Dream FIRE Portfolio

What a massive year this has been for both India and US equity investors. My India portfolio is up 31% whereas my US portfolio is up 51%!!! This “Double Engine” growth has helped me to achieve my financial independence a couple of years earlier than I planned for:)

Varun Beverage is the new multibaggers in my India portfolio. I sold Paytm with flat gain (went with Mr Buffett) and replaced it with Rainbow Children Medicare as it has created its own niche in the Child care segment. Ethos, Polycab, PI Industries, VBL and Granules India came out to be the winners in the India portfolio. My India portfolio 5 year CAGR return has crossed the 20% mark due to this crazy bull market that started in 2020. 10 out of 24 stocks are giving more than 100% return and the average holding period is nearly 2 years as of now.

Not sure if I will take up quant trading if I go for RE after achieving FI to increase my return:) It will surely be new learning for me. I generally avoided short term quant trading as I wanted to do it after automating the entire process. I shunned this idea temporarily after reading the stock trading related book “The man who solved the market”:slight_smile: (this is the only stock trading related book I read) After reading the book I somehow understood how difficult it’s to create such system (in fact this team first used AI/ML to do the quant trading) and why it’s futile for me to try the same before achieving my FI:) As a result with a corporate demanding private job in hand, I went with long term investment (along with MF/ETF investment) as it demands little time to generate above average return (specially in India where leaders don’t get disrupted frequently like in US).

Since last year I actually faced a challenge in investing in the US market. If anyone is interested to know about how severe the bear market looks then one can look at the US small cap Russell 2000 chart from 1st Nov, 2021 to Dec 2023. During this time period the US small cap index fell more than 35% from top on 3 different occasions. As my US portfolio is equally divided across Large and Mid/Small cap so as a long term investor I had to negotiate such storms doing just nothing and praying for this to end as early as possible. This period tested my resolve and conviction on my investing thesis. But I survived as I was on the right side of the structural change happening in the tech world.

As a techie I could get a first hand experience on how technology is changing day by day. As I stated earlier I became bullish on Cybersecurity, Cloud and AI (Cloud and AI go hand in hand) related stocks from 2019. Last year here I in fact listed stocks that I believe are the leaders in their respective segments. Those were Nvidia, Microsoft, DataDog, Tradedesk, MongoDB, Snowflake, Hubspot. Crowdstrike, Zscaler, Confluent, Cloudflare, Palantir, Zoom and UIPath. I also have a stake in AI apps like insurer Lemonade and Upstart (two most heavily shorted stocks in the US market). I also have invested heavily in Tesla, Shopify, Intuit and Mercadolibre as they use AI in some way and others and leaders in their respective segments.

Since my initial purchase in late 2019 these investments were going in the right direction. In fact these stocks quickly recovered after covid crash and started making new highs. But then came the 2022 bear market where all these stocks fell on an average 70% from top. Not only did it sucked out all my profits, it also took my portfolio into deep red. As I am a firm believer of these structural changes and familiar with their products so I took the plunge and started buying more as I took it as a golden opportunity to load up. I also noticed that though companies revenue growth rate fell but they were still growing comfortably 30% YoY even in this tough environment. Not only that, these companies became prudent with their expenses and became FCF positive in no time.

This time I understood how difficult it’s to hold onto such stocks when they are getting shunned like plague patients due to the impending recession scare in US that never arrived. But familiarity with these technologies and products helped me to stay the course. And then the advent of chatGPT and the large language model in early 2023 vindicated my investing thesis. Nvidia is now up 4.5X, Microsoft is up 3.5X and others are up an average 70% (except Zoom) in the year 2023. I think these are just getting started and I have no intention to sell them in the foreseeable future. I may rebalance some of Nvidia’s gain with my other dividend investment to increase my income after FIRE:). Having said all that, I am still aware about risks involved with new tech like AI. All bets are off if companies are unable to show productivity gain and thus bottomline gain using AI in near future. Will sell these stocks ruthlessly if revenue growth falls below 15%.

I also think the US Small cap is finally ready to run and may give a similar return as India Small cap gave in this year. One interesting data point, during the 2000-2002 dot com bubble burst Nasdaq which mostly represented loss making high growth companies fell almost 83% from top. But what most people don’t know or admit is that the Nasdaq return is way higher than S&P 500 since it came out from a bear market low sometime in 2003.

Now exactly after 20 years, ARKK which now hosts similar loss-making high growth companies, had a similar fate (fell exactly 83% from top) during the latest US bear market. Can it beat Nasdaq 100 in terms of return on the way to its recovery in due course? I firmly believe so as it rightly invests in companies benefiting from long term structural change:) As usual I may be wrong though.

Happy investing and wish all Happy and Prosperous New Year.

Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.

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As both India and US stock markets are firing on all cylinders, so is my portfolio. “Double Engine” growth is still intact as both are under the grip of razing hot bull markets. On top of that I got lucky to identify the trend (AI and Cloud technology) of the US bull market way before it started. Though I am using the same long term investment strategy in both markets, interestingly money is being made from completely two different sets of stocks. In the India portfolio I am making money consistently from compounders having low volatility whereas in the US market money is being made from disruptors with very high volatility.

In the India portfolio I sold Polycab with 5X gain (held it for less than 4 yrs) immediately after noticing tax dispute news. I had to sell it as my past experience with companies with similar disputes was not pleasant. It’s very well possible that Polycab won’t get affected at all and continue to march higher. But I took a call as I was suffering from once bitten twice shy syndrome:). I went ahead and invested the entire proceeding (excluding tax outgo) in Trent which is already up more than 20% after declaring stellar results in last quarter. I only find price wise competitive fresh vegetable/grocery items from Start Bazaar in my area. My bad that I did not know the Star Bazaar franchise belonging to Trent. Did not think twice about investing in Trent as soon as I discovered it:) Need to see if I can make 10X of my original investment made on Polycab and Trent in the next 3 years.

In my India portfolio, long time winners like Bajaj Finance/Asian Paints/Pidilite are underperforming big time but other stocks like Granules India (new 5X entrant in my portfolio)/Varun Beverage/Ethos/TCS/Zomato are more than making it up for them and helping me to outperform the market. 5 yrs portfolio CAGR now stands at 23.8%. Among 22 companies in my portfolio I am super bullish on Ethos which has all ingredients to become another 5Xer within the next couple of years.

The US portfolio is all about AI and its related technologies. Latest Nvidia result has firmly established the fact that AI is not a fad and in fact is capable of making long term transformations like the Internet. When I was making an investment on Nvidia during the 2022 bear market then my expectation was to make at most 2X in the next 3 yrs. Never dreamed about making 6X(and counting) in a couple of yrs, unbelievable.

Interestingly bubbles/speculation starts during a low interest rate environment and ends with a high interest rate. But this time the so-called AI frenzy has started when the global interest rate is in decadal high and not much free money is sloshing around the world. Companies are saving money from elsewhere and falling in line to make investment on AI big time. It proves that tech is real, deflationary and has a long runway for growth. If anything else is in the firing line then I would argue that this time it’s EVs and clean/green energy companies whose products/services are inflationary and have high probability to go under if the rate remains higher for longer.

Another observation is that being predominantly a hardware mega cap company (75% gross margin) if Nvidia can appreciate so much in a short period of time then what will happen to AI software winners that command gross margins more than 85%. Given that such companies are still in their infancy and US small/mid caps are still in bear market I can guess (no guarantee though) that such companies will go parabolic when the interest rate cut cycle begins. If the Nvidia stock price appreciates 10X in 3 years (from trough to peak in recent cycle) then one can imagine the scale of price appreciation of such AI software winners. I see that such a journey has already begun by looking at the price action of my portfolio companies such as Confluent/Palantir/Cloudflare/Snowflake/MongoDB/UIPath etc… Few more may emerge as big winners in this space.

Thanks to internet technology, novice investors like me can buy/sell stocks in any market sitting in the comfort of my home in India with a click of a button. Hopefully AI technology can take it to the next level to prevent us from doing crazy things with our own money and hence make us better investors:)

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Great insights curious and good to see the CAGR of your portfolio…

I am finding Indmoney complicated in terms of depositing money…Which platform you use for trading in US stocks …

I use US brokerage as I built this portfolio while staying in US.

Could you explain a bit more on the AI related software companies that you have mentioned in your post will be very helpful

It is certainly possible to build Dividend growth portfolio in India. Not lot of people have tried this and normally comment on Dividend income without much stats. But one can take a look at good companies who pay out dividend consistently. few examples are Tata Investment Corp, Infosys,TCS, Indigrid, BSE, Bajaj Auto, CESC, Balmer and many more.

Here are my laundry list of AI companies (public and private) as per my understanding about AI ecosystem

Hardware/Semis (1st order derivative): NVIDIA, AMD, SMCI, ASML. TSMC —> Direct beneficiaries of AI boom

AI Software Infra (2nd Order derivative): All cloud/edge computing vendors, like MSFT, AMZN, Google, Cloudflare (Nvidia’s 40% revenue comes from these companies)

AI software middleware (3rd order derivative): Snowflake, Confluent, MongoDB, Elasticsearch, HuggingFace (private), Cohere (Private), LongChain (Private), Antropic (private), Wix etc…

AI adopters (Top of the value chain, 4th order derivative) : Meta, ByteDance, Trade Desk, Crowdstrike, Palantir, Upstart, Lemonade, UIPath, Pinterest, Biotech(like DNA sequencing/editing companies) and thousands other enterprises/future apps built with 1st - 3rd order derivatives

I started investing in some of these companies in 2019 (few of them came in the public market in 2020-21). Added more during the 2022 bear market when they were available at throwaway prices. Now I have stopped putting new money into these companies. Of course these companies (specially middleware companies) are not out of risk. Beside competitions with peer groups, many of them actually created their own enemy with their free open source counterpart. As a result when push comes to shove (i.e. during cutting cost for survival in this inflationary environment) customers adopt the same free open source software which cannibalizes their top line growth. So please do your due diligence before investing in these companies.

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My India portfolio is again on track as consumption related stocks have finally started moving after the Election result. For now I see them as hope trades. It may last till the next budget. In this quarter portfolio winners are Trent, Pidilite and Granules India. Pidilite is a 10 bagger in 10 years as I hold the stock with a “no matter what” attitude:) Whereas Granules India is giving 6X return in 6 years.

NVIDIA is the first 10X in my US portfolio. In my 10 years of investing journey (6 years for US stocks) I got blessed with 10X return 4 times. Those were Vaibhav Global, Deepak Nitrite, Pidilite and Nvidia. Except DN I am still holding the other 3 in my portfolio. Both DN and Nvidia reached 10X within 2 years of initial investment. Ultimately I sold DN with a 6X return. This time I am going to sell 50% of my Nvidia holding after the 1:10 stock split takes effect as early as next week. Kabhi na kabhi to 10X return ka maza lena chahiye:)

I personally believe that Nvidia has more room to run. In future all CPU intensive operation will be offloaded to GPU and as a result Nvidia being a monopoly will grab the lion share of new industry which needs support from accelerated computing (for example self driving car tech). Also as expected, hyper-scalar companies like MSFT/AMZN/GOOG have started showing cloud service revenue growth acceleration as developers are experimenting with training new models to solve everyday problems. As a result my Microsoft holding is giving 4X return in 4 years.

At the same time much anticipated revenue growth acceleration of US based SaaS/software infrastructure companies have not been realized yet. In fact, for a few companies growth is going in the wrong direction. The usual chorus here is that big enterprises have stopped buying these softwares due to the so -called macro issue. Somehow the third layer of AI stacks are not showing traction in the middle of raging bull AI hype. Growth may come back when few more AI applications appear in the market. Or in the worst case scenario few of them will be disrupted by newcomers. But whatever the case, my strong belief is that the winner(s) in this space will have a hell of a run for decades to come. As it’s difficult to pick winner(s) so early in this space so I have invested equal amounts in all such companies. Hopefully few of them will turn out to be multibagger even if others falter.

A special mention for cybersecurity company Crowdstrike. My thesis of investing in CRWD was their cloud centric clean architecture to solve some of the tricky issues in the cybersecurity space. This is why they are now beating legacy companies like Palo Alto Networks and Splunk w,r,t winning new multi million dollar deals with their platform centric architecture. I have been holding CRWD from a much lower level (3X return), stocks fell more than 65% from top during the 2022 bear market. Since then it has recovered well and surpassed previous highs convincingly. Now good news is that it’s being added to the prestigious S&P 500 index - this cements its dominance in the field they are operating. At the same time I am patiently waiting for my portfolio stocks Palantir and Trade desk to be added to the same index in the near future. Interestingly all 3 companies are run by founders and I can notice the same confidence/vibe from the respective owners on their products while listening to their quarterly earnings calls.

Interesting fact, during 2022 when US FED started raising interest rate aggressively then majority predicted US recession in 2023. Similarly we all know how exit polls predicted our own election results. Moral of the story is that we need to be careful when there is a widespread consensus view/opinion on some future event’s outcome. Need to be extra cautious while investing based on such a consensus view. In both times I benefited by just doing nothing:)

Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.

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Do not believe in such future predictions - This could be the key learning.
It only acts as a hindrance to an investor’s own conviction and theory.
Mostly all such predictions are of no use in the world of investing and Doing nothing is the safe approach!! I also have not acted on any of these predictions for my Indian stock portfolio.

Your conviction is US stocks when most of the consensus was suggesting not to invest in them (or there were some concerns about their valuations even in 2020), have given you stellar returns.