Equity Portfolio Advice needed for a 19 year old investor

Q&A: Questions & Answers Portfolio Q&A
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Hey there,

I have been reading the forum from quite a time and finally decided to create a account here to take advice from the experts here. I am a 19 year old entrepreneur running a web development firm in Mumbai. I have been investing in Mutual Funds SIP since last 8 months for two purposes, ELSS tax benefits and long term wealth generation. I am making SIP in 9 funds and out of it 7 funds are Large Cap Equity funds and remaining 2 funds are Mid-Cap+Small Caps Funds. My risk appetite is high as I want to build a corpus for my future and do not have anything to worry about it as my family is well settled.

I am now looking to invest directly in Equity to learn more about investing and have a higher rate of annualized growth. I am investing nearly 30K per month in Mutual Funds and I can invest 1L per month into Stocks. My plan is to invest in Mid Cap and Small Cap funds only as I believe I am pretty well covered for the large cap with my mutual funds investments. I am unsure where to start looking for stocks to invest, how many stocks, what should be the allocation? Please advice.

Best regards,
Himanshu

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Go through the resources section of valuepickr. Also, management Q&A of many companies has been done documented elegantly by senior members. Basically explore other dimensions of valuepickr.com before jumping to the forum. Don’t expect people to spoonfeed you just because you are a young member. All the best for your journey.

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Thank you for your advice and wishes. I will be looking into the other sections in more detailed.

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For whatever it is worth, my first thoughts and only the starting point in your journey.

Investing is a very individualistic pursuit and that is why there is buying/selling at almost every price point on the way up and on the way down. That is to say that you have it figure it out by yourself based on your temperament. What works for anyone else may/will not work for you. You have to figure out your own investing style.

  1. Start with some basic reading
    a. One Up on Wall Street - Peter Lynch
    b. Beating the Street - Peter Lynch
    c. The Five Rules for Successful Stock Investing - Pat Dorsey
    d. Stalwart investor’s writings.

  2. For any stock that catches your fancy, read the relevant thread to gain an understanding on the company and its prospects. If you do not understand a company’s business or its numbers SKIP that company. Always be skeptical. There are many other opportunities in the market.

  3. Start with a diversified portfolio ( >= 20 stocks) and narrow down as you gain confidence. Don’t rush the narrowing down.

  4. To start, only consider stocks where ROE > 15, RoCE > 15, Profit growth > 15 and Debt Equity < 1.5 unless you are betting on turnarounds. There are many other thumb rules, like OPM, FCF Margin, etc. Once you gain experience you can start looking beyond thumb rules.

  5. Undertake studies of strong companies (Nestle, etc) and weak companies (Helios & M, etc) and try to spot THE differentiator(s). Try spotting trends and red flags. Your stock picking skills will increase tremendously.

  6. Read, Read and Read as much as you can to expand you horizons. Make a habit of studying Annual reports. Some other good books include “You Can Be a Stock Market Genius” and “Financial Shenanigans”. This is just the starting point and is by no means exhaustive.

There are no short cuts. The harder you work the more skillful you will become. BTW, I am only 6 months into the business of fundamental analysis though I have been investing for around 2.5 years.

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You deserve a big applause for being so focused at your age.

Read, Invest, Learn (from your experience) - You will do well.

Don’t seek specifics. Seek meta advice (similar to meta data).

All the best.

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True! Really commendable to see you start off so early :slightly_smiling:

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Hi Himanshu,

First of all, congratulations of starting your investment journey early.

Two cents from me on the process of creating an equity portfolio.

Active value investing is time consuming and requires rigorous study and lots of reading, which I am not sure whether you will have time for, considering your current full time work (web entrepreneur).

Learning vicariously from forums like Valuepickr is your best bet I think. In the meanwhile you must also keep reading the great books other boarders have already suggested.

You seem to be doing the sensible thing of investing regularly in Equity Mutual funds (although do you really need 9 different funds? what was the driver of choosing those many?)

Direct equity investment cannot easily be done as a side-task activity. What happens in reality when you attempt to do so (from my own experience) is that one will end up with second-hand ideas, and in some cases at non-optimal entry points.

Another option is to do cloning, following the portfolios of successful, experienced investors. You will find a few of them if you look carefully around (the good ones don’t tout their business). But then again, their risk appetite, time horizon etc must match with yours.

Direct equity investment is a business activity. As you already run one, you know the effort and mindspace required to run it.

Wishing you the very best,
Ginto

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I do understand direct investing is a full time activity but I really want to learn more and will try to give possible time daily to learn. I have started reading a book suggested above. 9 Funds consists of 4 ELSS Funds and 5 Normal Equity Funds. It is a mix of Large Cap, Mid Cap and Small Cap. The reason for investing in 9 different is to diversify and reduce the risk for the long term. I do not plan to withdraw these funds for a minimum of 10 years. I have checked the portfolio overlap between all the funds and it is less than 25% for all of the funds. Although, I am no expert in Mutual Funds investment.

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I am really jealous of you; hope I would started investing @19 and would have got such a platform like VP.
So congratulations to you for that !

If you want to play safe and learn stock market behavior, then mutual fund is fine. but more than 3/4 mutual fund does not provide any more diversification. And fund managers/fund houses has several restriction while selecting stocks like market cap/sector allocation/liquidity/widely tracked etc. etc.

So if you want to be in this business and age is on your side is the biggest advantage you have, you should start with direct stock investing. Do read a lot of books (already mentioned here), try to understand companies fundamental. we are bound to make mistakes. Learning never ends in stock market, and it’s biggest lessons are loses. And this is something nobody can teach us, we have to experience it by putting our own money and by going thru emotions.
I am new here with around 3 years of experience, it’s difficult to keep track of everything when u have a full time job which has nothing to do with stock market, but the passion keeps us going ! Don’t take it otherwise, wish you all the best ! You will definitely reach your financial freedom.

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It’s been more than 6 months now. I did my best to learn more about equity investments in last 6 months and did gain more knowledge via this helpful community. :slight_smile:

I’m now feeling more comfortable with direct equity investment. I’ve recently sold all the units of my 5 mutual funds holdings and stopped regular sip in them. Gained good profit in them. STCG will be applicable here but profit is still good. I’ve kept ELSS Mutual fund Schemes as I don’t see any other better tax saving option than it for now.

I’ve tried to build a small portfolio also in these months and will like to put it forward to ValuePickr members for their valuable opinion.

My Current Stock Portfolio with all the details: http://prntscr.com/ccx3vh

Idea behind investing in these stocks.

1.Udaipur Cement Works: Cement production to get started in December, backed by J.K. Lakshmi group, one of the most respectable group in India. I’m betting on a turnaround.

2.Omkar Speciality Chemicals Ltd: Invested during the pledging fiasco. I’m confident on the management and believe they can make this company a bigger company in the coming years.

3.Mercator: They are narrowing the sectors they are in. Company financials has improved and expecting more improvement in the coming quarters. I expect a major turnaround here. Eicher Motors increased their growth when they sold of their multiple ventures and streamlined their businesses. Ofcourse, it can’t be compared to Eicher but I see a good potential for the long term.

4.DHFL: One of the first stock to catch my attention due to it’s cheap valuations during Feb`16. Housing sector is blooming and the company is catching the attention of investors. Seems to be a good ride ahead.

5.Torrent Pharma: Company fundamentals are looking good. They are trying to improve their reach in Brazil and other countries. They did a good job during Abilify drug and believe that they will be able to execute such further profit making drugs export. They are filling up ANDAs to try to increase the number of drugs they can supply. My whole family is in Pharmaceuticals and that gives me more confidence to believe in Pharma Stocks. Maybe this company becomes the next Sun Pharma of India.

6.Alembic Pharma: I’ve the same thoughts here as Torrent Pharma due to similarity in both the companies.

7.Waterbase: Waterbase seems to be a growing player in the Shrimp Industry. Increased capacity and the merger will give it a boost. It may not replace Avanti Feeds but I expect a higher grower rate for it than Avanti Feeds.

8.HMVL: Good readership in India, upcoming elections and cash in hand made me invest in this company. I believe the company will start utilizing the cash and then we can expect a higher growth rate.

9.Allsec Technologies: Company is making a turn around. Fundamentals looks good as well.

10.Jagran Prakashan: Same thoughts as HMVL but it looks more attractive than HMVL due to it’s radio biz and higher readership. I feel vernacular newspapers are here to stay in India for a few decades without any issues.

I’m not looking to sell any of my investment until any company starts going down or I need money. I wish to stay in the market for long term to grow my money. My strategy is to invest only in Small caps and mid caps. I’ll keep putting all my web development company income in it. I know it is a high risk strategy to have majority of your investment in Equity and that too mid-caps/small caps but I believe in high risk/reward ratio theory. I know I still don’t understand anything technical in stock analysis, haven’t faced any bad patch such as 2008 or haven’t seen the portfolio companies hitting LCs or frustration which you face when your company isn’t moving for months. But in any case, I’ll stick to my strategy. Even if I lose all the money, I’ll restart from scratch.

My major concern right now is that how do I proceed now with further investment. Most of the mid-caps stocks looks expensive right now. I’m not having the confidence to increase the investment in existing stocks which have rallied quite a bit. I’ll really appreciate if any body will put his valuable suggestion or opinion about my portfolio here.

Thank you every body for your valuable time here in the discussions and advising new-comers like me.

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Great going for someone at the age of 19.

I like the choice in newspaper and pharma segments.

I am not too sure about the business quality of Omkar speciality esp if it is a long term bet.

Cement and commodity type companies one has to know when is the best time to get on and get off the bus.

Allsec, Mercator and Waterbase can be interesting bets.

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Thank you for your time. I really appreciate it.

I’ve noted your comments. I’ll monitor Omkar speciality in the next few quarters. Yes, the more and more I read about the commodities and their studies over the years, they more look like a trading bet than investment bet. There are two triggers for me to stick with UCW that first they the production will start in December and future possibility of merger with J.K. Lakshmi Cement. First trigger does seems that it will boost the stock price and second can do the same.

Do you think I should increase my allocation in pharma and newspaper segment? I’m very confused at the moment how to proceed further with investments. I’m holding cash around 20% value of the total portfolio. You can have a look at the allocation here. http://prntscr.com/ccx3vh

Thank you very much for your helpful opinion.

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Hitesh,

Any specific reason for doubting the business quality of Omkar. I have been following this company closely for some time and couldn’t spot any issue in this area. I would be grateful if you could mention the specifics.

Thank you.

Rgds
RR

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I think businesses with good biz quality should not have big issues with working capital. Omkar guys seem to be gradually addressing it but in the first place it should not have been there.

And all this pledging concern etc makes me sceptical.

If I want to remain invested in a small cap for long I want to have most things going for me. I dont find it in Omkar.

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Hey there!

Seems like you have been closely following Hitesh ji’s comments in the forum :slight_smile: Most of them seem to be his picks currently. Although you seem to have given some reasoning behind each of your stocks choices, I just wanted to pass some words of caution that if you are trying to rely majorly on a single person’s top picks especially someone like Hitesh ji, who has a mixed approach of long term and short term investment along with varied allocation, you might end up in trouble in future. Mainly because you won’t know the allocation of each stock and the time for exit. You have to have a very deep conviction formed by your own analysis (which might be a synthesis of other people’s analysis).

An analogy which comes to my mind is trying to hold the back of a truck while oneself being on a cycle. You might be moving at the same speed of the truck on a smooth road, but you wont know when to apply brakes and when to grip the back of the truck stronger when the truck accelerates. You got to have your own truck to drive with a clear front view.

All the best.

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Hi Nishant,

Thank you for chiming in. Yes, I’m inspired by his picks but I did the due diligence to the extent of my limited knowledge. I agree with you that I need to have a deep conviction on my choices. I’m reading the discussion threads here of the sectors which I’ve interest in from the start to understand more about the companies which I’m in, what factors drives the interest of the members here into a particular company/sector as well as making my notes. I feel it will take me many years before I’m able to analyze a company properly on my own and build my own conviction. I’ll keep your advice in my mind all the time. Thanks for the heads up!

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@anon35913099

First of all, it is great to see a 19 year guy focused on converting his savings into investment. That gives you a big edge over cohorts in your age group!

Having said that, I feel it makes more sense to take a more gradual approach and divert only part of your funds for direct equity investing. My suggestion would be to keep you SIP on and on the sides start working on direct equity investing. Spending time in the market is always humbling experience giving you enough ocassions to learn!

I personally feel, the most important thing at your age is to not lose capital. Capital created at early age is extremely precious because of the sheer number of investing years ahead of you. The very fact that you can invest substantial amount every month in equity as an asset class, makes it even more important that you focus on protecting the capital…or at least not losing a large part of your capital. So Rs 1 Lakh lost today is nothing less than losing 2.5 Crore at age of 60 even if you compound money at moderate 15%. So, be very very focused on not losing money. Hence, my advise is to keep investing decent amount of money in SIP and at the same time, allocate a moderate portion to direct equities. Learn the game, spend time in the market, and then up the ante!

Also, I have learnt from experience, that in mid-small cap, it pays immensely to focus on quality and not get lured by low valuations. Instead I would say the focus should be to get high quality companies at low valuations…and if you don’t find many of them…wait it out but do not compromise on quality either of the business or the management.

On the portfolio, I see a mix of good quality companies with some turn around/cyclicals and commodity companies. Though, turnarounds and cyclicals can give multibaggers, the base rate of success is very low…or I may say unpredictable. I suggest you should avoid such companies, especially during the early years in market.

Take it for whatever its worth!

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Just to add 2 cents to above what @desaidhwanil said in practical terms I know Asian Paints and Hdfc bank (have A/c with them more than a decade) since 2008 but never bought them thinking they r expensive businesses and they kept on becoming much more expensive and ever compounding machines - still not bought after I become serious investor in 2012 and still waiting…They represent what a high quality business, top notch management will do and earn, if u invest in them, if not early at some point of their journey - May be u can retire before turning 40.

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@desaidhwanil

Thank you Dhwanil. I haven’t completely stopped all the SIPs. I have reduced the number of SIPs to 4. I agree with you that I need to be more cautious as my careless behavior can erode the capital. I’ll hold more cash from now and invest only when a good quality business is available at low valuations. I feel that I forget sometimes that I’ve years ahead me and I don’t need to rush with anything.

@MHS

I got your point. :slight_smile: Thanks!

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Thanks Hitesh. Really appreciate.
Thought I had missed some unknowns…which might still be possible :slight_smile:
And yes, high WC and high pledge does create doubts on business quality and should restrict one to go for a big swing even at the current depressed valuations.
Weblinsolutions: Sorry for butting in to your thread. Hope this was of some learning for you too.
Thx
RR