OK lets assume I have a Corpus of funds allocated to a set of companies and I am starting from 0. Also this a non-trivial amount so cannot just invest at a go.
Do you slowly build your position in a company on a monthly basis especially in a volatile market like this? (though when is a market not volatile)
Do you have a variety of strategy for the different picks
high quality cos at fair price - buy on dips/or on a regular basis over few months
good value - go all in
Any advise from anyone’s experience will be very useful.
I prefer to invest in good quality companies than companies seemingly trading at good value. For example, ICICI Bank is trading at 1.3X book value whereas HDFC bank trades at almost 4X. I would not buy ICICI Bank just because it is trading at good value. This is because I don’t like to sell my holdings unless money is required or business metrics has changed. If someone hopes to make money in short term (say 1-2 years), then buying ICICI bank might make sense.
How to go about buying is a tricky question to answer, in my opinion. Since I can’t accurately predict the bottom, I tend to buy in multiple lots but not exactly like SIP mode at a set frequency. For example, I had bought during August 2013, then September 2015 and now January-February 2016.
Waiting for 2008 kind of crashes is the best way to invest but neither I would not have such temperament to sit and do nothing for decades (perhaps) and wait for the perfect time nor I can predict those 60% kind of corrections. It is a work in progress and my views might change but I feel 20-25% corrections are good times to invest in lots over a period of time even though one shot investment at 2008 kind of crashes might fetch you higher returns.
I got this idea from Mohnish Pabrai’s Dhandho Investor. Apparently even the Gurus use this kind of an approach to determine their maximum allocation into an idea.
One drawback I felt about this approach is that for any decent opportunity, the allocation % will be a high value, thus leading into a very concentrated portfolio. While it goes well with the the ‘20 slot punch card for life’ advise, near ignorant investors like me will need to keep a much higher margin of safety + lower concentration within the portfolio. Higher concentration calls for very thorough knowledge into the prospect investment.
