unilever
6%
Mayur Uniquoter
6%
Amara Raja 5%
Shilpa Medicare
5%
HDFC bank 5%
Avanti Feeds
4%
Power Finance
2%
Tata Motors (DVR)
2%
NMDC
1%

Thought of exiting NMDC (opportunity cost plus low weightage); however holding it. I want the stock to move up a bit. Will exit at any time if I find something attractive.

No cash left but have some left in a MF (not yet redeemed) that I stopped the SIP recently.


(surya kanth) #17

Hey Ashwin,

Be aware of space economy.But are you not yet convinced with Page Gruh and Repco? I assume you are a small investor. Small investors should have 100% of the portfolio in small and mid-caps. 1 or 2 fast-growing large-caps is OK but not too many. With slow-growing large caps your protfolio-returns will be capped.


#18

Surya -

Thanks for the valuable comments. Much appreciated.

Page Ind )- I actually did a small math (aka how Munger did for Coke) like total population count; out of that male; rural-urban divide; and assuming 10% population use Jockey in rural and 20% in urban (in future of course; I assume that will not be the case now) and if each buy 3 vest and brief each; Rs 150 sales each vest/brief, etc. Then calculated the profit after OPM. The same I did for Speedo. It would be very crude and erroneous due to lot of assumption however it gave a rough idea how scalable and profitable the business is.

P/E of 50 is not comforting at all. No margin of safety. I would rather prefer ITC at 32 P/E which would be a wonderful business for a long long time.

Repco )- I was thinking of this however I hold HDFC and LIC HF now. LIC HF is not at all overpriced. It is not getting the valuation like GRUH/HDFC/Repco for the reasons we all know (PSU tag, bribery scandal in past, low net NIM, etc.). LIC HF is a little proactive now. They are recruiting, participating in home loan/home fairs (I myself visited the stalls and saw), doing higher media spends, etc. I don’t want to add frictional costs (brokerage and short term capital gains) by switching LIC HF at the moment.

If LIC HF gets a bank license, I will exit. Then I might welcome Repco to my PF or add to HDFC. Honestly, I would have to look into Repco’s business. What would you suggest?

Slow growing large cap )- Can you please name the slow growing ones. I’m open to further change in PF. I’m a newbie small investor. I’m going to exit NMDC at a better price or when I find a good opportunity to add positions.

Regarding space economy, I think that is directed towards nested commenting. I might have used spaces to increase the readability. If that is a problem, will prune postings next time around.


(Raj) #19

Ashwin,

To me Margin of Safety is most important but misused word. For a growth company like Page margin of safety comes from growth path it is on. One year down the line 6000 will look cheap as it will be just 35 times ttm.

I have sold half of my holding in Page(have been accumulating since 2009) at around 3500 thinking it was costly, but bought again at 5700 realizing my mistake. It’s 27% my 6 stock portfolio.

Regards,

Raj


(surya kanth) #20

The word ‘Long-term’ is very much misunderstood. My view of Long-term is a bit different. Many Companies will have a period of high-growth rate before they become large.I have seen companies being in high-growth period for 2-3 yrs to 2 decades also. A decade of high growth should be called as ‘Long-term’ investment. I mean longer-periods of high-growth is what makes a long-term investment. What is important you catch the stock at high-growth.

There is nothing wrong with TCS or ITC or HUL or HDFC or HDFC bank or LIC HF or Lupin but their bigger size will cap their growth rates at 20-25%. What would you choose a 40% growth stock or 25% growth large-cap.