As promised, I’m sharing my performance update for this once in a century tumultuous year 2020! Apologies in advance for the really long post but want to give everyone a sense of how markets can humble and delight you in just months!
Let me begin by sharing some perspective and in what light I would look at my portfolio performance.
I started this year with close to 50% of my portfolio in dangerously leveraged financials such as Yes Bank, Indusind Bank, Indiabulls Housing, Piramal, Edelweiss, Bandhan Bank, Motilal Oswal along with some decent ones such as HDFC, HDFC Bank, Bajaj Finance, Chola Fin, ICICI Bank etc.
Having close to 50% leveraged businesses in a porfolio is almost a guaranteed recipe for disaster. Even before the real disaster i.e. Coronavirus - my crazy stock picking (one of my top 5 bets in terms of allocation) required me to manage a 40-50% YTD crash in Yes Bank with the announcement of moratorium and book an overall loss of 70%
And soon after, it was absolute carnage towards the end of March with my portfolio cut down more than 50% from the top in Feb 2020. No leveraged business was spared - no matter the quality!!!
Stocks like Indusind Bank fell 80% in 3 months!!! From 1500 to 250 in just 12 weeks!, still holding this btw along with few other unfancied leveraged businesses, and pretty much every leveraged financial business got the stick like the world is about to end tomorrow!
Other relatively better leveraged ones like Bajaj Finance and Chola suffered 60% erosion in market cap!!! And then I had a few other high conviction businesses like Inox Leisure and Delta Corp which became Corona casualties. As expected, they also lost 65-75% of market cap!!!
So as mentioned above, this was a horrific few weeks/months for me dealing with such significant MTM losses (mostly leveraged ones).
However, this was also the month where I got sick of holding most of these sub-standard leveraged and pseudo cyclical businesses and I started booking losses left, right and centre! So anything where I lost 20-40% capital like Piramal, Motilal, Care Ratings - I started replacing with much better quality businesses (structural growth stories) and managements in the belief that those businesses have some floor to their price and will definitely recover back to their all time highs faster and keep growing with future business performance. Also getting some fresh capital every month has helped me enter some great businesses at good prices. But I definitely have some room for improvement in terms of being able to also cut down businesses like Indiabulls and Edelweiss which lost 90% market cap from recent highs. It just seems too difficult a pill to swallow especially given my original allocation to such crap businesses.
Anyway, I had already done lots of work in trying to identify Coffee Can style businesses by that time and it made it very easy to buy those during the crash. Although it was not smooth sailing as I kept rebalancing, trimming, adding, booking out of some good businesses till May / June until I gained high confidence that the worst phase is over and I should only sit tight on high quality businesses instead of being hyper active!
During April-May, I also realized the kind of carnage small caps had suffered from the highs of Jan 2018. So I started turning over more and more rocks to see if I can find some good small caps or even micro/nano cap SMEs with some Coffee Can type characteristics. So many reasonably good businesses were selling at throwaway valuations (2-5 P/E) even upto end of May. And I started building a satellite portfolio with small allocations as I thought that high quality businesses like Titan, Berger Paints, Page, HDFC Life, etc. cannot go 2-3x in months which some of these small caps can with the slightest recovery.
So finally, coming to the portfolio performance for 2020 and also sharing my current portfolio as of 31st Dec!
In terms of % returns, my portfolio has done reasonably well comfortably beating most of the major indices barring the small-cap index. But this outperformance really needs to be sustained on a long term timeframe before I can draw any conclusions about my investing skills. However, given the way this year started for me - just beating the Nifty gives me immense satisfaction.
Coffee Can Portfolio
Satellite Portfolio
Before anyone has to count, this is a combined 75 stock portfolio. Let me be the first to admit - yes, managing this is not so easy! However, I have talked about the portfolio strategies in my posts above over the last few months and you can go through that. However, I definitely plan on cutting down to 50-60 positions at max over time.
PF Update: Have done some minor profit booking in 2x-3x stocks like Alkyl Amines, Indiamart, APL Apollo, Poly Medicure and big in Berger Paints as valuation just seems to be getting crazier by the day.
Wishing everyone an even more terrific year after a splendid 2020!