Grizzly bear portfolio - keep it simple

Q&A: Questions & Answers Portfolio Q&A
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Hello Friends,
I will be sharing my investment style and portfolio on this thread. I would appreciate reviews / feedback from esteemed valuepickrs.

About me:
I started trading, speculating, investing 12 years ago without any process in place. I was lucky to sail through that phase without paying much tuition fees. I was introduced to value investing and valuepickr approx 5 years ago and since then I have adopted a more disciplined approach.

Weekness:
I am from non finance background so do not get into complex valuation models.

Strengths:
Good temperament and patience to do nothing for a long time.

What is a Grizzly bear portfolio?
Grizzly bear goes into hibernation (deep sleep) to escape winters and food scarcity. I am following a similar approach - When there is too much enthusiasm in markets and risk/ reward is not in favor, move to debt instruments and be content with 7-9% pre tax returns. Come out of this hibernation mode once there is enough pessimism around and almost everything is available at a good valuation similar to 2009 or 2013 period. Nifty PE will be one of the major indicators for my re-entry decision.

Current Portfolio:
Debt 100%

Watchlist -
HDFC bank
Maruti
Eicher
Asian Paints
GodrejProp
MothersonSumi
CCL
Thyrocare
Shemaroo
Cupid
Mahanagar Gas
Ongc
TCS
Bajajfin
Sun pharma
NGL fine
Banco
Maithan alloys
Centuryply

Framework:
No of stocks - 12-15
Max 10% in a stock
Max 30% in a sector
Max 20% of portfolio in small caps

Sectors that I currently avoid - capital goods, insurance, shipping, defence, infra.

Stocks I avoid

  • high debt
  • stocks or sectors with govt interference / price control

Thank you
Hiral

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What are your reasons to avoid insurance?
I agree with your point to avoid sectors with gov interferences/price control…but who would have thought that good old FMCG also come into ambit…with latest developments, no sector seem clean

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I am trying to understand the insurance business but currently it is out of my circle of competence hence avoiding.

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Hi @hiral,

When I read ‘About me:’ section it looks similar to my story but I have paid the tuition fees. Your Watchlist stocks looks good except Shemaroo. This one looks like Value Trap. I am trying to analyze it’s business but not got confidence yet. I am trying to figure out why it is giving less dividend despite having good cash flow.

Do you think can you time the market? Moving in and out with 100% debt might not be possible over long period. You can go through the Capital Allocation thread to get further insight.

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Start gradual entry at 18-19 Nifty PE and gradual exit at 24/25 Nifty PE rather than waiting for exact top or bottom seems achievable. There is enough discussion around this in a different thread and my views are in line with @jamit05

Thanks,
Hiral Dedhia

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Hi @hiral

You could possibly also divide the cos into those that are above their 200d moving average and those that are below. For those that are below maybe further understanding of triggers is required because they might not give expected returns in the near future. In addition what I have started doing is to get a sense of the average draw down in the cos that I hold. This gives an indication of the risk that I am undertaking and also helps me sort cos on a risk continuum. It is very painful psychologically to hold a co when prices are going down and I have found getting sense of the average drawdown over a business cycle helps soothe nerves and act decisively when certain price levels are reached or breached

Best
Beeshma

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The very fact that you mentioned these rules, which most other PF don’t, means that you have a keen sense of risk: reward ratio. On this, I would like to state my thought.

When Nifty has touched 18 PE, there will be a lot of blood on the street. Many good companies will be trading at attractive valuations, at that time, what kind of stocks will you want to buy, mid caps or a large caps?

I would choose good quality MidCaps. Simply because they could go up ten fold without much strain. Whereas, Large Caps are heavy. They move in percentages.

If the stock selection of MidCaps is well researched… low debt, no management scams, has good brands in place, there is moderate to good growth each year. Most importantly, the business model must be such that it generates Free Cash on most years.

Some temporary issues are ok. Like recently put on debt due to the recession or an expansion plan is underway.

Such MidCaps can give incomparable returns. Since, we are buying in deep bearish times, where there is plenty of Margin of Safety, then why bother with Large Caps.

We should probably discuss which midcaps fall into this 5-star category.

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I agree. I am working on adding more quality midcap in my watchlist. Any recommendations?

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One more thing, regarding allocation:

I won’t be investing 10% of my capital in any one mid-cap.

Mid sized businesses are precarious by nature. Balance of Growth and stability is difficult, especially in these times. I think, whatever research we do regarding growth, runway, valuation etc is just the visible tip of the ice-berg. So much more goes on underneath, which one can never really capture. Much is left to chance.

Therefore, allocation of
50% in Large Caps
50% in Mid-Caps

and

Not more than 3% per mid-cap stock.
Not more than 10% per large-cap.

also,

All stocks must be growth stocks. At the time of buying, market will be giving excellent margin of safety, so there is no further need for buying into safety of dividend giving stocks, or already expensive FMCG type stocks.

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Hiral,

You might want to consider adding some mid-caps from the Auto or related sector. My Recommendation is Mayur Uniquoters Ltd.

Debt, RoE, FCF, Management, Current Valuation and runaway; It is fair on all these counts. It is crashing down towards its 2013 lows.

It should be looked into.

See, if I purchased Maruti instead, since we have a cap on investment in each sector, the risk appears high, and the returns too are low. Risk due to EV disruption, and growth looks distant.

Maruti CMP 6000, all time high 10000
If ATH is touched, Gain would be 65%

Whereas Mayur, if bought at Rs.200, I am confident it will reach its all time high of Rs.600 in the upturn. That is a 300% appreciation.

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Yours is most common approach in the system. When I started decades ago, I did not have access to any data , hence had no theory. Just followed my fathers guidance that I should concentrate of MNCs. That worked wonderfully.
Now I have simplified the system. I like to pick examples from life. Think of your investment as a food thali. Eg , you have Salad, fritters, rice, bread, curries, desserts, chutney, pickle etc in your thali. The quantity and purpose of every item is different and so is your liking for them. Now I request you to arrange your investment in shape/ form of a Thali. Pehaps an answer will emerge. The Best part is, content of thali changes as per age and affordability, naturally. All are welcome to present their investment thali - that will perhaps lead to greater idea exchange.

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Hiral, it is hard to do the in and out based on Enthusiasm and Max-Fear. This is not a one day event, or an event that comes with any clarity. Even if you measure it based on NHNL, VIX, %Stock Above 40dma or 100dma or 200dma, TRIN, EMAs, McCl Osc, PC Ratio etc. I have tried to evaluate all of this over the last 20 years and there is not perfection, and hence FOMO sets in.

So, then how do you decide to buy in 2009? How do you decide to sell in 2018? How does it make you feel that you did not sell near the top 9 months later or bought 7 months earlier than Mar’2009? It is that reason why a lot of bulls just become tigers and stay invested 90% of the time as opposed to bulls or bears.

Hope you can share some details of your approach to measure Euphoria, Complacency, Extreme Bullishness, and all of its opposites (extreme bearishness or time to lighten up). If PE ratio only is used, it works for the large caps but hard to make it work on mid caps and almost impossible for Small Caps.

KKP

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In April 2008 when nifty had already corrected 25% and midcap index had corrected 40% from jan 2008 High, I had invested in some of the good mutual funds from hdfc and sbi magnum. I sold them after 8 years with near zero returns.

Lessons learnt : Time in market is important but timing is equally important.

I am not seeking 2009 type opportunity as it is very difficult to predict a bottom, but I would be happy if I can deploy 100% cash whenever 2013 type opportunity arises.
I do not read too much into dma, vix etc. Apart from Nifty PE, I observe sentiments of people around me.

  • Currently most of my frnds / family portfolios are down but they are still hopeful of a turn around. I am waiting for a phase where few ppl start giving up on equity investing.

  • I still hear /read few ppl quiting their full time job and take up full time investing. In 2010-2012 timeframe there were some full time equity investors/ traders around me who quit stock markets and decided to join family business.

  • I also check google trends for certain keywords like ‘multibagger’, ‘stock tips’, ‘defensives’, ‘debt fund’ and recently added ‘traders/investors carnival’. That gives a fair idea about current sentiments.

At times FOMO does kick in but so far I have been able to convince myself by asking the following questions -

  • There is some value emerging in select pockets. If there is a deeper correction in nifty, how much will those stocks correct further? The answer is probably another 50% for small caps and 25% for mid and large caps.

  • If I invest in debt instruments, will I beat inflation? Currently the answer is ‘Yes’

You have a fair point here but considering my strengths and weekness, I would like to experiment being a Grizzly bear rather than tiger in the current environment.:grinning:

@hitesh2710 I would appreciate if you could share your thoughts.

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Stock markets will remain mysterious for most investors and it is also the same for MF Managers and Money Advisors, which is why there is SO MUCH variance in performances of these folks.

The only think that I know works for most investors is to set aside portfolio of various kinds. LT Portfolio which is Buy and Hold based on Macro Sector Picks, Large Cap Companies, LT trends, and also Economic situations. Nothing says it cannot or will change, but if you can live through 10 years of non-performance of a stock, and then get 500% from it in 5 years (so 500% over 15 years), would you be OK. Most people are not.

The 2nd aspect is giving money to a Mutual Fund Manager to compete with you with a portion of the portfolio.

The 3rd aspect is Swing Trading based on 1-2-3 days or 1-2-3 months of investing. This takes special skill like skating on ice and dancing on ice!

The 4th aspect is not to forget that euphoria will always turn into inflation and therefore investing in commodities will help. Gold, Silver and Diamonds are great although instead of putting in a vault, invest in these to enjoy somewhat. There are many methods here including the simplest being ETFs in India.

And, then don’t forget that we only have 1 mother earth. So, having real estate investments when it is down and out (like right now) is a great strategy for the LT.

All of the above, I practice and have enjoyed it very much, but then I do not report to anyone, and deal with ups, downs and sideways since these are all ‘investments’ that do not need to be shown, shared, used, or even leveraged with a goal. The goal is “Wealth Management” of all of these Excess Funds.

If you cannot deal with FOMO, Losses, Gains and Taxes, then go to Tax Free Bonds, and enjoy flying kites, gardening and star gazing. Many have done this also, and they are happier than ever since they stepped out of the ‘investment arena/field/mai-daan’.

Just some day off writing…

KKP

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@hiiral

I dont track returns generated by mutual funds so not much idea how they do during various phases of the markets.

But one has to be rational in considering the extent of market meltdowns while being fearful. Nobody is going to predict accurately when and where the market meltdown is going to end. But usually a fertile ground for markets to complete corrections is when there is negative news allround. Newspaper headlines tend to put negative news almost on a daily basis. Retail investors throw in the towel. There is widespread panic selling often without reason. Even regular screen watchers are sick of looking at screen. Some of this has happened and other factors may happen soon looking at the kind of ferocity of the fall.

One important aspect to look out for is market breadth improvement. If and when that happens on a consistent basis, market turn can be expected sooner than later.

This time the time duration of the correction has been prolonged. The correction that began (esp in small-midcaps) since Jan 18 is still going on and its been almost 20-21 months. There have been some intermittent rallies and hence one does not feel the prolonged duration of the correction but overall the trend has been down since Jan 18. Even 2008-09 correction finished with 15-18 months. So timewise also one has to be watchful of things turning around.

The investors in mutual funds have it easy as they have to go for SIP mode and increase the quantum of money invested as the market keeps going down. Nothing goes in the same direction for ever. So after some point of time a reversal will be due. So those having a foot in the door with SIP stand to benefit a lot.

For those investing directly, one has enough time to research, deliberate, and accumulate. Rallies following these corrections are mostly quick although in the current gloom-doom environment one cannot even think of a reason why markets should go up.

You have put up a good watchlist of companies. Even among them stocks like Asian paints are at all time high amidst such sharp correction. Which goes to show how being stock specific helps. Currently the pendulum has started going towards over pessimism and even if it were to go to equilibrium state (let alone over optimism) a lot of wealth can be created.

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I think this is one of most important point and a defining para of the current situation. Honestly I have read and heard many experts but no one has a clue this time and all seem to be guessing. However, the duration of the correction shows that it’s very deep structural issue with growth, valuation and macros. India has been a growth story so far, growth and only growth sells here and sells really costly…I guess big investors now have to be content with an era of lower growth and big disruption driven mainly by new technologies. An era where some companies may grow disproportionately, at cost of other unfortunate ones… Dark horses would emerge but after seing how a horse ends up riding backward, I would rather be in slow and steady cart and wait for appropriate time to get rid of the sins committed… although have learnt that best time to get rid of sins is the moment you realise you have committed it… finding it very difficult to practice once you lost initial chance…will never be late to say a sorry next time to even my most beloved stocks…

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Hiteshbhai can u suggest few stock to be kept under watchlist

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Update: I have deployed 5% of cash in Ongc due to dividend yield and cheap valuations. I continue to hold 95% in debt instruments. I may start deploying some cash in coming days.

Watchlist: MGL, MindaInd, ICICI bank, ITC, Cupid, CCL, SunPharma, TataConsumer, Thyrocare, SBI Bank, Banco, PageInd, VinatiOrg, HDFC pack, Maithan Alloys.

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What’s the thesis for investing in ongc at this point?With oil crashing, they will be in deep losses and it would take a long time for growth to come back? Are you just buying these based on valuations?

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Gains from HPCL could balance out negatives for ONGC. That seems to be one reason behind this downstream acquisition