Abhijit’s buy-and-hold Portfolio
Below is the list of tentative stock which I intend to accumulate in the next 1-2 years
I do NOT have any of these stocks currently.
Objectives of my portfolio
- approx 3x returns w.r.t my average buy price !
- If possible outperform large-cap Mutual funds( from 2004, I read somewhere MFs have given 12% CAGR) with a CARG of 15%.
Key long term Assumptions
- proven/high-quality companies usually do well in bull runs & experience limited downside in bear cycles.
- High likelyhood of past performance(business-wise, hopefully stock price-wise as well) being repeated into future as well.
- Very long runway for each of these businesses(which naturally translates into earnings visibility)
- High likelyhood of 15% CAGR over approx 10 years(Thus giving 3X returns in the process)
- Tried and tested moats (which should limit downsides in a bear market, hopefully)
- Should be market leader in it’s segment ( or be quite close to being so)
- Top notch corporate governance track -record untill now.
- Has withstood the recent Stock market volatility in the last 2 years(Jan 2018 onwards) & emerged stronger.
- Little or no business overlap in each of these stocks(Diversification)
Since most of these stocks are very high PE, it may not be feasible for me to keep waiting for lower PE levels
So my strategy would be to
- Stagger my purchases over time( preferrably when the Market itself corrects more than 5% in a week/month ( this happens usually a couple of times every year, regardless of a bull/bear cycle)
- Buy ONLY each stock’s 200 DMA level or below it . So either I buy when there is a time correction or a sudden price fall(fall not due to stock specific reasons but generic)
- Not exceed 10% weightage w.r.t overall stock portfolio (at time of buying)
Sell strategy for each stock
- When the current value of the holding in the stock has crossed 3x my average purchase price
- 10 years have elapsed ( Book whatever profit/loss one has made )
- Corporate governance issues cropping up(Yes bank/Il&FS etc)
- Business model of the company at risk of being permanently distrupted ( like telecom sector being distrupted by newcomer Jio)
- If possible, try to sell well above 200 DMA levels to maximize any gains while exiting.
My past failures( or shall I say, tuition fee to MrMarket !!)
- Parsvnath developers, -60% ( 2008)
- Andhra Bank -70%, ( 2010-2016)
- Premco Global -65% (2016-18)
- Meghmani Organics -40%( 2018)
- Cosyn -70%(2017-19)
- Pix transmission - 40% (2018)
- Missing out the huge large-cap rally all these years & chasing the wrong kind of stocks for the wrong reasons .
- not having clear buy/sell/exit strategies in place before entering a stock
- Poor business understanding.
Garware Tech fibres
A niche player into the manufacturing of wall-ropes,nets,geo-textiles,fisheries/defence related nets/ropes etc. The business model appears to have a decent moat in terms of customer stickiness.
To me , there seems to a be a long runway for potential revenue generation in the coming 5-10 years.
Management itself has guided for a doubling of PAT over the next 5 years…
Decent management track record in shareholder value creation( has been a consistent multibagger for the last 5 years or so)
Risks : Raw materials are dependant on crude prices, hence sharp & sustained rise in crude will impact margins to some extent.
Some of the new forays into defense/agriculture/fisheries related domains may not play out as guided by management.
P & G Hygiene
Market leader in the female hygiene segment.
Very long runway for revenue growth ( this segment itself is still in nascent stages of growth!)
high likelyhood on past high margins to get repeated in future, given pricing power & lack of credible competition in this space)
Risks : Very high PE, 85 !, which might mean next couple of year returns might be fully priced in.
risk of either a time correction or even a de-rating of the PE incase the market itself has a sharp correction.
- MNC Pharma with an interesting mix of products (Women’s health,Specialty care, medical devices
High ROCE & asset light business . Branded play in an under penetrated pharma segment.
Risks : High PE which might deliver muted stock returns in the near term
Any regulatory pricing caps on the segments this company operates in.
Involved in high-potential business ( Agri-inputs,Custom synthesis)
Strengths : Robust business business model (Patented molecules for global innovator companies) & related domain of licensed manaufacturing of the same
Risks : The Agri-cycle is weather dependant. Long gestation periods of the various molecules developement & the time to market it
High PE of around 40+ which might give muted returns in the near term.
A footwear leader, well discovered stock.
Very long runway for the entire sector for which Bata is well positioned to benefit from.
Consistent value creator in the past
risks : Very high PE levels (nearly 60)
Kotak Mahindra Bank
Frontline Banking stock ( no need to elaborate on this gem !)
High probabilty of consistent/predictable 20+ compounding in the next 5 years
risks : Economic recession/interest rate cycle reversal
High Book value w.r.t peers but it has been the case for quite sometime.
A general insurance (& Reinsurance company) .
The main reasons for investing here are very few listed peers ( extremely long earnings runway)
Risks : Complex business with a lot of moving parts to understand
Since most insurance companies have run-up a lot, near term returns might be capped.
The only listed play in india on startups/unicorns( unicorns is now a bad word after the we-works debacle BTW !)
Risks : A lot of moving parts with lots of emerging competition in all the areas this company has invested in makes this quite tricky to keep track of and understand implications on stock price
high Pe : not sure I fully understand on how to value this company ( current PE is 85)
Frontline low-PE FMCG stock.
Decent probabilty of PE re-rating IF non-cigarette segment starts to delivery
Limited downside in stock prices
risks : Time-correction if company continues to stagnate/ Non-cigarettes segment does not do as well as I anticipate.
Frontline domestic Luxury consumer play.
Well entrenched into domestic luxury segments like Watches/jewellery.
Long earnings runway
risks : High PE, economic downturn will hit this company hard due the discretionary nature of the segments it operates in.
A capital goods company into Process solutions,Building Solutions(eg : building management solutions, fire detection), Sensing & IOT (gas instruments/pollution monitoring etc)
High & consistent ROCE, Steady growth in revenues over last decade or so, cash generator company !
risks : High PE,Dependance on Private Capex to drive revenue growth,
Complex businesses which are difficult to understand
Larsen & tourbo
Frontline play on Infra sector. The valutations are still reasonable w.r.t historic valuations.
Risks : Dependant on infra sector revival which is unpredictable
A PSU dividend play .
This strategic PSU-ratna company holds valuable gas pipelines ( Historic Price/Book ratio has been around 1.6-1.8 vs current ratio of just 1.2)
Limited downside risks w.r.t valuations
Risks : Regulatory risks relatory to the gas sector
Kotak Smallcap growth/Mosl multicap 35
As we all know, the smallcap basket of stocks have had a terrible time since Jan 2018.
Intend to invest here to take advantage of any revival in the smallcap basket ( instead of direct investment)
Cyclicals & other small caps I intend to add on a short term basis
Each of these requires a correct entry strategy & well timed exit strategy !
These are purely short term & cycle dependant bets.
- Rain industries ( A cyclical play on the Aluminium/Auto EV segment)
- Avanti Feed ( A cyclical play on aquaculture /shrimp feed)
- Balarampur Chini ( A cyclical play on the sugar sector)
I welcome my assumptions/strategy be critiqued by fellow value -pickrs & analyzed whether my approach is practical and how likely is it to stand the test of time or not ?