Yogesh's blue chip 10 Portfolio


(Amit Jain) #123

It is mass propaganda spread by the MF industry to lure people into thinking that they can become rich via MF route. Several questions need to be answered first:

  1. What are the chances that one would end up investing in a market beating MF? It is rare looking at the number of MFs around.

  2. MFs in general have a poor rep, due to which the investor cannot gather the commitment to invest every month for many years. Only recently I read somewhere that, MFs in India advertise themselves as balanced funds and end up taking risk like pure equity funds investing in Small Caps… Uninformed investor takes the bait in bull markets, and loses big time in bearish markets.

  3. Even if MF genuinely wants to serve the investor, the markets make wide swings, which shakes the commitment of a layman.

Very very few people, out of the strength of their character, hold for decades at end. I don’t know any.


(Kamal) #124

Yogesh, thank you so much for this post. I am greatly influenced by your approach towards Low maintenance portfolio. I have been on the lookout for some of the quality names, but at this stage (and for some time now), they are highly priced, NIFTY has been on elevated levels for some time now with no sign of retrace. How one should approach to build a position in such businesses, I started with a small position with an approach to buying in small chunks over time and by the time you come for next buy prices are up by 10-15% and you start looking for it to come down. Does paying current price make sense? What’s your view in general.


(Yogesh Sane) #125

Best way to invest in a mutual fund is to invest in a manager with a good track record not a fund with a good track record. Performance record of a manager is not readily available but not too difficult to compile either. Only reason a fund does well in the long run is because of the skill of the manager and not because of the fund’s strategy or popularity of the fund house. MF houses does not advertise their managers as managers can leave so they try yo advertise their funds hoping that investors won’t see the difference.

Index investing is gaining popularity because it addresses question of adverse selection where one ends up selecting a wrong fund simply because there are too many of them and not all of them are good.

Adverse selection also exists in direct equities and that’s one of the reason I created this thread. Adverse selection in direct equity is more harmful than adverse selection in MF. Because there are thousands of stocks that trade in market, investors can easily choose the wrong one. By limiting your choice to top 50 stocks of good companies spread across important sectors, one eliminates risk of adverse section. May be AMFI should create an index of top 50 MF so investors can choose among them.


(1.5cr) #126

I do not track MFs of course. So I understand what you are saying. I had come across Scripbox around 2 years ago. They pick the top performing large cap funds and churn it every year eliminating underperfomrers at no extra fee for the investor. Great product.
There is nothing risky in investing small, mid caps. It is a myth. I know a number of small and mid caps that are fundamentally leaps and bounds ahead of large caps (in terms of quality). One must be agnostic to market caps.
People definately lack the character and education to hold on for decades. That is what I was trying to say as well. People jump in during a bull run and dont take advantage of the price during a bear phase. These same people come back during the following bull run.
You must understand that, in the bull run of 08. Infra/housing lead the run. Consumer stocks went up 3x while index itself ran up 4x. During the bear phase consumer stocks went up some 70x. MFs would have churned their portfolio to play that trend. People need to be patient and everybody will be wealthy.

Dont track MFs so I could be wrong on returns generated by them during the bear phase. But I’m reasonably certain that a good Mf portfolio has outdone the index in India in the long run satisfactorily.


(Yogesh Sane) #127

That’s a million dollar question, isn’t it? I don’t have an answer to that just more questions that can help you answer it yourself.

What I have presented in this thread is a stock selection strategy and what you are asking is asset allocation strategy.

Theoretically, you can value each stock using standard valuation models, derive expected return, risk and correlations and use mean variance optimization to decide asset allocation between stocks and other risky and risk free assets. Institutions do that and it is the most widely used and best method of asset allocation. But it does require accurate inputs and getting those right isn’t always easy. Individuals decide their asset allocation based on changes in sentiments and headlines and that is the worst way to decide your allocation.

If you are young and plan on investing for a long time, just ignore market and focus on gaining an edge and keep investing as in the long term markets almost always go up. Also, if your current income is large enough to meet your current expenses, it shouldn’t matter to you if market drop 50%. I had been following this strategy earlier and in hindsight I wish had followed it rigorously.

Even if you are retired and sell part of your portfolio for your daily expenses, you can create a bear market reserve consisting of liquid funds which you can liquidate during bear markets instead of selling undervalued stocks. Invest rest of the portfolio in equities. Most bear market bottoms where stocks are undervalued do not last longer than 12-18 months so you can decide how big a reserve you should create. I am slowing moving towards this strategy. When should you start liquidating your reserves and when should you start rebuilding it again is a judgement call but it is lot easier than timing market tops and bottoms.

I have met a few people who invest because they want to call their own shots and enjoy being proven right. Their objective is to satisfy their inner desire to make their own decisions and be proven right and not necessarily build long term wealth. Some of them try and time the market regularly so they are right few times or buy a large number of stocks so they are right about something all the time so they always have something to brag about. They don’t talk about their long term performance but only about their process. If you fall under this category, you don’t have to worry about allocation and selection.

Another rather simplistic yet effective strategy I have used in the past is to look at trend vs actual value of market index to decide allocation. Chart presented here compares where market is current trading and what the trend value (a simple ordinary least squares regression line) is along with allocation zones. I did use and continue to refer to this chart to decide my allocation.

Finally, Calculating intrinsic value is logically the correct way to decide allocation. Valuation is a combination of art and science and too much of either is not going to work. I have presented the valuation model that I use and combine it with insights gained from reading annual reports, this forum, meetings etc to decide intrinsic value. Based on this model, if I find something that is undervalued I buy it irrespective of how expensive the market is. Similarly, if a stock in portfolio becomes expensive I sell it again irrespective of how expensive or cheap overall market it. A strong sense of intrinsic value is needed if you want to follow this strategy. You have to hold on to your notion of value during market extremes and you have to be right about your calculations.

As you can see, over the over the years I have changed my allocation strategy and it is still evolving and likely to change in future as well. Your choice can depend on what you are comfortable with as I think sticking to a strategy is more important than having the most accurate strategy.


(James Sebastian) #128

Very useful answer for many of us who are new. Thank you @Yogesh_s


(Arun S G) #129

We should meet, Amit. I have held HDFC T200 for more than 20 years. It started out as ITC Threadneedle 200, then Zurich 200 and thereafter HDFC 200. Returns have been very good, better than index. It was a lumpsum investment and I dont recall SIP being available until much later.


(Amit Jain) #130

For someone who can dedicate an hour a week, “Investing in Index scrips” will give far better results than “Index Investing”. For a little effort, if one claim self-dependency, as opposed to having to track a fund or its manager, then it is certainly worth it.

In the last VP meet in Mumbai, I presented this approach (Investing in Index Scrips, and not Index Investing). It was about aiming for the low hanging fruits (18% returns, 3 times FD-rates), where the primary focus was safety of capital. I should’ve titled it “Smart-Investment for Dummies”

I had lined up a few simple optimizations, each of which can increase the returns on investment while taking on small measures of additional risks. Sans ARs, ratios and the works.

In the next presentation, I promise to be more organized and coherent. :slight_smile:


(Jaclyn) #131

Yogesh bhai, any reasons Bajaj Auto is not considered for your 2018 portfolio? I know it is a under performer compared to the Index for the last 5 years. Want to hear your views. Thank you.


(Amit Jain) #132

Off Topic, but important:

FRDI… A law which could endanger all monies in electronic form. In layman terms government could allow the Banks to use your deposits (cash, gold and stock) to adjust against the losses they make due to NPA.

That makes me think, it is probably a good idea to get our investments in Materialized form? For a long term investor there arent very many transactions anyway. It would be a sure way to protect ones ownership of stocks.


(spvk1) #133

DRAFT FRDI BILL for forum discussion.

  1. Now the bill is with JPC and will be tabled in next parliamentary session.
  2. I think the purpose of the bill is to bring in concept of BAIL IN instead of present system of BAIL OUT, wherein government was compensating the PSU Banks for NPA defaults.
  3. Further It is a step towards Deposit Insurance being made compulsory if you want to save your deposits from BAIL IN process. (May be opportunity for insurance companies)
  4. Further it may be a step towards privatisation of PSU banks as govt no longer can often bail out the banks from the public money with RBI, which indirectly causes loss to public exchequer.

FRDI Bill-27092016.pdf (1.0 MB)


(Jaclyn) #134

People are happy to invest in a 10 times leveraged institution without any worries, but appear to be worried about a clause which could be used in rarest of the rare case. :rofl: The most recent example seems to have happened in Cyprus.

And no one is worried out co-operative banks which are mostly failures. No one is worried out gold buying schemes. These are forgotten and forgiven as quickly as possible.

Probably Govt should use the idea from US of protecting the liabilities of the bank while the entire risk is borne out by the Equity & Bond holders in case of failures. And should add a clause to punish the rating agencies to ensure they do their jobs fairly by not giving highest ratings until the last day and after failure down grade to junk status without any responsibility.:see_no_evil::hear_no_evil::speak_no_evil:


(Amit Jain) #135

The thought that the bank would have authority to adjust my FD against its losses, is nightmarish. It also extends to Demat accounts. Any wealth in electronic form can used for the “greater good”

Sheer nightmare.

Once passed, its usage won’t be as rare as it seems.


(Susindar) #136

What did you mean by it also extends to demat accounts? Equity holders loose out almost everything on liquidation anyways right? What worse could happen?


(kapil1301) #137

Hi Yogesh,

Wanted to Get your View on ITC.

I was going through their Annual Report and it states that last year their Non-Cigratte revenue was 58% of the total.
But Profit Breakup was not given.
If you have could you please share the Profit Breakup.
Also this is already a 315000CR Mcap so how much do you see it growing.

Regards,
Kapil


(Roy) #138

Firstly, demat accounts are with NSDL and CDSL. Even if banks fail, demat accounts cannot be touched.
Secondly, if a bank collapses, your money is gone (apart from 1 lakh which is insured), with or without FRDI bill.

The chances of a scheduled commercial bank collapsing is extremely low; it has never happened in the last 2-3 decades. If a bank is not doing well, RBI gets it merged with another bank.


(Yogesh Sane) #139

While industry sales are rising for last few years


Source: Company Annual Report 2016-17

Bajaj auto is lagging in domestic market. In last couple of years it has done better than industry in motorcycle sales but that has come at the cost of exports.

image
Source: Company Annual Report 2016-17

Things aren’t looking good this year either. Company is blaming it on external factors.

image

Source: Company Half Yearly Communication 2017-18

At the industry level, motorcycle sales are not growing at least in the last couple years. Bajaj is also not present in the fast growing scooter segment where Activa is the leader. Women and uncles prefer scooter over motorcycles. I still wonder why it let go its scooter business. Chetak was my first vehicle. Avenger is unable to make any inroads into Royal Enfield’s turf and Honda is going after Bajaj after splitting from Hero. Overall, I think Bajaj has lost its mojo and it will be a while before it will get it back.


(Yogesh Sane) #140

ITC is still primarily a tobacco business. It’s a cash cow that is being used to fund the FMCG business. FMCG business is not doing well. Patanjali came late and did better than ITC. everyone’s hoping that the FMCG business will take off at some point but that has been illusive for years.
Tobacco business is flourishing though. Patanjali will never get into that business. Cigarette prices in India are still quiet low even after relentless tax hikes. In other countries prices are much higher and per capital consumption is still higher than India. I think consumption is a function of income.

You can get the details from segment data

Sales (Rs Cr)

image

Source: Capitaline

PBIT (Rs Cr)

image
Source: Capitaline


(Amit Jain) #141

The law permits the bank to use all that is yours. This is scary, and I wonder what comes under the umbrella. I expect them to spare nothing. If they can usurp your FDs then how far behind is LIC, Stocks and everything electronic. Demon is a prime example of their brazenness.

If that were the case, then there would be no need for FRDI. FRDI is before the collapse, to avoid the collapse. So, I imagine, every time the NPA rises above normal, the RBI may instruct the bank to give its depositor the haricut. Anyway, you look at it, it is just wrong.


#142

Yogesh,
Bosh is not part of 2018 portfolio. any reason why was it not considered? - its price is kind of stagnant for last 4 years.
eps has increased from 326 in mar 2015 to 537 in mar 2017 as per screener.