Central concept in the book Intelligent Investor by Benjamin Graham is that of Enterprising vs Defensive Investor. I took that concept and classified Nifty 50 companies as either Enterprising or Defensive and built 2 virtual portfolios. Enterprising Portfolio comprises 10 companies classified as Enterprising and Defensive Portfolio comprises 10 companies classified as Defensive. Enterprising companies are companies that produce volatile earnings while defensive companies are ones that produce steady stream of earnings.
Here are the current portfolios
These portfolios are revised every year but not many changes are done. I monitor price performance of these virtual portfolios. Chart below shows performance of these portfolios over last 10 years.
Source: BSE
Note: Shaded areas are bear markets.
This chart shows that defensive portfolio (as expected) is much less volatile than enterprising portfolio. This portfolio outperforms in bear markets while enterprising portfolio outperforms in bull markets. Both portfolios performs about the same over long periods of time and outperforms Nifty 50. Most of volatility in Nifty 50 can be attributed to enterprising stocks while most of the stability can be attributed to defensive stocks.
My low maintenance portfolio consists of 10 stocks chosen from these 20 stocks. When consensus is growth, enterprising stocks outperform. When consensus is slowdown, defensives outperform. When enterprising stocks outperform, I overweight defensives and when defensives outperform I overweight enterprising when I rebalance my portfolio for next year. That’s my contrarian logic. I don’t always get it right but that’s the goal. Also these are all good companies. A mistake isn’t going to cost you a lot.