Yogesh's blue chip 10 Portfolio

(1.5cr) #164

Warren buffet has been screaming for people to compound wealth in the markets. What you are discounting is how many investors will stay the course leaving their MFs untouched for 30 years disregarding market swings etc etc. If this correction continues you will see redemption pressure overnight. Let me ask you something, Take USA and China for eg. youngsters there still dont know anything about investing and compounding. Ive met people who have studied and who work in investment banking and dont understand simple compounding. You tell an Indian that you wont make money for the first 10 years they wont be interested in holding their investments.

I cannot understand why everyone doesnt just dump money in MFs. Or for that matter in the USA index funds. Results dont show overnight, nobody does it.

Due results coming only after long periods of holding, retail investors dont put large amounts of money in MFs. They will buy insurance policies, they will buy products, cell phones. An Indian on 50k a month minus monthly expenses wont put more than 2.5k a month into MFs I guarantee you. And when the time comes to buy his house he will redeem his investments. Everyone starts, no one sticks to the plan. You are 26 today. 10 years from now I wonder how many of your friends will increase SIP or even hold their investments.

I will tell you something, in the next 10-15 years there will be huge in flow into MFs and funds. No doubt, people will know more and get more educated I agree. Everyone will invest in MFs. Not many will have the common sense to go and buy these amc companies from the open market and ride the theme. End of the day, I can virtually guarantee you that no one will take investing seriously enough to hold investments for 30 years to see results/ no one will invest big enough to see a massive return even post compounding. Nobody will dump 10-20-30-40 lakhs today and leave it for the next 30 years.

(csteja) #165

What so ever, you cannot be Warren if you start investing reading his books today. I read all his shareholder letters during 2013-14. They are superb. I was attracted to markets because of Buffett. He narrated businesses in a way that you feel it so easy to invest and make money. It pulled me towards market. The point that we miss out is, during his time, markets are not so efficient. RJ is the one from whom I learnt Buffett times are gone. When Buffett lessons are extensively available in 1990’s, RJ followed a different strategies to buy businesses. Listen/read his old interviews. He stood out. All I want to say is old lessons won’t work to produce market beating returns. Today most VPrs can say Buffett quotes even during sleep. I mean, they are priced-in heavily.

Its all your perception based on the people you meet. Only future will tell whether its true or not. I see youngsters of today are multi talented. Also, I see that you are always comparing with youngsters who doesn’t have financial education and who chill out. I am comparing with that seizable chunk who realize that there is an opportunities out there to seize because of internet. Why do you want to compare with average Joe out there? Compare with people like you, me, VPrs. Zerodha is the best example. Today, many IT people are traders. All in my office are traders. Some make money, some lose. Even though you compare with good ones, they are seizable chunk. When a seizable chunk thinks like you, acts like you, you don’t have an edge. This is happening in every field where internet bridges the gap. During older days, RJ has an edge as he stay near exchange and does trades. He gets (insider) information quickly where as people like my dad has to wait for newspaper to publish. Today, everything is instantaneous. Yes, there are guys who wants to chill out and they will be high in number (say 80%). But you are missing out comparing yourself with that seizable chunk (20%) who are making use of opportunities. I generally ignore those 80% and compare myself with 20%.

All I can say is you didn’t meet enough. May be the people you generally meet are dumb. You cannot conclude anything from it. My experience in my circle has been different.

How can you guarantee all this? I met people in my circle who invests 80% of their wealth in equity. All are below 28. There are around 6-7 people. Imagine, how many could be outside my friend circle. I mean they are seizable chunk who see opportunities like you. We are just looking at past and concluding. Opportunity is there for everyone.

Bro, I just don’t want to compare with average Joe out there and say I am doing better than him investing in markets. I always want to compare with best of participants (top 5-10%) and beat their returns. I just don’t want to be rich but filthy. It cannot happen if seizable chunk thinks and acts like you.

Hope this discussion instigates the fire in both of us to prove our points. Some are not in our hands. Only future will decide. All I vouch out for is that, the field that you should pick should be nascent. I realize that I have to prove my point with working results before making further talk. I will keep more energies in what I am doing currently. Hopefully it should work.

(Kumar Saurabh) #167

Guys , this thread is about Yogesh portfolio strategy for NIFTY 50 companies. Humble request, please continue the interesting discussion shifting to a more relevant thread . I am not being sarcastic or something like that, so, please do not misunderstand . It is just that every thread has a purpose and when certain things get stretched, whole purpose of that thread gets diluted for readers .Hope, I am not offensive

(aashu24ahuja) #168

I second that, because every time I see a notification I expect something related to Yogesh’s portfolio, but when I visit the thread I see something else.

(KKP_Investor) #169

Yogesh has a good question and we can revert back to that one…

I feel that owning companies in Nifty 50 or BSE 500 or Sensex 30 and eliminating the non-performers will always work well. Now, the problem is defining what does “non-performance mean”. If you set the non-performance period to 30 days or 90 days or 220 days, then the rally in that stock might start right after.

So, the challenge is first defining your ‘holding period’, then the ‘measurement period’ and then ‘how often do you want to churn your portfolio’.

As soon as I have held onto something in India that has not performed, write lots of negative things about it, the stock takes off and doubles from there.

Example: HUL, RIL, TGBL…All three went through a LONG period of boring times, and when the giant woke up, it doubled and doubled again after that. Look up the 30 year charts on each of these and you will know. Glad I only sold a bit of it and bought into other missing sectors in my portfolio. But, I kept the faith.

So, in my special case, I give the Non-Performance term to be just under 10 years. When HUL woke up, I had already sold 10% of my holdings, but I am glad I was holding 90%. It went from staying between 200 and 345 for almost 10 years, and then went to 700, in 2 years, and then went to 1400 in another 2 years. How would I have felt by not having ANY in my portfolio?

Play Indian Market with a Long Term View like Mr Agrawal says from MOSL. He went from virtually Rs0 to Rs1000 crores, which we cannot replicate but if we can replicate some of it, it would be great.

Just my 2 cents and a different view than many since I am a multi-decade investor and will hold some stocks for another 20+ years.

KKP Investor

(Peabody) #170

Brilliant -mighty impressed with your holding capacity and patience.I wish we imbibe at least 10% of it.

(Yogesh Sane) #171

I wouldn’t value a mining company based on PE or P/B basis. You can only use price multiples to compare valuations of mining companies around the world with each other but these companies generally go up or down together so a relative value analysis is not very useful. If the company pays regular dividend, you can use DDM to value the company but that generally yields low value.

DCF using operating cashflow can be used but operating cashflow tends to be volatile. You can normalize cashflow for cyclicality and value the company based on that but such a valuation model is sensitive to assumptions so wouldn’t give you accurate valuation.

Mineral reserves of a mining company is an important indicator that determines valuation but I have seen it being used to justify high valuation rather than a base valuation. Reserves is just an estimate and provided by the management and may not be independently verified by a third party so such number should be used with a pinch of salt.

I really haven’t been able to come up with a way to value mining companies like Vedanta. The only sure way to buy a mining company is when mineral prices are down, stock price is down and company’s balance sheet is still strong enough to sustain few more months/years of downturn. However such situation happens once in a decade (if at all) so it cannot be an investment strategy.

(Yogesh Sane) #172

Aurobindo has been able to grow its book value only by growing debt along with it. This indicates low (or no) free cashflow. Market generally value such companies much lower than companies like Sun and Lupin that have managed to grow their book value without pilling on debt (until they they acquired other companies with debt).

Aurobindo was expensive stock for last several quarters/years as it went up along with rest of pharma companies but its financial fundamentals aren’t as strong as Sun & Lupin. I am saying this based purely on financials and not based on its portfolio of drugs or its R&D capability. I believe at this price, valuations reflect the fundamentals so any uptick in earnings should results in higher price.

(Yogesh Sane) #173

Looks like the taxes are finally having their effect on volumes and pricing power of tobacco companies. Govt will raise taxes until volumes stop growing. I know ITC no longer release its volume numbers anymore, not sure about other companies. Godfrey’s margins have been shrinking for years as it has not been able to pass on taxes to consumers. ROE is now in single digits.
Based on the data I have, United Breweries has been able to grow its top and bottom line for last several years. Its stock price is going sideways because it is very expensive so there is a time correction. Higher prices may be causing some marginal consumers to switch to cheaper brands.

(1.5cr) #174

what I dont understand is ITC foraying into the hotel business. They have a wonderful business in the cigarette business and a half decent fmcg business. Why funnel cash from their cash cows into the hotel space.

(ishikaghose) #175

"Aurobindo has been able to grow its book value only by growing debt along with it."
Yogesh, I am a newbie - trying to understand financials. Reading the balance sheet - 2013 to 2017 - what I see is that the non-current liabilities have come down from 1117 to 139. Should I be looking at TOTAL liabilities (current and non-current) rather than non-current alone? Please excuse my ignorance. Invested in Aurobindo from Rs 128 levels

(Yogesh Sane) #176

Yes, you should look at all financial interest-bearing liabilities and in some cases non-interest bearing liabilities (like accounts payable, deferred taxes, provisions etc) if these are large (relative to overall size of the balance sheet) or growing rapidly.

In accounting statements, liabilities are classified as current and non current then further as secured and unsecured. However, from an investor’s POV, what matters is whether liabilities are interest bearing or ‘free’. Typically borrowings are interest bearing and classified as financial liabilities. Sometimes having too much of non-interest bearing liabilities can be bad too as that indicates company is having trouble paying down its liabilities.

Typically a non-financial company should be able to grow its equity without taking on too much liabilities. What is too much depends on industry and especially stability of cashflows.

(ishikaghose) #177

Thank you very much for clarifying and for giving me an explanation. Sincerely. Ishika

(Sunil) #178

I think we should look at debt during such scenarios. If a company is having debt and not able to pay liabilities then it might be in trouble. But if its a debt free company then rather it can be good sign if liabilities form from trade payable. That means company has power to negotiate terms.
Please correct if im wrong.

(sarthak kumar) #179

Dear Yogesh ji,

When is the annual rebalancing of the portfolio scheduled.


(Yogesh Sane) #180

I usually do it after all the annual reports are released. Around Diwali time.

(Ar) #181

Hi @Yogesh_s, I have been going through your posts and your thought process and its clarity is amazing. Thanks for enabling us all to learn more!

While your portfolio and its picks have been discussed above, what I (and I guess others) would also like to know how you come up with the stock ideas in the first place specifically in the small and mid cap space (as large caps are fairly well covered) for eg say an APL Apollo tubes or Kovai. I guess you must have quantitative screeners (based on ROE etc) but are there any other sources/resources you use to hunt for ideas? For eg following other great investors, blogs, on ground checks within your network etc. Would be very interesting to hear about your idea generation process

Apologies if this has already been asked and answered

(Dr Manoj) #182

Thanks a lot for such a convincing and inspiring strategy.May I solicit your opinion about MOSL in long term context.

(KKP_Investor) #183

MOSL and Edelweis are great companies that are doing really well in the world where more and more accounts are being opened. ICICI Securities just came out with an IPO also and it was not priced great due to all of the issues with Chanda. Days of ICICI are almost over like Merrill Lynch was 20 years ago, since Zerodha and IIFL and Kotak are in the works, but MOSL and Edelweis will remain in vogue since they are great money managers, portfolio creators and also have a good growth model in progress. Best is to hold thru thick and thin since we will get some corrective periods when these brokers will take a sizable hit. Keep 1/5 of your purchase outstanding to buy at that time in the future. KKP Investor

(Yogesh Sane) #184

Over the years I have used several methods to find new stock ideas including reading news, IPOs, new listings, magazines, recommendations from friends, stock screeners, MF top holdings etc. However, one method that has consistently worked for me is to quickly scan everything that is available to buy and then bookmark the ones that are worth further digging.

In order to scan all the 3000 odd companies that trade on NSE & BSE quickly , I extract high level financial data from a corporate database which I have subscribed to. It can also be downloaded from screener.in. Once this data is in Excel, I use a set of charts to quickly visualize the important numbers from income statement, balance sheet and cashflow and important ratios for last several years on a single screen. Screenshot below shows how a typical screen looks like

Story of a company in 40 charts

This screen lets me quickly check how the sales have grown over the years, if the sales growth has trickled down to gross profit, operating profit and net profit, how the book value has grown, if the debt is growing, how has the cashflow kept up with cash profits or has the receivables and inventory ate up all the profits. Cashflow analysis help me analyze if the company is able to fund it capex with CFO or it had to go external funding. DuPont analysis quickly gives an idea how efficiently company has utilized its capital and if the high ROE is a result of higher leverage or higher ROA. I can also check if there any structural change in its asset turnover vs operating margin trade-off. Finally, the market cap chart (on the bottom right corner) shows how market has responded to the developing story.

If a picture is worth thousand words, a chart is worth thousand numbers. 40 charts on this screen tell the story of a company as it unfolded over the last decade. It literally takes me just a few seconds to reject a bad company. I cycle through all the companies in the database either by alphabetical order or by market cap. Sometimes, I end up rejecting few good ones too, but I am OK with that. Within 2 to 3 weeks I am able to scan all the companies in my database. I go thorough this exercise at least once a year.

Once I go through charts of several hundred companies, a good company will quickly stand out even if it does not meet all the characteristics of a good company. Your mind gets trained in identifying patterns of a good company. A visual image of a company based on its numbers is far more convincing that some qualitative factors like visionary management or key shareholders. This method also give me an assurance that I have looked at all the available options before making a choice. A stock screener on the other hand makes you wonder if a good company has been wrongly filtered out only to discover it later after the price has ran away.

Normally I bookmark about 200 to 300 companies that stand out for further study. Usually, only about 20 to 30 companies are replaced each year. Rest of them remain the same. Out of these, based on fundamentals of the company, I create a shortlist of 20 largecaps, 30 midcaps, 50 smallcaps and 10 SMEs for further analysis. Out of these 110 companies, I further narrow my focus to 50 and then 20 based on valuation. After that its my gut feel. I end up having about 8 companies in my portfolio from this 20.

This process is similar to how we buy a car or a mobile phone. You start with everything that is out there, make a shortlist, then go for a test drive before making final choice.

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