Agreed. It’s very difficult to make a 20% consistent CAGR return with a long only diversified portfolio in a bear market especially when the main index is down more than 20% a year. But it may be possible to make such return in below conditions
As per history, the market remains in BULL phase ~75% of time and whereas it goes through BEAR phase remaining time. A proper long only portfolio could give 20% consistently when the market remains in the BULL phase (so 75% time). To my experience, long term investment is more of a game of controlling EQ (emotional quotient) than a IQ (requires little common sense though)
It’s also possible to even make 20% return in remaining 25% phase (i.e. BEAR phase). One has to diversify the portfolio with very good QUANT strategies (maintaining long as well as short positions and diversifying a lot of short term trades in different markets/assets). Hedge funds like Citadel/Renaissance Tech/Our own Quant fund seems to be doing it consistently. Now this truly requires IQ (lots of math/stats/probability etc…) rather than EQ (as most likely machine will trade on behalf of human, hence EQ is anyways controlled by machine)
So it shows that everything is possible if one stays hungry and foolish enough to achieve the goal:)
“You can not make more than 15% in a well diversified folio” I think I would disagree to that, Peter Lynch managed funds which gave 30% return over many years even though he was holding as many as 1400 stocks.
Samir Arora from Helios showed how even the 150th stock in terms of return in a particular year outperforms the average Nifty return for that particular year. Even Warren Buffet did not get much success through his concentrated holdings at a later stage of life and he could only beat the index with the help of his tail stocks (You can watch Samir Arora, he presents the data)
Mohnish Pabrai who is a great proponent of concentrated folio, his fund (Dalal Street LLC) has given return of -49% over last 10 yrs.
Why I feel a concentrated portfolio is a myth and people who have been successful are just lucky:
Suppose the entire stock market has only 10 very intelligent people who have done all the analysis, got their valuation models correct, and have gotten the correct entry price. Now it cannot be the case that all 10 will pick the same 10 stocks (Generally I am assuming a concentrated folio means 10 stocks). So lets say they all have 7 stocks in common among each other. So that means there are still 30 different (unique) stocks that all these 10 super intelligent people have chosen amongst each other, so how does the pool of stocks that is expected to give super returns over a long term remain a concentrated one?
Speaking of Zero trust, this security model is in a transistional stage. Quick heal is also adopting this. @curious can you please help me with the market size of zero trust in India? Also, who’s the leader?
I built my US portfolio as an NRI. I continue to use same US broker for investing in US stocks from India. So now for me while in India it’s one way traffic, USD → INR. But I still have to pay tax on the dividend to the US govt.
Zero trust security market size seems to be $20BN. It’s projected to grow to $61BN by 2027.
As of now Zscaler is the leader of the pack as they have first mover advantage in this evolving technology. Palo Alto Networks is also catching up fast and in fact their NRR/ARR are slightly better than Zscaler as per their latest earning report. Only problem with PANW is that bulk of their revenue comes from legacy firewall systems whereas Zscaler can move faster as they don’t need to carry that baggage being a pioneer of this technology. In this segment the dark horse is Cloudflare. Being a cloud reverse proxy service provider, Cloudflare can easily mimic and potentially surpass Zscaler offering in no time.
I am not aware of any Indian companies offering similar products in the cloud security segment. Big Indian enterprises use US vendors/leaders to satisfy their security needs.
For example, Indian traders may occasionally notice that service is not available in Zerodha due to blackouts in Cloudflare services.
What a dream run is going on for MSFT and NVDA shareholders in the US market. As I stated earlier I was/am a firm believer of AI tech and its possibilities to transform our daily life and productivity in days to come. I own both of them (full position) in my US specific stock portfolio as these are direct beneficiaries of the AI revolution.
I missed investing in NVDA during the 2017-18 downturn even knowing fully about its full stack solution for AI modelling. But I did not make the same mistake in the 2022 bear market when stock fell as much as 70% from top. I started adding aggressively between the $120-$150 range (in fact bought almost every alternate day between June-Oct 2022 time). Now after 30% pop due to its terrific 2nd quarter guidance, my NVDA investment has almost tripled. I have no intention to sell it anytime soon. I would like to let my winners run till viable competition emerges to take significant market share from its existing dominant accelerated computing position (80% data center market share in GPU).
Similar story is unfolding for my MSFT investment. I initially bought MSFT when it started embracing hybrid cloud during late 2018. It was unique and different from what AMZN provides as a public cloud only solution. Since then MSFT Azure product revenue grew 35% CAGR. Now recent investment/partnership with openAI has taken its stock price to another level. Again my investment has tripled from my initial purchase price.
I also have a midsize ASML position which has already doubled in this AI bull run. I am not surprised to see this happening as ASML is another monopoly in the chip manufacturing ecosystem. NVIDIA’s latest GPU requires (being used by chatGPT like generative AI model training) a special 4NM fab which can only be possible to manufacture using ASML’s EUV technology.
Though easy gains are being made picking up “picks and shovels” kind of stocks as AI is gaining mass adoption, I believe mega gains can be made buying early stage companies that are capable of making revolutionary scalable applications using infrastructure that are being laid now. It’s not easy to find winners from this space as there will be stiff competition and to some extent it also depends on how this tech is going to be used for daily consumption/use by the masses. Anyways search is on, and hopefully few clear winners will emerge in near future. In this space I follow none other than Mr. Bill Gates closely for his vision on AI as in one interview in 2018 he stated that if he would have to start again then he would try to do something with AI and it would be an app which should be able to answer any questions asked by a user. No wonder why the MSFT CEO Mr. Satya Nadella immediately made an investment in openAI in the same year and the rest followed:)
It’s good to be again making money from the US market after a 1.5yrs of hiatus. Latest bear market has again reminded all of us on Mr. Buffets time tested advises
Be ready to experience a 50% drop in your stock investments (for tech stocks it may go as much as 70%)
One needs to develop a circle of competence in a specific area of investment theme to build enough conviction to remain invested in such a tough time and eventually make big gains when sun again starts shining.
If anyone wants to know about innovation that makes a massively scalable generative AI app like chatGPT viable to run/train with the latest computing infrastructure then one can go through the below paper which was led by Mr. Ashish Vaswani in Google Brain. Nvidia’s latest GPU literally builds this architecture in its hardware to expedite the AI training process for such a massive scalable app.
NVIDIA has mentioned earlier that their total addressable market is 1 trillion dollar. “Nvidia estimates a total addressable market of $100 billion for gaming, $300 billion for chips and systems, $150 billion for artificial-intelligence enterprise software, $150 billion for Ominverse enterprise software, and $300 billion within automotive.” This addressable market will be realized around 2030 and nvidia might be able to capture 10-20 percent of the market as it has competitions from other chip companies as well. Assuming Operating margins of 30% will result in profit of 60 billion.
While the forecast given for next quater is 11 billion, assuming best case profit margin of 35-40%. Earnings is around 4.4 billion. For full year optimistic target might be 20 billion, while the company values at around 1 trillion. Can you share some light on the valuations of nvidia? (200 PE)
I think that company is doing great but valuations is a concern. Even at share price of 130$, company had a market cap of 330 billion, while company can deliver around 10 billion of earnings(pessimistic) PE of 33.
No traditional financial metrics can justify present valuation of NVDA stocks. But on the other hand, the fact that there is an AI war and Nvidia is the only arms dealer out there narrative justifies lofty valuation for the time being. It’s the perfect definition of monopoly. Also watch out for revenue from the “Automotive” segment as it represents sales from self-driving car tech. It’s a new market and too small to write about but it’s growing more than 100% YoY. If Tesla is able to deliver it as promised then this segment will also be able to generate revenue growth on par with present Data Center segment revenue growth. In some sense betting on Nvidia is synonymous with betting on its visionary leader Jensen Huang. I think stock will remain in bubble territory till competetion emerges to take away significant market share from its dominant position.
My views on AI and Automotive opportunities in semiconductor industries -
AI/ML need more computational power as they are handling more data. There are multiple use cases where semiconductor intercepts with AI.
Data center for training model
Edge devices which will use this algo
Real time application of AI/ML algorithm requires run time optimization, and to cater the same hardware is modified. These were done earlier as hardware accelerator implemented on FPGA not chips. Model training requires high computational power.
For automotive, you can think of semiconductor devices cost in car will increase to around 30 percent. Earlier 5 percent as it contributed only to infotainment and basic sensors. As automotive industries don’t have R&D capabilities to design computer that will support driving(self driving in future), they rely on semiconductor companies for the same.
NVIDIA -
On AI data center modelling related chips, NVIDIA stands out with its exceptional computational power ( because of its GPU), but it also has significant power consumption as well. On AI edge devices there is no clear winner. Also the market is growing, and you will start seeing dedicated architecture coming for the AI related use cases.
On automotive end, Qualcomm is ahead of nvidia in the race. NVIDIA has a pipeline of 14 billion while Qualcomm is having a pipeline of 30 billion.
My take - even if nvidia is doing great, there is rationale we should have on how much market size company will cater and what can be future earnings. At this level risk to reward is not that good.
I would like to bring attention to another AI beneficiary software stock which is a database company MongoDB (MDB). I started building up a position on MDB last year in June 2022. Since then I kept on averaging the stock as it started making lower lows due to macro headwinds. I also explained the reason for my conviction on MDB. Since then it has become a midsize position in my US portfolio.
Fast forward a year , MDB makes new 52 week highs this week. Stock surged as much as 32% in a single day after stellar earnings reported last week. First quarter revenue was up 29% Year Over Year. Company guided 20% revenue growth for next quarter. Company added the most new customers in over 2 years. Among them 300+ new AI customers have been added since the release of generative AI apps like chatGPT. I believe this is the real reason for the stock’s massive gain in a single day. Let me explain why Generative AI tech has anything to do with middleware database app like MDB
chatGPT, like generative AI apps, is being integrated with all sorts of Natural language processing applications, e.g. Text conversation/Code generation/Content Creation/Q & A etc… for intelligent automation. To integrate with chatGPT API it’s imperative to send vectorized content/context with question/text being given as input so that the app can generate a matching answer from the content being sent in the same request. This vectorized content is predominantly being stored in managed cloud service DB like MDB/ElasticSearch DB. This is creating a huge boost to the usage of such DBs and in turn topline growth of these companies. In my opinion Elasticsearch (ESTC) is more relevant than MDB when it comes to finding similarity between sentences but for now it’s MDB which is winning the game for its speed and lowest latency offerings while retrieving data from DB.
So the bottomline, AI revolution has already boosted the share price of direct beneficiary CHIP stocks price like Nvidia and Cloud providers like MSFT. Now middleware (Software Database is known as middleware in software development stack) like MDB is getting benefitted from this revolution. All these events lead to the conclusion that mega gains are in waiting and can be made with investing in companies that are building killer apps with the help of infra software/hardware in each and every layer of AI software stacks. But at the same time. all bets are off if AI is unable to add value in our daily life and eventually fails to generate mass adoption.
All my India stock portfolio companies except one have shown YoY revenue growth in the latest quarterly result. The outlier was Latent View which got replaced with Stylam Industries (up 31% since my purchase) due to its consistent revenue and profit growth reported in the past few quarters.
I have also added into my Paytm investment after the latest quarterly result. I believe Paytm is in the early stage of multi year growth in loan disbursement through its digital channel. Again my thesis could be wrong as I don’t have much expertise in this area.
This quarter’s stars among portfolio stocks were PI industries (6X), Pidilite (8X), Polycab(3X), Varun Beverage (up 44% since my last purchase) and as anticipated Ethos (up 20%) which recently broke out of tight range after delivering a good set of results. I kept my other holdings and allocation intact in the latest quarter. After a long time I see Jubilant Food stock has started moving in the right direction. Hopefully growth will come back as the raw material price escalation issue is over for now.
3 yrs return : 36.8% – Due to post COVID boost
4 yrs return: 23.1%
5 yrs return: 19.3%
Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.
Yes, I do follow Palantir products and stock as I have a small “try out” position in my US portfolio. Its products are being used by many developed country governments for various purposes. They primarily build analytic software by converting unstructured to structured data and finding smart relationships between various entities. That way they provide actionable insight on cost saving/possible terrorist attacks/tracking entity activities etc… As government orders are a bit lumpy, they want to sell their products to commercial customers as a subscription basis.
Their products require a stiff learning curve to know its usability. It requires quite a bit of manual process to tag various entities for software to generate actionable insights. It also requires significant effort to navigate through its software for locating/generating desired output.
Here comes the Generative AI for their rescue. Now the user does not need to click many times to reach a specific screen/generate specific output. User just needs to ask a specific set of questions (as we do using chatGPT) to obtain the desired output. This significantly improves usability and reduces the learning curve for users to use their complex software. Also this is a rare software company which is GAAP profitable. These are the reasons why stock is shooting up to the moon since reporting last ER.
Having said all that, I doubt these gains are sustainable for the long run. I think at best stock is a “Show Me” story, at this point of time. Even after many years in operation their commercial customer counts are mere 200 or so. Soon they need to ramp up onboarding commercial customers to report above average revenue growth and justify present stock gains.
Results for all my portfolio stocks are out. Winners are Polycab, APL Apollo, PI industries, Ethos and Varun Beverages. Whereas Deepak Nitrite and Granules India reported terrible results. As a result I sold Deepak Nitrite with 6X gain after holding it for almost 4 yrs. I have also sold CarTrade at a 45% loss.
Meanwhile I keep on investing the proceeding in Zomato (after their first profitable quarter), CCL Products (ideal compounder), Bajaj Finance (no idea why it’s not performing, anyways I keep on buying:)), Mold-Tek packaging (typical 18-20% grower) and Vaibhav Global (my thesis is that as money is more valuable due to inflation in western economies so buyers will look for value for each dollar and here low cost producer like VGL will have upper hand). Overall I have now 24 stocks in my India portfolio with 8 multibaggers as of now.
Since the last update Polycab became 3.5X to 5X, PI industries became 5X to 6X, VGL became 3X to 4X. If everything goes well then I expect Ethos (up 57%), APL Apollo (up 70%) and Mas Financial (up 58%) to be new multibaggers (my definition of multibaggers is 2X in 3 years of initial buying) in my portfolio. Fingers crossed:)
In the India portfolio, I am experiencing NVIDIA-like euphoric gains in Polycab and other building material stocks post their result announcement. Magnitude of the earning beat for Polycab is similar to the earning beat of NVIDIA in last quarter. This is interesting. The US being a developed economy generates demand for AI chips (Pick and Shovel play in AI war) to increase productivity and hence GDP… Whereas India being an emerging economy needs more roads , constructions, infrastructures and hence generates similar demand in the building material sector (Again Picks and Shovels play in the construction segment) to make progress in its GDP. IMO, unlike the US, in India I am not trying to look for next AI winners to make money in the long term, real money is being made in the building material segment as these two economies are standing in different junctures and as a result showing Animal Spirits in completely different segments.
Portfolio 5 yrs return 19.1%
Portfolio 3 yrs return 29.7%
Portfolio 1 yr return 12.1%
Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.
Agree that Deepak Nitrate result was bad. But then after it has become 6 bagger for you, you must have developed that extra cushion where you are comfortable with 2-3 bad quarters…So i am curious why you sold a company which is good and has given you terrific returns just for one quarter bad result. I think great companies too have many quarters and sometimes few years as bad.
I sold DN due to my lack of conviction on the Chemical Sector. I absolutely have no idea how this cycle works and to be specific how DN’s product differentiates from other competitive products in the same segment. I did not know much about their business when I first bought shares of DN in 2019. I just followed a number where it reported 100% YoY revenue growth. After that I got lucky as COVID created a tailwind for their business and at some point of time in 2020 it became 10 baggers stock for me. I kept on holding as long as reported numbers showed YoY revenue growth. This quarter even revenue growth fell and my number based rules prompted me to sell the shares. Again I followed numbers while selling the same shares with 6X gain.
It could very well be another 6-10X from here on. But that’s fine. It’s better to follow numbers when one does not have much knowledge on the underlying business or the overall sector. To remain consistent, I try to avoid mixing business and number based stock picking models with each other as much as possible.
Recent bull run in US tech stocks helped my US portfolio to recover significantly. The US portfolio recouped almost 60% of last year’s losses with gain from Nvidia, Microsoft, Tesla, Airbnb, Shopify, MongoDB and Trade Desk stocks. Select cloud SaaS stocks like Atlassian, Crowdstrike, Zscaler and UIPath (AI based application related company) reported good earnings. Hopefully these stocks should pick up the baton for growth while large cap tech stocks take a breather. I had to sell Digital Ocean in loss as CEO resigned due to low growth reported/expected by company.
I also noticed that US market is still in somewhat risk off environment. US midcap/smallcap stocks are still in dog house whereas large cap tech stocks (being perceived as safe haven) are getting all the love from big investors. On the other hand emerging market like India is in risk on environment. Investors are pouring money in midcap/smallcap stocks in India for making big money in quick time. This is the strategy which is working for FIIs since April 2023. This may change/reverse when market gets sanguine about US FED rate pause and eventually FED rate cut. Hopefully then I will start making money from US smallcap, till then though I am happy to make money from mid/small cap stocks present in my India portfolio:)
My US portfolio fell more than 20% third time including recently during 2022 bear market. I did not get time to react during 2018 and 2020 bear market as fall and recovery were equally swift. But 2022 bear market is testing my patience as market fall was gradual and as a result it’s taking time to recover as well. But for all these three occasions my playbook was same. I did almost nothing with my portfolio even when market was in free fall. It’s very difficult to keep sanity when whole world including expert economists/investors/bankers/celebrity CEOs are constantly yelling about impending recession. But I ignored these calls as from my past experience I noticed that FED came to rescue each time US economy fell into a recession and my growth heavy portfolio got big boost from low interest/growth environment. In fact recession/low growth US economy is good for my portfolio:)
Though 2022 bear market was long and thus painful but I took the advantage by buying/averaging my favorite tech stocks (like SHOP/NVDA/MDB) and dividend growth ETF (SCHD) cheap. As a result few stocks turned out to be multibaggers at the cusp of market recovery. In fact at present I keep on averaging US smallcap stocks as these are available cheap not seen in decade. Though my overall US portfolio fell about 30% last year but cash flow was positive due to dividend income/growth from portfolio. This actually helped me to generate more income and buy shares in cheap when opportunity presented itself in market.
I feel more confident as an equity investor after successfully dodging 2022 US long severe bear market. Only bad thing in market I am yet to experience where US market is in free fall due to recession and US FED/Govt are unable/not interested to rescue the market – this eventually leads to spate of bankruptcies in my portfolio companies (I believe something similar is happening in China at present). I only hope that this nightmare does not come true ever for US and India market Even then hopefully my overall asset allocation should bail me out from such grave situation:(
Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI/US SEC registered advisor.
All my portfolio companies declared earning results for the third quarter. After a long time I did not need to make any changes to my portfolio companies based on earning results. All except Mold-Tek reported year over year revenue and earning growth in the latest quarter. I am not selling Mold-tek as management has secured a patent on the technology and production will start for pharma companies in the coming quarter. If possible I will add more when the price consolidates.
After declaring poor results in the previous quarter, Granules India’s stock price appreciated a lot with so-so result declared in the latest quarter. In fact it became 3X to 4.5X due to a massive run up in stock price in the last 3 months. Another winner in my portfolio is Ethos which keeps on reporting double digit earnings and revenue growth and as a result stock price doubled in less than 14 months. I started buying Zomato in the 60s and kept on buying till the 90s. It nicely mimics the result and stock price movement of DoorDash listed in the US stock exchange. Other winners are Varun Beverage. APL Apollo and MAS financial. All these companies are on the verge of entering the multibagger list of my portfolio companies.
As the Indian market is hitting new highs, my portfolio has reached a new high. Not sure how long this dream run will continue. At present all my portfolio companies are in green and at least giving 25% return with 9 multibaggers. I experienced a similar boost in my US portfolio during the 20-21 bull market. But it just took less than a couple of months to reverse all the gains due to inflation and recession risk in the 22-23 bear market. I am yet to recoup all my losses in the US market even after a couple of years sticking with the same set of companies. US Small and Mid cap indices are still down more than 25% from all time high. It seems easy to make money now in the Indian market but it’s equally difficult to make money in the US market. I am not sure if the broader Indian market may also experience similar difficulty in the not so distant future. This conflicting prior experience from two different markets keeps me grounded and cautious while investing new money in the Indian direct equities at an all time high. I hope this dream run in the Indian market continues forever and makes all of us wealthy in the long run:)
Portfolio 5 yrs return 19.7%
Portfolio 3 yrs return 27.3%
Portfolio 1 yr return 15.9%
Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.
Even then hopefully my overall asset allocation should bail me out from such grave situation:(