First of all congratulations, you’re doing a lot of good things with your portfolio and come across as a sophisticated investor.
I won’t get into the details of concentration vs diversification, everyone has their own style and strategy to work with. Peter Lynch is famous for owning 3000 stocks at once and still generating 29% CAGR in his investing career.
I will just highlight on the above point. I started my career in BFSI sector too and for us 40-50% of our pay was in the form of year end bonuses which really creates a hinderence if and when you have to take opportunities of a severe market downturn.
Like you have alluded, having plenty of idle capital during a market downturn is one of the greatest ways to create alpha. Most legendary investors are known to sit on huge piles of cash and do absolutely nothing with it during a bull market, only to sweep in and buy sizeable positions when everything is selling at a deep discount. Statistically market corrects by 10-20% every 2.5 years and by 30% and more every 5 years.
Personally, I have started to build a ‘market correction fund’, the sole purpose of which is to be used to buy/increase positions during a market downturn.
Not that you have to follow or replicate the same. Just something to think and ponder on.
I won’t comment on number of stocks in your portfolio as it’s totally depends on investors risk appetite and returns expectations.
N it’s good u r not going by valuations much, as I know lot of people lost the bus thinking abt high valuations .
I believe till the time a company is growing well , it’s rich valuations will b intact. Few stocks r valued high for a reason n vice versa .
About IT and Pharmaceutical sectors u can learn a lot from this forum n if u r comfortable and get into it . As both f these sectors have tailwind n as a long term investor can’t miss out.
Btw Yur momentum trading pf has a lot f good quality Pharma n chemical stocks .While cutting out the non performer from ur core pf u can replace those with these performers .
Holding ur winners for long and compounding creates huge amount of wealth and multi-baggers .
Selling your winners and holding your losers is like cutting the flowers and watering the weeds- Peter lynch
Thank you Tar, that is exactly what I have been doing. Let my SIPs and dividends accumulate to make a sizeable “blood on the street” purchase fund. I expect this cycle to repeat every 3 to 5 years. I know I will not be able to time the exact bottom but going by my experience of Mar-20 I had deployed 50% of my idle capital by April-20 and deployed 25% more by June while keeping the rest if market falls more.
Thank you Aniesh. I started the momentum satellite portfolio with the goal that I will always be trading in the most in favor sectors even if I am not fully educated on them. The beauty of following both discretionary and non-discretionary system in the same portfolio is the eventually whichever strategy outperforms will become a larger portion of the portfolio.
I have enough confidence in my momentum trading system that if I am not able to beat it with my discretionary picks I am happy to let become a larger part of my portfolio.
Only thing I will ask to rereview is the # of Small finance banks and concentration in them. Small finance banks are generally long tail segment and though can give super high growth, can bring in very very high risk. At times, I won’t shy away from comparing them to Sub-prime US loans. They will do well till the time economy is ticking along. Any long recession would mean that they will have massive massive defaults.
I Agree, even i do the same. Core PF of 25-30 high conviction ideas
In Second PF I play with IPO / Demerger stocks . Most of which has become huge alpha generator for me , n few of them are large part of my PF as well.
Thank you Swapnil. Yes SFBs and MFIs are high risk/reward. I have kept them under 15% of core and 7.5% of total PF to limit the risk of ruin. Real problem will come when such picks start performing during a medium long spell of economic normality and they become a larger portion of the portfolio.
Cutting down (limiting) performers with future risk is difficult.
Read about your portfolio construction process and almost all the comments. Most of them seems to be valid, but may or may not be suitable to your investment goals. I would not not like to duplicate any comments which are already provided. Yes, your portfolio seems to be over diversified but so long as you are confident about your picks, its fine.
Regarding your core portion, I would have preferred ETF, Mutual fund approach, but as you said you believe in DIY, so no comments. However, you may think of devoting 100% of your energy on generating alpha from satellite portion. For core portfolio, assign tracking index to low cost ETF. You might have accumulated stocks over the period, but believe me, like plants, they need care. You need to prune them from time to time if they are not doing well, you may need to water them when they need. Again, you are the best judge of your investments, if you can give time and energy.
Last but not least, you mentioned your long term return target of 15%. I believe, you should link it to some market index. For example, you may like to beat NIfty50 by 5%. All the best.
I feel the mutual fund industry, specially the active funds should only be used by people who have no knowledge of investing. Why should I pay 0.5% for indexing and 1% for other funds when more than 70% of the holdings are going to be same and I am pretty confident I am going to beat them.
This 1% expense issue is even more problematic when one is investing a significant amount of capital. It all adds up over the years.
I understand from everyone’s POV that it is a debate of QOL (quality of life), ROTI (return on time invested) etc., but as I have mentioned in previous posts, I do not put in all my time for research. Only time will tell how harmful or not this decision will be for my portfolio.
I do have SIPs in S&P500, NASDAQ, NSE500, DSP Quant, MIDCAP150, SMALLCAP250, ICICIALPLV, DSP Small, DSP Midcap, Mirae Emerging Bluechip, UTI N200M30, JuniorBEES, and GOLDBEES ETFs/Index funds. But these are very tiny compared to the portfolio. I will add a SIP to ALPHA50 ETF when Kotak launches it. I am inclining towards DSP world funds as well.
As for target returns, 15% is the current figure, a more balanced long term target is inflation + (7-10)%. I know the risks, time etc needed to achieve more than that. Nahi chahiye.
Risk tolerance : high vol, low vol - doesn’t matter for me. As I am not going to be taking out the money for a long long time.
Your expertise level: time in market, industry experience - As I mentioned in original post, 4-5 years investing. Work in BFSI.
Anything else that matters - My primary goal is to survive in the market for long. So I don’t want to take unnecessary risks that can blow me up. So no options, no penny stocks, microcaps etc. I am pretty sure that of the companies in the core portfolio majority of them will still be alive after 2 or more decades.
That being said I am aware that fortunes can turn on a dime, and my position sizing can control the risk of ruin to some extent.
Agree on Mr / Etc provided you have time and energy to manage .
Research and monitoring is key so please don’t compromise on it. Think it like buying a mobile, how much research you do before buying.
You have S&P 500; this represents 75% of US stocks. Nasdaq is already part of it, so there is duplication here.
Diversification is good but 25 to 30 stock may replicate index like S&P 500. That’s why it’s good idea to focus on 15 odd stocks as if you own them + Etf / fund. Have a portfolio perspective before adding any jewel to your investing universe to make it all weather portfolio.
Thanks. Sharing this context helps. It takes some thought to be aware of where one stands on these variables.
Adding my 2 cents
I think your stock selection is very good and shows deft touch and experience. Most of these companies have strong balance sheet and good earning power.
Unlikely that anyone of them will go bust.
Since your horizon is long enough, these will compound over long term.
Since you have experience in BFSI it’s easy for you to evaluate firms in those sectors too. That plays to your strengths.
The only areas in my opinion for you to think about are
your return expectation is around what the sensex and nifty long term returns are. Will you be happy with similar returns after all the effort you make In researching and investing ?
you have a lot of stocks in your portfolio. Position sizing is something that becomes important as your portfolio grows and you add more money to it over time. For eg. If you are in BFSI and know which are the top 3-4 stocks then why buy more.
The amount of time it takes to research a company is the same. So why not have more conviction in some and have lower number of stocks. Tracking becomes easier
There is an interesting thread posted by Marcellus on the maths behind the theory of concentration.
The opposite of concentrated portfolios is a very famous man with an amazing track record by the name of Peter lynch. So more stocks might work for you as well.
As for some sectors that are missing I wouldn’t worry too much. It’s not necessary to have all industries represented in the portfolio.
Many successful investors have gotten by with financials, consumer and IT just fine. You can add pharma and IT when you feel confident and the opportunity arises. this forum is a great opportunity to learn about other industries.
Sir, these are the minimum returns I expect in the long term. Talking in probability terms, I am 99% sure of getting this much, but in more than 50% sure of getting more than 20% as well. But I am not fixated on the returns, will I be disappointed below this threshold? Probably, yes. Anything above this is cherry on the cake.
Sir, while the winners of yesteryears are clear in the present, winners of the future are not. The business models in BFSI industry for sure will not remain as they are today. The profit pools could shift, that is why I look at the sub-sectors of BFSI as fundamentally different and pick the top decile in each sub sector of BFSI.
BFSI, is probably the most opaque of all industries currently, one can’t scuttlebutt much, the true B/S is never known. I am still evaluating the quality of managements, DEMON and COVID were excellent times to judge them. The ones I have picked have certainly shown they are better than the rest of the competition, but it is difficult to predict the winners from this cohort.
Yes absolutely, and what I would like to say about this point is that I can still be concentrated while having 40+ stocks in the portfolio.
I am not excited to add pharma, chemicals and IT to the portfolio as it would require much more bandwidth from my side. You are right that these are not a must have. I am happy with the occasional exposure I get to the random sectors from my momentum satellite portfolio. The entry and exit timings are favourable.
Thank you Unknown sir, for your detailed reply. Much appreciated.
Hi Abhilasha, you have a good diversified portfolio with some really good companies. Few thoughts/queries from my side
Allocation of 40% to banks + NBFC appears to be a bit on the higher side. If one includes the insurance cos & AMCs it amounts to >55%. There is no harm in venturing into the unknown and diversify by adding say a couple of pharma or chemical names and reducing the financial services portfolio.
Since your horizon is creating wealth over the next 3 decades, FMCG is a must have. While most of these companies are mature and trade at high valuation, the stability of earnings growth in a young economy like ours lends a lot of stability to the portfolio, especially during downturns like demonstration and Covid.
Since MFs firm a very small portion currently of your equity portfolio, would you look at moving some of the funds to direct equities should you opt to rebalance the portfolio weightage in future?
This has already been discussed in the thread. I invest in what I know. And I have pharma & chemical exposure occasionally in the satellite portfolio. Despite the high exposure I sleep soundly. I would probably have disturbed sleep if I have even 1/10th allocation of financials in something I don’t understand.
Your point is valid for someone who needs to occasionally take out capital from the portfolio for consumption or emergencies. If one has expenses sorted and doesn’t need to touch the portfolio for any expense then the stability that FMCG offers is useless for them. I can happily trade occasional drawdowns in my networth for higher compounding.
The investments in MFs are done with the purpose of helping me track/compare my value add to investing process vs the easiest investing options available in the industry. The SIPs continue like a habit, and I do not intend to disrupt the process anytime in the future.
I do not foresee a scenario where the MF weightage in my networth will grow faster than my DIY investing portfolio. Reason being I SIP in my DIY equity funds as well and I will be, at worse, matching the MF performance in the long run. In fact, if my DIY investing outperforms the weightage of MF will reduce.