Atul Auto Limited

Stock Opportunities
261

Can’t say much about trading bets. But yes I have moved to 40-45% cash by now (not to read too much into it, since I stay 20%+ cash at all times).

Looking to deploy some of this in new opportunistic bets (6-9 months to a year’s timeframe) after due study. Good thing is there is no hurry, more opportunities will get offered as the pain continues. But we need to be very choosy.

Given the extent of pain across industries, and the election year looming down on us soon, I think we may need to be prepared for longer period of consolidation.

262

Over last cpl of months, we have raised some cash and got out of some of non-core ideas and some loosers. But still, we are almost fully invested. We don’t like to sit on cash and this is another reason why we have a diversified portfolio, wherein we keep pursuing several ideas as and when they click to us.

We feel we are not good at timing markets and have in past just tried to switch into better ideas as and when they come.

Like hitesh bhai said, cash levels depends on individual investing style and perspective :slight_smile:

Ayush

263

Hi,

Spoke to a friend in NBFC who deals with funding Car Loans and LCV’s. According to him in last 2-3 months the market for LCV’s having tonnage of 1.5 Tons and above and primarily used for inter-city transport has collapsed and is showing -ve growth. He himself was shocked at the sudden lack of demand for these LCV’s

The intra-city segment small sized CV’s are still doing ok, with a growth of around 15%. Thisis lower than the 30%+ growth rate witnessed last year.

This data was on the basis of disbursments NBFC’s are doing in the CV space.

Regards,

saurabh

264

Like Ayush, I am usually fully invested. My logic is that I am NOT a good timer and I have historically conclusively proven that to myself :wink: So, better to stay invested in stocks I like over a period. Markets will go up or down. Can’t do much about that. Since I still get a monthly salary from my primary source of income I can always add on incremental sums in stocks, although that may be rather low with respect to my overall portfolio.

Coming to Atul Auto, there is obviously going to be short term pain. The overall demand of LCVs are low. But somehow I think this budget has some longer term benefits like boosting low cost housing through additional tax breaks which will lead to slow revival of some of the core sectors. Also, Chidambaram has categorically mentioned that the PSUs will have to spend their cash on capex or return it to the govt as special dividends. I don’t think any PSU is likely to return money so there will be some amount of capex. So, if one can look 2-3 quarters out, and take some pain for now, this may be a stock to stay invested.

265

The market usually discounts the next 9-12 months in advance. We saw that in 2003, 2008 end and recently in 2011 dec in financials.

In personal experience, trying to time precisely has resulted in lost opportunities. In 2003 ( loooooong time ago for most) and 2008 , when valuations got cheap, it was good time to buy even if the turnaround was not visible. when the turn happens, it is usually late. ofcourse one can be a bit early too sometimes.

Like ayush i stay fully invested as i have found that if i focus my energies on understanding the company and industry better, the eventual result is good, even if the timing is not great.

266

It’s not as if current valuations are cheap. In some of these businesses, adequate margin of safety is just not there.The kind of businesses we are invested in, most of them have run up a lot in the last 1-2 years. I would say most of them in ValuePickr Portfolio has exceeded the targets by far. So its natural and prudent to book profits selectively, where future visibility is clouded. Especially where there is clearcyclicality__in demand. [My criteria is simple - if I can’t see 20-25% compounding with certainty, I will re-allocate where the odds are visibly much better].

Secondly, staying fully invested at all times in the market has not worked for me (in 2008). Where you know the business well, one can stay put for sure and eventual results are decent too. But that can come with huge opportunity costs, as I found out in 2008/9, as I could not allocate incremental capital to the best bets - even though my homework was done (because Markets had tanked and I remained sanguinely fully-invested:(.

From a certain perspective - that’s poor capital allocation strategy. I currently subscribe to that.

Disc: This is a general comment - primarily on CASH allocation - in line with other comments by Ayush, Abhishek and Rohit Chauhan.

Re: Atul Auto - I remain invested; adding on declines with caution, and look to accumulate more on further declines. I believe market might give better opportunity in coming months if demand slowdown continues.

267

I agree with Donald. It would really be helpful if people read the 2013 memo from oaktree called Ditto. This memo explains very lucidly why investors have no choice but to buy riskier assets as the return on risk free assets in India and the world is negative. He calls them the handcuff investors. This includes both bonds and equities.

If we look at the Indian market for the last six months, the run-up has been driven by FII flow. DII’s have been net sellers in any upmove. With the DOW having crossed 14,000 and the world markets doing well, i won’t be surprised if there is a reversal in flows. It is simply money chasing momentum.This can lead to sharp downside in the Indian markets and having cash in hand to invest at this time can possibly give good results.

268

Nice to read some contrasting opinions from the seniors…

As Prof Bakshi used to say- Investing is not Perfect Science. There are no absolute rights & wrongs here. Do what you feel is best.

Agree whenDonald Ji says 2008 down would have been tough for those who were fully invested.

What was your experience with 2008 crash- Ayush, Rohit & Abhishek??

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269

Jatin - 2008 was quite an extreme event. In the US there are a lot of people still haunted by that event and after every 1% rise, expect the market to crash. As a result, inspite of a 100% rise since the lows for Dow , the equity participation has been low

This is similar to the great depression in the US where an entire generation was scared from stocks.

I had some level of cash moving into 2008 and started investing at the lows. I remember distinctly that a lot of people just froze and by the time everyone woke up, it was too late - the entire market hit the upper circuit in March 2009 after the election.

In experience absolute bottoms are only obvious in hindsight - for example in Dec 2008, companies like maruti suzuki went to 500 and Ashok leyland to almost 10 bucks. If you looked at the immediate prospects (1-1.5 years), they were terrible. the stocks started turning in 6 months and the actual performance in 12 months - but one could not guess that in dec 2008 (atleast not me). you have look out 2-3 years and assess where the company will be in that time period.

i personally prefer to have some cash around, but not too much. too little and one regrets missed opportunities . too much and you will have regret if the market suddenly turns and runs up …regret both ways …so for me the % cash is to reduce the total regret over a cycle …nothing scientific :slight_smile:

270

Not that I am against others advice but I think I belong to Rohit’s camp. I believe its absolutely futile to time the market unless of course you have divine powers. I remember a big headline in ET around feb-mar 2009 which read “Bluechips at the price of a burger”. But days passed and nobody was ready to eat these burgers. People were just scared too much and were not really convinced with the initial rally in the markets. We all know what kind of killing people made who remained invested in quality stocks. You would have seen you wealth soar had one not sold counters like HDFC, ITC, VST industries and others.

But then again, it depends on the style, risk taking ability and individual preferences of an investor. Woh kehte hai na suno sabki karo apne mann ki…

271

Atul looking to exports and Africa

272

2008 was an instructive and educative year :slight_smile:

My portfolio overall was down a fair bit, but did not fare as badly as the overall index because of some stocks like Supreme which were more or less steady during the whole carnage. And Supreme was at that time around 25% of my portfolio!! That way I was lucky.

But I think 2008 is a once-in-25 years (if not more) kind of event. You cannot/should not plan your portfolio strategy looking at a extreme event. Recency effect may be playing on minds of a lot of people and they are scared of deploying cash. No one can predict future market direction correctly so it is better to stay invested and diversified. For most Valuepickrs, it is important to diversify, because they are investing in small and mid caps. Concentration is great to read about in a book, but as retail investors in Indian markets, diversification is very very important. I personally have been guilty of not diversifying adequately (in fact I think currently also my portfolio is fairly concentrated). You never know when the next Arshiya or CEBBCO will hit you!! :frowning:

I also believe to let winners run. One thing that I have learnt from Donald in our numerous conversations is to focus on the 25% CAGR. I think that is a great skill he has and people should try to emulate that. I must say that I am not very successful always in that. e.g. I have my doubts about 25% cagr for supreme for the next 3 years, yet I am reluctant to sell :frowning:

Another important learning from the crash of 2008 is to have a core & satellite strategy. Have some core stocks (long term 3+ year horizon) and some shorter term opportunistic stocks (6 months - 1 year horizon). Cash may be a part (although a fairly small one) if the satellite portfolio. The only exception is when the index PE starts moving over 20-22. Then getting out slowly is more prudent.

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273

We are hijacking the specific Atul discussion, but can’t resist adding to this Short Term Opportunistic portfolio bit. We ValuePickrs are really richer for this dual approach.

This is a specific learning from Ayush I have _haltingly_tried to pick up (greatly admire him for this). Move CASH form long term bets (overachieved targets and low visibility on further 25% CAGR) to newer, much-undervalued higher-growth, strong BS promising bets with low downsides. If I have to generate more CASH anytime (for Core Holdings), I would have no hesitation selling these, as you said, these are Non-Core.

The challenge is to keep looking all the time, without lowering standards. Most folks have forgotten Indag Rubber its seems, but looks good to me for more allocations. Lumax Autotech looks good, but how far is the growth trigger? Others like Caplin Pharma or MPS don’t look suitably undervalued to me.

Under-valued, high growth, strong BS candidates?? Ayush, Hitesh, Omprakash kuch Tips do bhai:))

Let me copy this discussion to the Opportunistic Portfolio thread, to take forward.

-Donald

1 Like
274

I was reading âTempleton way with Moneyâ an excellent book which describes John Templeton investment strategies. Found some quotes by John Templeton which covers the point whether to be fully invested at all times or go in cash when there is economic uncertainty. Here it is

âThe market and the economy do not always march in lock step. Bear markets do not always coincide with recessions.â âBuy individual stocks, not the market trend or economic outlook.â

Templeton evolved a rule that a stock should typically be sold if another stock could be found that was at least 50 percent cheaper on fundamental grounds. The important thing was to keep the portfolio under regular review and be prepared to take decisive action when market conditions created new opportunities. The same discipline needed to be applied to selling as to buying. The reason was, he liked to say, âWhen sentiment changes, it changes very suddenly, and if you are not invested, you will miss out on a large proportion of the returns.â

275

Read very interesting data related to above discussion on a blog and thought it would be good to share it.

Let us take an Eleven year period âOctober2001 toOctober2012.

Remember this period contains the most spectacular rise and fall in the stock markets.

Let us assume youâve invested in Sensex during the above 11 year period. Of course good diversified equity funds have provided far superior returns than Sensex. You may visit our âSIP Crorepathiâ page for more details.

During the last eleven year period, if an investor would have missed out just ten best days in the stock market, a sum of Rs. 100,000 would have returned only Rs.2,50,270 as opposed to Rs.5,33,180 had he stayed fully invested.

For staying invested, the absolute return is 533%. For missing best ten days, the absolute return is 250%. Missing just best ten days costing you a difference of 283%! Can you believe it?

An amount of Rs.1,00,000 invested eleven years before in Sensex is worth following:

Remain Invested â Rs.5,33,180 (16.43% CAGR)

Missed best 10 days â Rs.2,50,270 (8.69% CAGR)

Missed best 20 days- Rs.1,47,330 (3.58% CAGR)

Missed best 30 days- Rs.93,490 (Negative returns)

Missed best 40 days â Rs.63,440 (Negative returns)

The cost of missing best 10 days is Rs.2,82,910 (roughly 3 times your capital) where as cost of missing best 40 days is Rs.4,69,320 (4.7 times your capital).

Infact your capital would have got significantly eroded if youâve missed the best 30 and 40 days.

For missing just best 20 days, you would have merely received closer to savings bank interest.

Tell me honestly, in hindsight, how many of us would have been able to predict the best 10 days during the last 10 years leave alone predicting the best 40 days?

Markets can gain or lose even 10% in a single day.

The myth is that, timing is essential to generate high returns.

The Reality is that, it is the time and not the timing that matters

**It is the time (duration) which matters in an equity market of one of the fastest growing economies in the world and timing does not matter. Our economy is expected to grow phenomenally in the decades to come. If someone is capable of making lumpsum investment and not worry for atleast 10 years, he would be amply rewarded.
**

More at http://wisewealthadvisors.com/time-or-timing/

**
**

276

Hi Anil Bhai,

From what I understand from your post, one should be mostly fully invested but should look to churn his portfolio during bad times as there would invariably be many opportunities that might be better than his existing holding.

So the cash comes from selling existing stocks which are relatively less attractive (50% as mentioned by Templeton). And this sell-off can be either from core or non-core portfolio as the criteria is only relative valuation.

If we look at the dual strategy of core and non-core, the core portfolio has high conviction shares and non-core might be medium conviction but high upside potential. So to maintain the balance in this strategy, during bad times one should look at replacing high conviction stocks only with even better stocks in terms of conviction or same conviction with higher upside potential.

The non-core can have higher churning. And to add Donald’s strategy one can sell part of the non-core when the times are changing to have higher levels of cash as you will get lesser cash for the same stocks later. But Yes, how will you get the timing right for this? Since this could be a smaller part of the portfolio I would be ready for some experimentation on this. The Nifty P/E band will be a good starter and of-course technical analysis

Cheers

Vinod

277

Abhishek ji,

I disagree with you here. With increasing interconnectedness of global economic system, issues from a small region can spread to global scale in a much more rapid fashion (remember Greece, a tiny economy in Europe, and how it created shockwave in financial market). There are many such bubble growing under the skin of current apparently stable period. See this one, and try to feel what impact it can have in global economy

http://www.cbsnews.com/video/watch/?id=50142079n

Rather than theorizing about how rare an event be which we know we can’t predict for sure, we should rather look at such issues and try to brainstorm how they are going to impact us. A careful tracking of recent development in global economy, and a vigilant eye is all that is needed to save use from these days. That is why I feel a dynamic asset allocation strategy which changes with change in economic environment is the best approach to attain maximum cagr is very long term.

278

I somehow am prettyskepticalof such studies.

Why don’t they remove the worst 10 days and then do the analysis? or to balance out, remove both best 10 and worst 10 days, and then see the numbers :slight_smile:

Further, investing is not just rational, but also psychological. think of guys who were down 75% in 2008-09 and think whether it was worth it. plus look at their CAGR from Jan 2008 or even Jan 2007.

Mohnish Pabrai was majorly down in 2008 and it spoilt his whole track record.

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Remain Invested â Rs.5,33,180 (16.43% CAGR)

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Link: http://wisewealthadvisors.com/time-or-timing/

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279

The point is you really can’t predict those 10 good or 10 bad days. Can you? When 2008 event happened who would have predicted that people’s portfolio would be down by 75%. Like others said it was an extreme event, a black swan event, you could not have done anything about it in foresight, but yes in hindsight we can say anything.

prettyskepticalof :))

280

My point is rather than looking at always being fully invested or always being in 25% cash, it should be opportunity specific. If you really like something at current price point, buy it, else keep cash. Markets will provide opportunities, if not tomorrow then after 1 year.

As Buffett says, they will keep throwing stocks at you, you don’t have to swing. Wait for the fat pitch.

To me, that’s much more sensible thantheoreticalstudies.

About 2008, everybody knew they were swimming naked. But it was also true in mid 2007. Investors kept increasing the valuation numbers/ kept going down the quality curve. Question was how do you exactly time your exit. No great idea on that.

I somehow am prettyskepticalof such studies.

Why don’t they remove the worst 10 days and then do the analysis? or to balance out, remove both best 10 and worst 10 days, and then see the numbers :))

Further, investing is not just rational, but also psychological. think of guys who were down 75% in 2008-09 and think whether it was worth it. plus look at their CAGR from Jan 2008 or even Jan 2007.

Mohnish Pabrai was majorly down in 2008 and it spoilt his whole track record.