30 stock ideas, need to reduce to 15

Hi all,

This happens to be my first post and so far really admire the good work done by fellow valuepickers.

Here goes my list, I’ve tried to break down sector-wise:

Textiles FMCG Chemicals Infra Pharma Auto/auto anc Finance Others Multibagger
Sutlej KRBL GHCL Cera Sun Bharat forge Axis IIFL Samtex
Nandan Britannia Astec life AIA eng Aurobindo MM forgings Yes HMVL Waterbase
Welspun Ind PI Industries Asian paints Glenmark Motherson sumi DHFL GPPL DTIL
UPL Granules CEAT Chemfab alkali

Currently I’ve almost equal allocation in all of them, gradually in next couple of quarters I intend to reduce the portfolio to 15. Reason for such diversification is the high capital I’ve put in viz a viz my overall net-worth, so cant be too concentrated. Ideally I would like to keep it to 15 max 20 however facing challenges on which ones to drop. It would be great if anyone can just pin-point which one you don’t like and a short reasoning.

Any help is much much appreciated.

BR,
AJ

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Pls tell your time horizon…
As if you are long term investor…I will suggest try to avoid textile space and also give reason why you chose samtex, dtil, chemfab as multibagger…

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I would definitely keep Welspun among the textile names… The stock has a lot of upside potential given the capacity expansion…Not sure on the others textile names as I don’t track them …

Would definitely keep Granules and DHFL …

Agree with@pjain will keep Welspun and aviod Nandan Demin

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What are your goals with your investment as in…

  1. Are you looking for multibaggers (there are some, but not all)
  2. Are you looking for stable growth (viz. 4% above bank FD)
  3. Are you looking for capital preservation
    d. And as somebody mentioned, your time horizon?

That said I don’t understand your thinking as regards to the sector-wise breakdown. How are CERA & ASIAN PAINTS in Infra sector?

The first thing you could do is either:

  1. Keep only one company per sector (if you’re into sectors)[This advice is applicable only if you’re looking for multi-baggers, it narrow your focus and pushes you to be more confident about your choices].
  2. Or stop thinking sector-wise.
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What are your goals with your investment as in…

  1. Are you looking for multibaggers (there are some, but not all) Looking for a balanced portfolio- medium risk high return
  2. Are you looking for stable growth (viz. 4% above bank FD) targeted annual growth of 20-30%
  3. Are you looking for capital preservation
    d. And as somebody mentioned, your time horizon? Time horizon is different for each stock, I try to go by target price, if achieved allocate to other stronger ideas

That said I don’t understand your thinking as regards to the sector-wise breakdown. How are CERA & ASIAN PAINTS in Infra sector? By infra I meant stocks dependent upon Infra as a proxy, they would do well as macro improves

The first thing you could do is either:

  1. Keep only one company per sector (if you’re into sectors)[This advice is applicable only if you’re looking for multi-baggers, it narrow your focus and pushes you to be more confident about your choices] One company per sector is the target but not sure now which ones to remove.
  2. Or stop thinking sector-wise. I agree, gradually would move to bottom up approach
1. Are you looking for multibaggers (there are some, but not all) **Looking for a balanced portfolio- medium risk high return**
2. Are you looking for stable growth (viz. 4% above bank FD) **targeted annual growth of 20-30%**

Your risk return expectations seemed skewed. With the kind of diversity you’re going for (15 stocks) you can’t expect high returns. You have to severely reduce the number of stocks.

What you can do is have a bulk of your investments in few stocks you think will increase multiple times and a little bit on companies you’re in lookout for.

Target price is a good way to have a balanced portfolio, to preserve capital - but the returns would be patchy. That is because you’ll sell something when it doubles and then lo-and-behold it goes up 25 times.

Time horizon is different for each stock, I try to go by target price, if achieved allocate to other stronger ideas

You have to think it out clearly, maybe write it in a paper. Are you looking for balanced returns or high-returns.

By infra I meant stocks dependent upon Infra as a proxy, they would do well as macro improves

Then shouldn’t they be in Real State sector?

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Thank you all for the responses,I managed to change allocation of my PF during the volatile times based on conviction levels. So below is the latest PF:

I know its still a lot of stocks, however I am still in re-alignment mode given big absolute capital involved. Would like to take advantage of the volatility in the coming months to add/delete at the right levels.

Any advice is much welcome.

P.S. Core stocks intend to keep 5+ years, Undervalued stock short term 2-3 years!

Revising my portfolio performance and allocations
Summary: managed to increase allocations where high conviction also stock price appreciation helped, posting my current PF still too diversified however managed to get out of some NPAs at right levels, few more exits targeted in coming months to bring it down to 20:

Overall happy that although I didn’t reduce the no. of stocks down but improved the portfolio concentration with 75% PF in 15 stocks.

Any feedback is much appreciated.

Targeted more exits: Gujarat Pipapav, Bharat Forge, DHFL, Sun Pharma, Motherson Sumi, waiting for right valuations

I think you should invest no more than 10 stocks. Keep it concentrated and gain maximum.

It is good to acquire more of good things.

“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing”

If you’re keeping your portfolio more diversified then it means that you’re not sure that your stocks will come out as high gainers in future.

And if that’s the case, you should not have invested in that stocks because - as said by Warren Buffett - “don’t invest the business that you don’t understand. Define your circle of competence”.

The bones of the concept appear in Berkshire Hathaway 1996 Shareholder Letter by Warren Buffett:

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

The idea behind the circle of competence is not its size the number of businesses you can understand but your awareness about its size the number of businesses ‘you know’ you can understand.

Risk arises out of arrogance, not from the investment where you know what you’re doing. So the size of the number of stocks in the portfolio doesn’t matter, quality matters.

In short, keep a concentrated portfolio.

And I think, 7-8 manageable stocks in a portfolio is enough for a retail investor.

Thanks Sowmay for your comments. I have been reading your blog as well, very good job with that :smiley:

However on the investment philosophy I am more on the Graham side. Two reasons for that-

  1. Significant part of my n/w is in direct equities
  2. Capital protection to avoid black swan events like FDA in pharma, Welspun etc.

Coming onto the circle of competence, I invest only in the businesses I understand with complete bottom up approach and invest amount depending upon the level of conviction on respective stock.

By keeping 20+ stock, not only this allows me to track them actively but also to take advantage of mis-priced bets by increasing allocation at opportunistic times. Moreover, this allows me to be a better investor in future by learning different businesses with experience.

The concentration v/s diversification has been a long standing debate so I will rest my case now. However, would still say this has helped me a lot in developing myself, more I track many stocks, more conviction i get to increase concentration for future bets. Already down from 30 to 20 :slight_smile:

Would also be good to have your comments on my latest stock picks above
Thanks

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Hi Atishay,

Please check last 1 year and 2 years performance of full of your portfolio and also break portfolio in 10 stocks each (1st with your highest conviction, 2nd with next level of conviction and 3rd with least conviction) then compare result of 4 portfolios -

Then see the difference. You will realize that it’s always concentrated portfolio that gives maximum return, There may be a very high chance that your 3rd portfolio (with least conviction) can still be a winner than remaining portfolios.

Let us know by tomorrow if you have done this exercise. I would really be keen to see that.

Thanks

In my view, 1-2 years is a very small period to review stock performance hence better to do this analysis after 5-6 years. I am not against concentration but it takes time to develop conviction, in the meanwhile I am happy to keep different allocation for stocks. Most important is whether my stock picks pan out as expected.

Dear Atishay,

I did not say to hold a stock for 1-2 years. I myself hold stocks for minimum 5-6 years. I only said break your portfolio of 30 stocks in 3 part of 10 each. Then compare their gain of last 1-2 years with each other (and also with full 30 stock portfolio). You will realize that it’s concentrated portfolio that gives better return.

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