Wonderful
Can you please let us know which software you are using?
More than 10 bagger if you had held on.
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I sold out GI @ avg price of Rs 350 … Yes early but again it was as guided by my software .
No regrets …
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First phase 2009 - 2014 the focus was on Wealth creation and my portfolio was aggressive ( high % in equity ) ,
From 2015 once I quit my day job the focus is on Wealth preservation so portfolio is conservative ( high concentration is in large caps and I have increased fixed income % to Min 25% of PF )
CAGR 2009 till date is > 40% + but most of this return happened because of my purchases before 2014.
Post 2015 till date the portfolio ( debt + equity ) returns are more moderate around @ 18% ( post tax ) .
In long term I will be happy to have PF CAGR of 18% - 20%
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I have received multiple questions on my current portfolio . I think I would like to put some points in perspective which I think is very important …
I AM NOT SEBI AUTHORISED FINANCIAL ADVISOR NOT I INTEND TO BE ONE .
DISCUSSING CURRENT PORTFOLIO IN PART OR FULL CAN BE DANGEROUS IF READER DOES NOT UNDERSTAND WHY I BOUGHT IT AND WHEN I WILL SELL IT IN PART OR FULL…
MY RISK PROFILE MAY NOT BE SAME AS YOURS . HENCE ANY SUCH PORTFOLIO OR STOCK DISCUSSION SHOULD BE USED AS CASE OF LEARNING AND NOT AS RECOMMENDATION
I WOULD LIKE OTHERS TO POINT MY MISTAKES TOO SO THAT I CAN LEARN
With above considered as read … I will initiate how I have tried to work out my PF for 2018 … in terms of principles . The stocks referred in subsequent posts will be only to illustrate these principles …
I will try to move discussion on PF to new thread Portfolio Analysis - Shailesh . so that here we can discuss only on what are risks and rewards being bull in bear market …
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Thank You very much for sharing your experience. It is a privilege to learn from other’s experiences.
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Your post gives great hope in this bear market - I think it will be atleast the other end of elections before we see a return of bull markets. On stock selection, I would probably change the selection criteria slightly
Instead of looking at what dividends companies pay, I would look at their return on capital employed and their current profit
Lets say company x is trading at a market cap of 1000 crore and makes a profit of 100 crore. And consistently it has grown 10-20pc over previous years
The principle of value stocks is that you buy a part of the company only if you were willing to buy the whole company if you had so much money
So you are getting to buy this company that is trading at 1000 crore and makes 100 crore. If you owned the whole company you can take 100 crore per year in dividends so your earnings is 10% compared to putting it into bonds where you would make 7-8%
However this company is also growing. If you were the sole owner you would delay the dividend and let it grow at 10-20%. So next year if it grows at 10% you are making 11pc on your investment
You want your management to not pay dividend if they cant employ capital that generates 10% return and can reemploy dividends at 5-10-20pc growth
Something like this has potential to become a huge multibagger with margin of safety that comes from knowing that its making more than what bonds would make
Look at vinati for instance that has most of this characteristics
Ofcourse you would sell at some point - the right time is when the profit/market cap ratio is so out of sync like 1pc without a good growth prospect on the horizon
Most cases I’d want the company to retain and reinvest the dividends if they can invest in growth like Dmart is doing. For tax purposes its great instead of taxing dividends in 2 hands, mine and company’s.
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Value investing has different meaning for industries that are growing , maturing and declining … In each type of industries you need to use relevant metrics to gain maximum
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In Growing industries what you mentioned - ROIC and growth rate are very critical - You might let company also have some debt and also not pay dividends …
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Mature Industries - ROIC , PE , PSR , P/B , Dividend yield is critical . Even though some company many find new growth drivers but the probabilities are low .
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Declining Industries - Needs to traded like options with maturity period . Often you get big bonanza in these industries - Like what has happened in graphite electrodes in last one year …
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Graphite electrodes is a commodity business
The one who produces cheapest usually sells most unless there is a supply crunch
The present rally is because Chinese produced these very cheaply making most European and Indian companies uncompetitive
These uncompetitive industries closed operations or factories and now the Chinese closed factories but before closed Chinese factories, they obliterated the other producers
Value investors usually won’t touch that kind of industry. Traders will
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Pure Value Investors have just one principle -
BUY undervalued and SELL overvalued … They are sector , firm agnostic .
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Yes true but how does Graphite companies come under that criteria typically when Chinese stop producing. For a value investor they would have to be sold off and have a margin of safety. Even after a huge run due to supply constraints over a period of 10 years Oriental carbon still beats any graphite electrodes company purely based on consistency
My post said buy a company that is consistent and sold off with a history of consistent growth. If you buy these kind of stocks when they are sold there is massive upside compared to looking at percentage of dividend paid
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I don’t track oriental carbon and have no views on the same
I entered graphite India @ 77 price purely on basis on value . Chinese electrodes don’t directly compete with GI . The competition was with American , Japanese and European companies . So shut down on graphite electrodes should not have impacted GI primary market . The issue is sudden steel growth in developed market which was supposed to be declining and caught many graphite producers offguard. They had mothballed their capacities which is now being restarted … But this is where I would prefer the discussion to end on Graphite electrodes … as I too feel sad that I sold early at avg price of Rs 350 …
But What I mentioned Graphite electrode is as example of declining industry . Even in such industry you have opportunity to earn profits …
On consistent growth and high ROIC these are critical when you are buying a stock as part of core portfolio. But for opportunistic part of portfolio you need to ruthless on value vs price equation
From what I understand, basically steel can be made with heat from coal or heat from electricity and electrodes. The chinese closed the former factories that made steel with fuel from coal hence the shortage of steel and electrodes as most countries prefer electrodes, it being less pollution free although from what I know they are just shifting pollution from one country into another and electricity as well just needs loads of coal to produce
What is your excel spreadsheet formula for sale - if you have prematurely exited too many companies don’t you need to review the formula. Or just one was a wrong sale. Anyway would like to know your views and formula to better understand how we can all benefit
Things have started taking interesting turns …
Financials that were driving NIFTY have started correcting . I have very little exposure to financials except for 2% tracking position @ sector level mainly in HDFC , ICICI Bank & Corp Bank … as I never understood the sector but the FALL is TEMPTING me –
I started revisiting the sector to see if I can be BULL in this sector …
Some important characteristics of financial sector
- The financial sector especially lenders & banks are valued by price to book … But unlike a manufacturing or capex intensive company this book value is highly subjective …
Classic case is how book value of PSU banks started evaporating when NPA started climbing up . Valuation is subjective exercise but the if base nos itself changes YOY it becomes even more difficult .
SO IT MEANS SEARCH FOR COMPANY WHOSE BOOK VALUE MIGHT NOT SHIFT DRAMATICALLY - CONSERVATIVE LENDER – LOW LEVERAGE
- In Finance company Profits are front loaded and losses appear in future - unlike Pharma and FMCG were expenses are front loaded and profits come in future …
GE capital is classic case when the insurance underwritten in past has hit the overall GE now … ITC classic ( NBFC ) nearly pulled down ITC ( a great moat FMCG ) to near bankruptcy in 1990s . Both GE and ITC had great Finance minds / resources . ITC for example recruits best CAs in the country to run its finance function - Integrity of people in both organisation is of high standard and typically boards are very conservative . Yet these losses crippled the entire organisation … Amercian express finance function mistakes in 1970s enabled Warren buffett to buy the company at bargain prices .
**So one thing is clear for being BULL in Financial sector BEAR market SEARCH for a great company like ITC , American express whose financial arm is pulling down its overall valuation - It is that Warren Buffett kind of Move – MULTI MULTI BAGGER MOVE … ITC compounded at cagr of 27% from 1995 to 2011
- ** High Leverage Magnifies Good and Bad performance ** . Since most financial companies are leveraged ) some even > 10 X, their price can fluctuate dramatically … Classic case is Citibank valuation pre 2007 and post 2009 . This 100X kind of movement can make or destroy portfolios .
Hence one need to follow strict position limits and ensure portfolio is well diversified …
- ALM Mismatches – Asset and Liabilities duration mismatches destroys traditional as well financial companies . but problem with financial sectors is buyer freeze and leverage can create much bigger headaches … This further is compounded by difficulty in Assets Quality valuation in financial sectors – Manufacturing assets and brands can valued based on future cash flows – but financial assets cash flow is based on client ability and intention to pay which can be difficult to assess for new owner …
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I have been reading through several forums threads on financial services stocks . The views are pretty balanced … indicating bulls have still not thrown their towel … while bears are pushing hard their case.
I see we are in mid point of correction and final brutal fall is still some time away … Small tracking position can be explored … Big moves can wait …
Is it time to buy Junk stocks again …
HPCL my old favourite is again coming down … In 2013 it had PE of 1 . and I aggressive bought it . Read my post above on the same …
Current EPS is around 47 … So ideally a pure value price will be around Rs 50 - Rs 100 range … Still long way to go … Waiting for it…
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All OMCs are quoting at much low valuations. Specially dividend yield is so attractive. can’t resist to load up in this correction specially BPCL and HPCL
You need to wait till it comes in value zone . With decline in profits dividend will also reduce . I see dividend floor @ Rs 5/ share for HPCL and hence Rs 50 to Rs 100 will be good range to shop …
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@kb_snn… Yup!. Read your note above on HPCL. Congratulations, it was a terrific move and pick!
Its baffling to see the trio (HP,BP and IOC) lose over 40% of value in just a week. Only thing that we need to keep in mind is patientice!. There will be bounce backs, but need to wait patiently for that one large carnage to manifest and pick this stock up for sub 100 or 100-125.
In the last cycle, post your purchase how long did you ride the sideways movement? Even that needs patience and significant conviction!.