I always have had typical luck - what I call beginners luck!
I have come to believe if you are very earnest in what you want to achieve, you are passionate, sincere and willing to put in any amount of hard work - not adopt short-cuts - Beginner’s Luck favours you:) Nature conspires to arrange things/situations/people around you so that you prove lucky!!
2005 -2008: 1st Beginner Phase
2005, I started my serious investing journey. I had read the most famous Guru Books and decided to put some money in the market. In April/May 2005 Market had crashed. Reliance bros were fighting, Airtel (I was from the Telecom industry), L&T and BHEL seemed sure bets, Infosys (I had latched on in 2000 just on hunch), ITC had been growing at 30% for last 10 years (I figured people will keep smoking cigarettes), Cipla and Ranbaxy and Dr Reddy’s formed the Rest of the buys. I bought gradually, slowly, as I tried to understand ratios, numbers, behind the business success.
Needless to say these did very very well - in the next 3 years till 2008 - I had several 3x-4x to bigger baggers. I thought I knew it ALL:) Probably Midcaps provided much bigger gains in the 2003-2008 timeframe, but I was blissfully unware, away from all the NOISE there.
Come 2008, I knew things were drastically overvalued, but didn’t know how to sell, what to sell - I didn’t have a model. Nobody I knew could give me satisfactory answers. So I stayed PUT, through the entire 2008 debacle and the subsequent recovery from mid 2009.
As I got to know more folks fellow-investors in the market , I realised I was one of the few** who had not got burned **even though I stayed 100% invested. I was foolish not to have booked partial profits and created some physical assets (that’s what the savvy guys do at the peak of the boom cycle, now I know). My portfolio was still 10-15% up even after the massive meltdown form 21K to 8K.
Beginners Luck at play! Now I know! Had I been in small and midcaps then in 2008-09, I also would have been butchered. Even if I wanted to exit (say I got the timing bang on) I wouldn’t have been able to exit in a hurry without huge impact costs - many of these are low liquidity stocks. And when there is a big big secular fall, the small and midcaps get CRUSHED in no time, the Large Caps take more time and are gradually hammered, and don’t get beaten down beyond a point - if they are the typical blue-chips. Many serious investors I got to know subsequently, were invested in small and midcaps, and they all had 70% CAGR records in the heady 2003-2007 boom period! Not all exited completely, some really could do that perfectly, too. Those that didn’t exit fully got CRUSHED. Some of them saw 90% erosion in Capital.
2009-2012: 2nd Advanced Beginner Phase
Ayush got in touch with me in Dec 2008 (after my “Opto Circuits stock research” report - search for it in quotes, as shown - its still no#1 in Google search, India). We did a few stocks like BKT together and I got hooked. Ayush converted me (patiently helping me get over my theoretical but stubborn objections) completely to the undiscovered beauties - strong differentiated businesses - but small, mid and even micro-caps.
To invest in these gradually I had to sell some of my legacies. RIL and Infosys I would sell a bit and buy a bit of BKT, and Manjushree. Then came along a classical-textbook-perfect stock like Mayur Uniquoters - Naga made the first trip to Mayur in early 2010 - the second or 3rd Management Q&A (after Opto & Manjushree) - I decided to allocate more capital.
In 2010, Mr D and Mr M helped me formalise our Capital Allocation Framework, distinguish between businesses, know which is your best stock and next one, and the next in order of priority- and why? They gave me a very simple & clear SELL framework )- if the business cannot compound at 25% CAGR for next 2-3 years, and you know some others that can, it’s a big opportunity COST - GET OUT - no matter how many double-digit-x they might have given you. I finally could sell without hesitation - my legacy beauties - stocks that I had fallen in love with - it took me 3-6 months to divest (I still retain small numbers of a couple of sweethearts:))
My Portfolio shifted decisively to small & midcaps! **Again beginners Luck at Play!**with perfect timing! Post Diwali 2010 till now, in the uncertain economic environment, with high-inflation & high-interest rate scenario - Large Caps/Index businesses (where the positives are always built into the price, not the negatives) have been suffering big, but strong small and midcap businesses (with zero debt, good growth visibility, dividend-paying, non infrastructure, non-telecom, non-power, but undervalued) have done extremely well. **Somehow again I was just in the right stocks at the right time. **Was I knowledgable enough and understood everything I did and why, certainly NOT!!
2012- 2015: Consolidation Phase
I can no more be considered a BEGINNER perhaps. I have to start paying my tuition forward. Beginner’s luck will no more be applicable. I have learnt some of the ropes. have to up the Learning curve. And help other beginners learn - all that we have learnt - faster.
ValuePickr is that initiative - to make everyone better-informed Investors. To provide newbies with their beginner’s luck:) - access to collective wisdom of the seniors.
The first thing I realise is ValuePickr Portfolio is lop-sided at the moment. It needs to become more balanced. To have some in-built protection for all phases of the market. It is working fabulously at the moment - how long it can run on these breed of dark-horses, we don’t know. It needs to have some of the thoroughbreds for a better safety-net, even if it means sacrificing higher growth. Because when exactly a different type of market comes into play next, we may not be that smart in identifying; we may not be able to switch allocations to the right kind of stocks for that market, in time or without heavy COSTS.
The thoroughbreds work in all types of markets (the downsides are extremely low) - are we talking of a Nestle, an ITC, and HDFC here. They might not give you 60% CAGR ever anymore, but they sure do give you a 20% plus CAGR over any 3-5 year periods. Time to be picky about the real real thoroughbreds though, can’t afford any pretenders:). Thoroughbreds with REAL MOATS & REAL PRICING POWER!
Think that Our Capital Allocation Framework has to be tweaked NOW, from the Safety-Net angle (designed to work smoothly w/o big hiccups, small 10-15% downsides in a secularly bad market are perhaps par) to serve us better all-seasons, all-weather!!
Big expectations! Yes! Can it be done?I am pretty sure now is the time to harness the combined Intelligence of ValuePickr Community.
Invite everyone to please comment freely.
Additionally, I will of course be seeking the guidance of Mr D, Mr M, Mr J, and Mr S (a new Mentor who has lived the ecstacy of super-investor status, has endured the pain of big erosions, and now in his more matured avatar, poised for the KILL) to capture back their wisdom into this discussion, and into our Capital Allocation Framework.