I like the thought process. What do you think would be optimum percentage you would allot in the PF for a high conviction stock. And do you have a plan as to how much a median stock gets alloted in the PF.
Thanks @hardik_shah1 for asking.
I am still not sure about the optimum percentage for the high conviction stock and I am still observing myself and learning.
All the comments below are based on my observations of my behaviours and I like experimenting.
I manage multiple portfolios - my sister, my mother, my father and mine.
I don’t remember putting more than 7 percentage at buy price of my net worth at any time in any of the stock in my portfolio. Reason behind not putting a lot of money in one stock is that I am not confident of my abilities.
With time I have started taking bigger position in stocks at my net worth level as I am learning with time.
I use SOIC allocation framework of 2-4-6-8 as the starting point for deciding allocation.
I don’t understand the companies in too much depth to take 8 percent allocation at the buy price of net worth. Though someday, I aspire to reach there.
Mostly I don’t hold the company with 2-3 percent allocation at buy price of my networth due to efforts invested in tracking and understanding the company. It either scales to 4-5 percent or I take the exit as my understanding improves.
The other reason is that I don’t get many stocks to invest.
I have 5 stocks in my Indian portfolio.
Other than 5 stocks, I also have 1 share of protean just to understand the business through the investor relations.
In my US portfolio, I have underperformed the US nasdaq 100 and due to tax complications, I am not looking forward to put more money in US stocks and hence not discussing about its allocation.
Not discussing the portfolio allocation of other members of my family due to privacy concerns.
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Monthy Updates
I reassessed my thesis in NH after the Supreme court ruling. I don’t like to be a guy holding a company when fundamentals have deteriorated(the contra guy). Hence tried to analyse the NH again in response to the supreme court ruling.
THE CLINICAL ESTABLISHMENTS (REGISTRATION AND REGULATION) ACT, 2010
THE CLINICAL ESTABLISHMENTS (REGISTRATION AND REGULATION) ACT, 2010 talks about transparency in prices instead of fixing of prices.
The only short term negative is that if the government will not be able to come to that price range to be charged, the supreme court might enforce the CGHS rates which can destroy the hospitals economics.
Though that thing will be temporary in nature until and unless the government fixes the price based on region.
The implementation of the CGHS price can not be the terminal status even if implemented, it can just be a temporary status as CHGS rates are very low and unaffordable for the hospitals to operate profitably.
I am also in favour of giving people good healthcare but the things should be sustainable.
This thing might impact the hospitals like Max or Medanta though.
Probability of impact on NH looks low
- Many NH hospitals are running at scale
- NH charges less prices of its procedures and surgeries compared to other hospitals(Still in verification)
- More than 50 percent of the profits of NH comes from Cayman Island
Ref 1 → https://www.indiacode.nic.in/bitstream/123456789/7798/1/201023_clinical_establishments_(registration_and_regulation)_act%2C_2010.pdf
Ref 2 → Price transparency puts hospitals in trouble
Revenue growth of 6 percent YoY in NH
The lower revenue growth in NH seems to be due to disruption in North and West which is a temporary and does not change things substantially when the demand is concerned.
I think considering the management is honest and ethical, I can live with it.
Syngene reassessment
- Syngene never discloses the amount of the drugs that are in different phases in clinical trails which makes their business difficult to understand and less transparent. Low transparency is not directly proportional to the good and ethical managment.
- Then there is the concept of the Group CEO which I am unable to digest.
- If there is not more scope to earn more than 20 percent in direct stocks, it is better to put that money in mutual funds.
Out of all the stocks that I hold, it is the lowest conviction stock that I hold.
Some positives are industry structure and better and informative annual report(increases transparency) when compared to other companies. They also reply to questions raised in investor emails sometimes which is good(increases transparency).
Mutual funds updates
The things I am doing is more towards increasing more percentage of my net worth towards direct Indian stocks.
I have closed the SIP of my mutual funds since more than 1 month now.
Reason is that since few months I have been skipping SIPs for direct investment in stocks like Neuland and Kama Holdings and putting directly certain percentage in SGB and Arbritage.
Hence it made more sense to close the SIP.
On the day where the small cap lost 5.5 percentage on single day, I sold 2-3% of my networth in smallcap to come in cash. Reasons
- To limit my drawdown
- Canara Robeco small cap is not doing too good a work when compared to other mutual funds to limit the drawdown
- To prepare money for buying direct stocks
I have been holding more than 20 percentage in fixed assets like Gold and Arbritage since few months now.
Direct Stocks Update
I have not bought anything or sold any anything.
Peculiar behaviour
Sometimes, when I think the market is overvalued, I put money in NPS. This month also I put more than 40% of my investible salary in NPS. I have put money in NPS 3-4 times in this financial year.
Reason are the NPS has very long horizon, invests mostly in large cap and to let my investment in equity going on.
My Pension fund manager of NPS is Kotak and I have 75% invested in equity.
I always try to be aware that I can not guess the market and hence take decision based on it.
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Mutual fund Update
By the end of the month March, I had some cash left undeployed and considering next month, I was expecting my salary which would increase my cash level to level I did not want. Hence I like to be aware to not guess the market, I deployed the money.
I invested in PPTSF, NPS and few shares.
I also invested some money in Arbritage and SGB.
I still hold more than 20 percent in SGB and Arbritage.
Stock Updates
I bought more shares of NH, Kama Holdings and opened position in Indigo.
I invested some more money in Kama Holdings when the SRF started touching new highs and Kama was near to 2500. I was not planning to put more money in Kama until and unless it has attained some stability but as SRF made new highs, I thought maybe technically things might have changed.
Indigo was not only stock which I was considering to invest to increase my allocation to consumer business.
The reason I am interested in consumer business is that it is very simple to understand, as SOIC says, look at double digit volume growth.
I agree with the SOIC point of view as B2C business are very difficult to scale when we are looking at the double digit volume growth then something good is happening.
I am also aware of the 80 20 rule.
The 80-20 rule, also known as the Pareto Principle, used mostly in business and economics, *states that 80% of outcomes results from 20% of causes.
I like business with very few moving parts and hence which can be easily tracked and lot less surprises.
Other options that I was looking was
- Zomato
- Mrs Bector
- Senco Gold
I avoided Zomato as it was highly valued and I can’t pay that premium.
I am aware that Blinkit and quick commerce in general is scaling like anything and hence I considered Zomato for review.
One other reason for considering Zomato is that being from ecomm background I understand Zomato better than some people. If it was not for valuation, I would have added Zomato. One other reason for avoiding it for now is that I already have Alibaba and Amazon.
I have reviewed Mrs Bector in the past when it was near to 700 when many mutual funds were adding it. I again reviewed recently, I found other businesses showing better volume growth and hence ignored it.
Senco Gold, seems to be good business showing good volume growth. I was confused with Senco Gold and Indigo at last. Considering when opening new stores, it takes hit on Senco cashflows due to inventory a new store has to maintain, I avoided it. Also, recently in past 1 year in Lucknow, many jewellery stores are opening and I thought maybe competition is intensifying.
Looking at the Senco Gold growth for last quarter now, I think I might be wrong but I don’t like business with unstable cashflows.
Hence Indigo looked as the perfect option to me which is showing good revenue growth. Also the competition in Airlines has consolidated. It also came in my notice few months ago when some mutual funds added it but at that time, Neuland and Kama looked better option.
The moat in Airline industry comes with low cost. Indigo airlines are 20 percent more fuel efficient than Tata Airlines for some busy routes that I checked. Considering 30 percent of the revenue goes in fuel cost. The Indigo airlines has 4 percent margin advantages in comparison with Tata Airlines just due to fuel efficiency.
The only issue that Indigo is facing is the Pratt and Whitney issues for their planes.
Indigo Thesis
Industry structure - 11 percent growth in airlines till 2030.
Indigo is the market leader with 55 percent market share.
Indigo uses moslty a320neo - one of the most economical engine.
Debt
Still analysing as it is difficult to analyse.
Pe expansion possible
Pe ratio - less than 20 and yes. Forward PE is lesser.
Margin expansion possible
Yes if Pratt and Whitney does not ruin things and competition remains consolidated.
There are high chances margin will decrease if competition increases as they are operating at their best margins.
Vstop
Positive
Stage
Stage 2
Tailwinds
Increasing ticket prices(short term)
More airports(mid term)
Consumption in india(long term)
More airplanes(long term)
Negatives
Operating deleverage can kick in if planes capacity remains unused due to Pratt and Whitney issue.
Need to check the tata airlines growth.
Need to analyse the debt
Pratt and Whitney issue - new planes are of Leap engine. Ratio of 50 50 on 350 planes will change going forward. Currently less than 40 planes are grounded as per Q2FY24. They are doing certain things to bring more planes on different models to overcome Pratt and Whitney issue. More planes are grounded as per new issue in Q3FY24.
Questions still need answering
What is the benefit of the company which gives planes on lease to Indigo?
Management needs to be analysed.
Exit criteria
Competition and Pratt and Whitney issues intensifying.
I have near to 1 percent in Indigo at 3500 levels which I will increase if my understanding improves.
I think if there are not more chances to earn 20 percent returns, it is better to put money in mutual funds.
Hence there are chances, I might sell it.
I think I will take the exit as margin might not be sustainable, p and w issue and return potential is not big enough to put the efforts.
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Sold Syngene
I sold the Syngene after the Q4FY24 quarterly results. I know the business of custom synthesis should not be judged QoQ but I was already planning to exit the Syngene because I think I can not understand enough in deep to predict its sales or profits. Not so good quarterly results causes the stock to go down and as I wanted to exit the stock, I thought it was a good time to exit.
Others reasons as mentioned here
I sold near to 700, my average buy price was at 550. I mostly added near to 50 percent each in 2023 and 2022.
Sold Indigo
I also sold the Indigo as could not got hold of their business with few percentage point profit.
Reason was my theory of margin not sustaining but it seems that at even the current elevated flight prices, the Air India is operating is loss, so maybe the margin expansion is here to stay.
Also top mutual funds have added Indigo in March and April.
Neuland concall question
I asked a question in recent Neuland concall.
I could not get the answer that I was looking. I later realised, maybe because my question seemed forward looking.
The better way to ask this question would have been,
Will it be fair to assume that our commercialised API and intermediates count will not decrease QoQ?
or
I could have simply asked, how to understand the decrease in commercialised intermediates count in recent quarters.
Something different that I tried
I tried one strategy for trading and I was able to predict a lot things but could not predict the people response and has to book near to 5% loss over 3.5% of my net worth.
It was difficult to book loss when the loss comes in just few days but we should maintain discipline.
Also the loss is permanent which makes it little difficult.
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Sold NH( Narayana Hrudayalaya Ltd)
I sold it after going through the Q4FY24 concall at around 1200.
Reasons - operating deleverage might play in coming 2-3 quarters.
- They will use only money earned in India for Indian capex(as they can not bring money earned in the Cayman to India due to tax issues). They might take loans up to 300-400 cr(1000 capex- 300 cr cash in India - 400 cr estimated profit this year in India), decreasing the net profit by 30 - 40 cr.
- Employee cost can become high going forward due to backlog as told in the Q4Fy24 concall.
- New facility of cayman will come in operation in Q2FY25 and depreciation and fixed cost will hit the balance sheet. My estimation is near to 40 cr in depreciation will get deducted from the PnL. As the capex is of category greenfield in the same city and it is in the city centre, it might take least 1 year to breakeven, till then it will decrease the profit in PnL(operating deleverage). The operating deleverage might be too high, it seems in the initial few quarters.
- The growth in revenue YoY is not coming even if the Northern Hospitals issue that they faced last quarter is gone(concall - Q4FY24). Considering they increase their prices by at least 5 percent on 1st of January every year, the YoY revenue increase of 5 percent has not been satisfactory.
I will judge the company again after the Q2FY25 results or if growth comes again in Q1FY24.
The reason why I looked at this company concall in detail was that, I studied it(and bought it initially) after I saw it being added in axis small cap fund as their top holdings and due to SOIC. But Axis small cap fund started selling the NH since few months, and I was looking for reasons.
Mutual fund updates
I could not find many stocks and hence have deployed the money that I got by selling stocks in the last few months in the Parag Parikh tax saver mutual fund. I have kept some cash(4.5% of net worth), to take a position in one stock if anything good arises.
Stock buying update
Added some units of Neuland.
Mutual funds have been adding SRF recently, the Mirae mutual funds which sold the SRF in April, added it back in May. Need to understand the reasons.
One interesting thing
One interesting thing that I tried was making my watch list again after the crash helps in bringing a fresh perspective to the portfolio. It was suggested by chartist in one of his tweets.
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