Hi, I am a 21 year old investor and have been part of the markets properly since March 2022, where I invested for the first time. However I was tracking what was going on in the markets since the Covid Fall.
I think investing is something I enjoy a lot, but I don’t want to overspend time on investing right now so that I can focus on my career more. Hence I am trying to craft out the best kind of systems that allow me learn more about this field and decision making here on a small capital base, so when I do have a bigger capital base 20 years down the line, I can be making good decisions.
For the last one year, on a small capital base, I generated about a 20% return which primarily got accelerated due to the recent run up in the small and midcap space. While analyzing this performance I was certainly happy with this outcome but I felt there were a few problems with the way I was approaching the game and I could have made better results had I made a few right decisions.
Some of the things I believe I should fix are:
- Criminally low allocation on some high conviction and performance ideas: I held Equitas Hold Co from May 22 levels when the valuations were very depressed but the allocation I had in the company was only 2-3% of my portfolio size.
The thesis on Equitas HoldCo combined three powerful factors:
I. A sector going through headwinds and pessimism that was showing certain good offshoots
II. A special situation which could add to the normal sectoral returns.
III. A Tier-2 financier at the starting of the cycle and with a smaller market cap that had a big runway for growth.
Sectoral moves can have an outsized effect on the smaller players in an industry. It has become more clear to me over time why people emphasize sectoral tailwinds so much.
A new system which I am looking to develop now should have better allocations for ideas that fulfill criterias like this.
High Allocation without proper Research: I had very little knowledge about pharma when I picked up Laurus Labs and made it a big allocation. My idea was that the CDMO business looked interesting and Dr Chava seemed to be someone who many of the people held in great regard. I suffered as a result of this, and this has been the only stock in my portfolio which hasn’t generated a positive result on the P&L.
Too many stocks to track: Because of my habit of tracking several industries in an attempt to understand broad markets, I put several stocks in my portfolio, at the peak there were about 20 in my portfolio, which made it difficult for me to track the ideas and their performance. This isn’t good because a lot of moving factors start to influence your portfolio and the only chance you have at a good return is that the market itself starts to perform really well, pushing everything higher.
To fix these three problems, what I have looked at doing recently is the following:
Maintaining a Satellite Portfolio: I have opened a separate Demat Account where I aim to buy smaller quantities of all stocks I like the initial ideas about, they can be from different sectors, can come from different people I follow for ideas in the market like @Worldlywiseinvestors @harsh.beria93 @basumallick @ankit_george , but the trick is to keep all these stocks upclose so that I can be motivated to study them properly in a manner that makes me appreciate the upside properly but more importantly makes me understand the downside to the stocks. Once I gain confidence in the ideas, they can be transferred to the main account
Minimum Allocation Limit in Main Account: In the main stock account, I am looking to maintain a minimum allocation of 10% to the high conviction ideas, this would reduce the number of stocks down to 6-10 which would be easier to track for me and would provide diversification.
The problem with such high allocation is that I want to protect myself from a downfall, so the ideas that make the cut should also make sense on a valuation front, I should be sure to not lose more than 30% of my capital. A strict stoploss from technical analysis can be adopted here to cut losses.
I think doing 2 alone would help solve both small allocations for good ideas and large allocations for bad ideas.
This is the broad idea that i’ve formulated for my portfolio strategy, in the next post would share my portfolio ideas with the community too, to give you a better sense of what kind of investor I am.
I would appreciate feedback from the community members simply because I am really new to this entire field and I think there is a lot I can learn from the members of this community.