I have been a trader all my life and have started to get into longer term investing for the last 2Y. I have 50% of my funds in ETFs/mutual funds and would like to keep rest 50% in a concentrated portfolio of 5-10 stocks. I see there is a lot of correction in so-called quality stocks since the last 5Y.
Criteria for investing are:
- Quality companies ( long track record of great capital allocation)
- Growth >= 1.5x GDP growth
- Reasonable valuations
I have started with 2 stocks which have not been investors’ favourites in the last 5 years:
- KOTAK BANK : 45% >> Great franchise, lowest leveraged, impeccable capital allocation record, multiple entities, likely to grow at 1.5x GDP for the considerable amount of time
- HDFC BANK : 40% >> Recent hiccups due to merger, growth slowing because of transient issues, impeccable track record
- Cash : 15%
I am looking to add more stocks here and diversify my portfolio further. Idea is to keep the very few stocks in the basket.
I will love ideas from the members.
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Wanted to ask about HDFC bank and understand your reasoning and in the process educate myself.
I understand that it’s trading at a price it has not seen for a long while and makes a case for accumulation but you are having a sizeable chunk in ETFs (I am assuming some would be in nifty50 as well). In that case don’t you already have an indirect exposure to HDFC bank?
As for ideas, I also keep 50-60% capital in MFs and ETFs. With direct stocks my goal is to generate alpha over my other half of the portfolio. I try not to add large-caps as I feel I already have exposure to them from the ETFs and MFs. Only exceptions would be if I get something at an extreme cheap valuation. My direct stocks have roughly 50-50 split between all season compounders with a very long term bets (beyond 10-15 years) and cyclical plays with hard set exit criterion (riding the macro themes)
I don’t track individual ETF/funds stocks. That’s the job of portfolio manager managing the fund. Also, I don’t shy away from taking heavily concentrated position on something, mainly because of my trading background. I hate diversification. Funds are best for diversification. I can’t be bothered about managing/thinking about 20 stocks. Rather, I will bet on 1-10 stocks, which I can track.
On HDFC Bank, 5Y price CAGR is ~2%. 5Y EPS CAGR (post merger) is ~10%. Growth was curtailed because of merger. One is getting a superb franchise at a very reasonable valuation. In the worst case scenario, as long as India has nominal growth of double digit, I see HDFC Bank EPS growing in low double digit. Valuations are likely to rerate from here/or hold here in the bear case scenario. That said, If I find better growth opportunities, I am looking to shift to those.
Regarding cyclical stocks, I like to trade them, rather hold them for longer term.
Interesting Allocation! Being a trader and investor all your life. What your rationale of exposing 95% capital to Banking Sector, if is too much prone to one sector, I just wanted your understanding behind that allocation?
Keep one thing in mind stocks performance are not auto regressive plus with volatility brought by AI its hard to judge with companies will outperform its peer but having said that i am bullish of energy sector especially solar.
you look like you like investing into slightly fallen blue chip stocks. Then i would gladly recommend you to watch 2024 wealth creation summit of Motilal Oswal, I just watched it today and gave me an amazing insight into investing in fallen blue chips. Here’s the link :
29th Motilal Oswal Annual Wealth Creation Study by Raamdeo Agrawal
These are 2 quality stocks, which are very reasonably priced, have competitive moats, are still difficult to disrupt, and are likely to grow 10-15% per annum for next 10 years. That said, I am looking to diversify and find similar stocks elesewhere
Any reasonable priced names here ? I am bullish on energy sector and would love to have some positions there
Thanks for sharing! Great companies seldom trade at fair/below fair valuations.
If they do, grab them!
