ValuePickr Forum

Dinesh Sairam's Portfolio: Requesting Feedback

Hello @dineshssairam

What is your opinion on Cyient Ltd. Its in my watch list too.
Company’s products and services looks attractive for the current and future IT industry.

Thanks
Siva

I’m not very competent in IT/ITES. I did the mistake of buying Hinduja Global Solutions without understanding the industry. I won’t likely do it again.

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Hi @dineshssairam,

Cupid Ltd price falling this week. Is it a normal correction or any bad news?

Can we accumulate in this fall?

Thanks
Siva

I generally don’t worry about the price. Nobody asked why it was rising so quickly just a few days back. I always say “Don’t reason with the market. Just take advantage of it.” So unless it comes to my Expected Purchase Price of Rs. 150-160, I am least worried about it.

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Hi @dineshssairam
What is ur opinion on reliance future deal and it’s impact on Heritage.
Thanks
Venkatesh

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Thanks @dineshssairam for your valuable insight.

It was really unfortunate that the lock in period ended only after the sharp fall in the stock price of FRL. My opinion of the stake is that it’s a distraction. If the Management finds a better reinvestment opportunity, they should sell it anyway, regardless of the CMP.

However, one possibility is that there could be synergy with some of Reliance’s online platforms. If the FRL stake helps in leveraging towards that, it would be great. Heritage has already started selling online on Big Basket. I wish they could do something similar with JioMart too.

I’ll wait for the next concall before reaching any definitive conclusions on this.

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It looks like the management has decided to sell the stake in FRL and Praxis Home Retail. Sound decision in my opinion. Now they can focus on the business once again. Here’s hoping they use the proceeds to fund further rounds of Capex or pay off Debt.

Hello Dinesh, just want to know what’s stopping you from deploying fresh capital in Goodyear. I want to understand the mental model behind your decision

  1. From your last answer on Goodyear, I can understand that there’s a strong correlation between number of tractors sold and Goodyear’s prospects. In that case, Escorts and M&M (although temporary) have given solid results which should be good for Goodyear. Is this not a good enough trigger to accumulate the stock?

  2. Do you think it’s not attractive enough?
    (Your FV was almost at the current market price of ₹940, I guess valuation isn’t the question here)

  3. Do you think the current 7% allocation is the max threshold?
    (don’t think so since I remember you had 40% plus in Goodyear in 2018)

  4. Are you saving cash for new ideas? Going by your last disclosure, you’re 67% in cash which should be good enough to allocate into newer ideas

  5. Do you expect further corrections (general market conditions) and hence waiting for better opportunities to enter the stock?

  6. Are you expecting the fundamentals of Goodyear to improve?

Generic question on Goodyear, you’ve mentioned earlier that Goodyear tyres are somewhat premium and hence don’t sell well in the replacement market. How do you think they can improve the market share in the replacement market? Is the management’s thinking in line with your rationale?

1 year of good results won’t move the Value a lot. Just for the sake of assumption - let’s say next year we have a terrible monsoon. Should I sell my Goodyear stock then? Of course not.

I would still Value Goodyear at 950-1000, because their long term Fundamentals are solid. But I’d require at least 20-30% by way of Margin of Safety in order to consider investing. So, I’d buy at 700-800.

I use the Kelley Criterion to aid (Not dictate) my Capital Allocation decisions. I understand a lot more businesses today than I did when I started investing. So I doubt I would allocate 40% to a single business again (But I don’t mind doing it if the odds in a business was overwhelmingly in my favor).

More on it here:

The only thing I can confidently say I’d buy right away is DHP India. But I’m waiting for their next Balance Sheet update (Q2 Results) to make that final decision.

All other stocks I track or own are either not undervalued enough or they might be undervalued, but I don’t understand the impact of COVID19 on their business.

Timing the market is pointless, not to mention really difficult. I just try to understand the businesses I track and own.

Over the long term, yes. I expect more Tractors to be sold. Also, they’re trying to enter the PV market, which may be a good optionality.

It’s difficult to position yourself as both a premium player and a value for money player. I’m sure Goodyear can produce cheap tyres. But imagine what their Tractor partners would think if they find that the brand they’re associated with also sells cheap tyres.

So I have no issues in them sticking with their strength. Capturing the replacement market will be a tall ask, unless the Indian consumer starts preferring quality over quantity (Which might happen still over the course of many years).

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Hey!

About your usage of Kelly criterion, how do you estimate the probability of success and failure? Expected risk and expected returns can be estimated if one has a reasonable understanding of the business. For success/failure probability, do you use past base rates to estimate the probability of success in a business?

For example, if I need to estimate base rate of 15% growth over a 10-year period in a given industry, I can look at the past to see how many companies succeeded in that out of the total number of companies operating in the industry. But this assumes all companies are the same i.e. we are not assigning weightage to a given promoter. Do you also account for this i.e. if a given promoter family has a given track record, will you use that to modify your base rate? How do you think about this?

Cheers
Harsh

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I usually keep my Expected Returns estimate at a conservative level, so I can peg Probability of Success at 80-90%. So I’m more likely to say “90% chance of making 14%”, rather than saying “70% chance of making 18%”. In effect, both of these statements have the exact same Expected Returns (12.60%), but in the first case I’m more confident because I’m conservative. Plus, like you pointed out, I’d have a hard time figuring out how to arrive at that 70% number in the first place.

The key thing, then would be to get your Risks right and what kind of loss you’re looking at given an unfortunate scenario were to occur.

I know this isn’t an exact science. But the great thing about the Kelley Criterion is that you don’t need to be exact to get the allocation right. If you apply similar logic while estimating the components for all your investments, it works out regardless of whether you’re conservative or accurate.

Warren Buffett put it candidly. I don’t remember the exact quote. But it went something like:

Remove your Loss times Probability of Loss from your Returns times Probability of achieving those Returns. That’s it. That’s all we’re trying to do here at Berkshire Hathaway.”

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Concentrated portfolios should be led by not just market leaders but industry leaders. Specifically during times like covid, leaders are in a much better position to capitalize and reap benefits. There’s no rocket science needed to learn this.

One can afford to have non-performers or ‘long shots’ in a portfolio of say 8-10 stocks but when you’re going 5 stocks for long term, you either need to have one helluva conviction or at least 3 industry hotshots with solid fundamentals of course.

Your confidence and rationale is impressive but please remember the market has a mind of its own and it can be heartless too. Cheers!

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I expect the market to agree with me only over the very long term. In the mean time, my only tracking point is the business itself. If the business keeps performing but the market doesn’t reward it, that’s great news for me because I will get more opportunities to invest.

Besides, I don’t mind increasing the number of holdings to 10-12 provided I find that may bargains in the first place. I also don’t have a problem with investing in market leaders. Bata, United Breweries, VIP Industries are few examples where I would be comfortable investing in at the right price.

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Seems my problem is exactly opposite to yours. Even at current prices and valuations, I see too many opportunities to invest, buy more on dips or on crashes… be it IT, Technology, MNC Pharma, FMCG, Consumer Durable/Technology, Retail, Niche Paints/Adhesives, Life Insurance etc etc. There is so much opportunity I see in India for long term that I do not have the resources to invest in them even at current valuations…Am I having any problem or misconception about these businesses? I see businesses from market cap perspective and find many in these sectors as peanuts of what they are capable of in long term with India growing…Am I going to be in trouble investing or holding (because holding is same as investing in current prices/valuations) in these? Thanks

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If you truly believe the opportunity size is huge compared to the current Sales, then you should absolutely hold on / invest whatever you have in these stocks.

Different opinions make the market. Your opinions being exactly opposite of mine doesn’t break the market and in fact, it’s what makes the market in the first place.

It’s no secret that I’m a very conservative investor by nature. There’s enough room for both skeptics and optimists in the market.

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I agree that different opinions make the market. I will not call you either conservative or skeptics. If you buy more of limited sets where you see value and buy them aggressively, then by no means you are conservative and also if you believe in your set of stocks then you are as optimistic as anyone else.

Regarding my problem, while I see huge runway and long term growth - what my issue does is that I tend to buy whenever I have some cash left and that leaves me very little spare at bottom levels or when a new sector with tailwinds appear. Also, the growth that I see in the businesses make me not to sell one to buy a better tailwind sector, infact not even sell even if I anticipate crashes or can actually judge a bubble in them. Although, so far, this has not caused losses as I have been lucky to buy quality companies but I feel, had I been more ajile and value conscious and sell and switch from time to time, the results would have been much better…But how do I sell when I see long term value…how can you chose between two babies…and how do you divide limited resources between them…thats my problem :slight_smile:

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very nice dinesh sir , what is thought process to differentiate between relaxo and bata,VIP vs safari, how to bet on only one ?

This statement itself seems to have answer to your query.

Do we really chose between two babies… No… rather we ensure that they don’t get a feel that they get equal love, affection & every thing

You can try to implement same with your equity babies as well… don’t let them feel that you are ignoring one & more attracted towards other (specially in your case when you find it difficult to allocate them equal / proportionate rights)

Setting up a target / allocation percentage etc and following them strictly can help achieving above.

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My first suggestion is to stop thinking about Stocks as “babies”. Don’t romanticize investing or ‘fall in love’ with Stocks. As Peter Lynch famously put it: “The stock does not know you own it.”

Secondly, if you think Stock A and Stock B will give equal returns and contain equal Risk, then investing equal amounts in them makes perfect sense (Please refer to my comments on Kelley Criterion a few posts back). But you’ll usually see that one is more Riskier than the other or one is more Valuable than the other. So if you repeat this exercise for, say 25 stocks you’ll identify the top 10-15 in terms of Allocation. I’d personally invest only in 10-12 Stocks and ignore the bottom of the barrel.

But you’ve to decide for yourself how many stocks you want to hold and more importantly, if you can really justify tracking so many at the same time. I personally think it’s difficult to seriously track more than 10-12 Companies at a time + 10 or so more in the Watchlist, which you’re just researching slowly over time (If you’re an institution with access to help from other people, you can afford tracking maybe a bit more, but I’ll go ahead and assume you’re an individual investor).

This seems like a nice place to plug in Warren Buffett’s 5-25 Rule. It’s more to do with managing time, but you can juxtapose it with Capital Allocation as well. Anything that isn’t in your top 10 does not deserve a lot of your attention and most definitely not your Capital. You are not going to make more money on your 11th-best idea than your top 10.

Maybe it’s my inexperience speaking, so take this with a pinch of salt.

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