Hitesh portfolio

@Anshan

I liked the concept of change in promoters in Indiabulls real estate and hence invested in it when it was around 75-80. The combination of an excellent chart with fundamentals in the form of change in promoters was every enticing. I think I had put up the chart of IBREL on 52 week high thread and target at that point of time was around 165 if we go by GMMA charts and 180 if we go by bar charts. Today it closed at 170 and there seems to be a lot of momentum. So it might make sense to keep riding with raised stops.

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@hitesh2710 , Hitesh Sir, you are the best! If i would just listen and follow your commentary(which i do), thats all i need to succeed. A sincere Thank You!!!

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@hitesh2710 Sir, I wanted your views on conviction based position sizing v/s equi-weight, for a long term portfolio.

Conviction based: This may be conviction on management quality, succession, moat, growth rate, valuations etc. However, I personally find it quite difficult to translate the english (qualitative conviction) into a mathematical % number. There is also a chance that a low conviction idea outperforms a high conviction idea. This, I believe, is a very realistic possibility; here and here, by the description given, it is very clear (to me at least) that Rakesh Ji was more confident on Geometric than Titan. For those who do not wish to read the full text on the links, the relevant quotes are: ā€œRakesh Jhunjhunwala showed so much conviction in Geometric thatā€¦ā€ and ā€œHe was so bullish on Geometric thatā€¦ā€ When even legends like Rakesh Ji can go wrong on conviction, I surely stand no chance.

Equal-weight: This is simple and is spoken about in the book Coffee Can Investing. Easy to use and no extra effort required. I think the best part about equal-weight is that over a period of time, the winning stocks automatically become a larger part of the portfolio, and the losing stocks keep declining and eventually become insignificant. However, as highlighted in a Motilal Oswal WCS, equal-weight will obviously underperform a portfolio skewed towards the winners.

Alternatively, one could use Kelly formula- but I personally think this is easier said than done. There are no odds/probabilities of win written in stone while buying a stock, neither is there any fixed upside potential.

I believe that it is a tradeoff between maximizing returns (conviction based) and putting in the effort (and also the chance that a low conviction idea outperforms a high conviction idea). Is it worth trying to make a gradient of conviction even within a portfolio (where a stock would enter only if you have a good conviction)?

This also has implications on cloning as a model (which Mr Mohnish Pabrai talks about), as we should not clone only the highest conviction idea, but all the stocks. Of course, if you are a blind cloner, then you cannot use conviction based position sizing because you have not done the research yourself, so you do not have conviction in the first place.

I am personally biased towards equal-weight, and I would like to hear your thoughts on these and what approach you think is better. I would also like to hear if you have found any method to translate conviction into a tangible % number, and any method on how to actually use Kelly formula. Thank you Sir.

Disc: not holding Titan or Geometric

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@Malhar_Manek

I am not a big fan of equi weight portfolio allocation. That I think is ideal for people who want to follow boutique portfolios given out by advisories and brokerages. The main point there is to buy what someone has prescribed and hence in a sense our own involvement carries little weight.

For someone like me or a lot of others on VP who are actively doing equity research in whatever form, I feel betting bigger on higher conviction ideas is important. Personally most of my big winners have had high allocations and these have made the most meaningful contribution to percentage returns at portfolio levels and CAGR over the years.

Betting hard when the chips are loaded in my favour has been the cornerstone of my investment philosophy.

I have never been too attracted by statistical models and hence have never taken to Kellys formula or any other forms of modelling. I am more of a feel type of investor who banks more on intuition and the art part than the science part. Science does play a part but after a point digging too deep is not my style.

According to me, investing should be full of enjoyment and fun and not too much of skull duggery. Of course I do all the homework I can, but there is a limit to threadbare research. If we have been observing success and failure patterns over the years with an open mind, its often quite easy to spot future winners. This comes by being open to observing the big picture and instilling a bit of flair in investing style. Besides these things, one has to align with the kind of markets we are seeing at that point of time. And developing an investing style with which we identify and are comfortable with.

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Hi Hitesh Sir, your views on Psu banks like BOB Canara Indian? All have made provisions north of 80%, their NCLT bookā€™s are 95%+ provided for.

All of them are saving a lot on expenses after amalgamation of branch networks.

Trading below their average P/B as well.

Indian Bank even has a capital adequacy of 15%+, so no need to raise capital at such low prices, Roe of 13-14% better than alot of Pvt banks.

Though in long time they have not made money for investors but as Psuā€™s are getting re-rated and somewhat value investing is making a come back, do you think a basket approach of large Psu banks in this case makes sense ? Thank you

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hi Hitesh Sir,
what is your view about jubilant ingravia.recent quarter EPS is 10 trading at 40+ PE and itā€™s competitor laxmi organics trading at 56 PE , if ingravia shows same growth for next three quarters it should trade around 1600 .

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Sorry but why do you want to keep it that low-diversified? My understanding is the maximum percentage of any contributing stock should better be below 4-5%ā€¦

This is an age old debate about diversification vs concentration, and there are no clear answers. On one end of the spectrum we have Munger, heavily concentrated in 3-4 holdings, on the other end we have Lynch, who at one point in time used to hold 100s of stocks in Magellan fund, when he was managing it.
It is up to the investor, which S/he is more comfortable with.

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Thank you for your reply Sir.
I have one follow-up question: How do you convert the qualitative conviction into a tangible number? Does ā€˜high convictionā€™ translate into 5% allocation, or 10% or 15%ā€¦?

Hi hitesh sir,
There is a strong momentum going on in the tea and coffee sectorā€¦ I do not know why but looking on this sector upmove as a whole I have invested into ccl.
Is there any reason for this sector.

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@Bhambri3

PSU bank pack has since long been a value play among contrarian investors. But barring in the case of SBI it has refused to play out.

However the first quarter results shown by Indian Bank and Canara Bank seem to be encouraging. I guess there may be a case at a closer look at PSU banks.

@lakshmikanth1 I dont track jubilant ingrevia.

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Sir, Any view on Hemisphere properties and Mirza International.

@Malhar_Manek

I think conviction and allocation form the crux of investing.

Conviction comes from research. Different people have different methods of research. But whatever method they follow, it has to have worked for them in the past. Many a times successful stock picks will have similar fundamental and or technical set ups. One has to learn to recognise these patterns and try to get better at these. And inspite of years of experience and knowledge and wisdom, people can still go wrong. These have to be prime considerations in stock picking.

Once a stock is picked, we have to consider the risk reward equation. If downside is limited and there is reasonable probability of upsides coming through, one can have high allocation. This often happens when a lot of boxes in stock selection are ticked.

Allocation to a particular stock will depend on how many stocks usually there are in a portfolio. In a 5 stock portfolio, 20% may not be too high an allocation. Similary in a 10 stock portfolio, 10% could be a routine allocation. So we have to first figure out how many stocks we want in our portfolio and then decide allocations.

I think allocation comes from experimenting and trial and error and its difficult to put an exact number to it. However with experience one can keep getting better and better at it. We need to learn from our own mistakes and vicariously as well, and improve our investing processes.

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@hitesh2710 Sir, do you maintain an investing diary/journal? I have heard from several books and articles that noting down the thoughts while making an investment, and subsequently checking how that played out, is a good way to avoid hindsight bias. If yes, what are some of the things you write down- e.g. thesis for investment, return expectation, holding period, key risksā€¦?

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@Malhar_Manek

I had started keeping a journal of the investments/trades I used to make after reading the momentum masters book. I found it very useful especially in fundamental investments. Actually I always make a short crisp note of my medium to long term picks which includes basic information about company, some financial details about balance sheet/return ratios, profitability and sales trend over past few years and quarters etc. Plus stuff like promoter holding, holding of some prominent investors if it is there etc. And then I put up few bullet points about positives, negatives, and my investment arguments. I used to refer to these notes from time to time to revisit the thesis.

On momentum trading I maintain an excel sheet with date of trade, reason for buying/selling, any specific pattern that I saw or that induced me to decide on buying or selling, etc. I find this extremely useful as it provides me insights into what created success/failure for me in these trades and brings out the success/failure patterns clearly. However many a times outcomes of similar patterns are often different and we have to learn to live with that. But these kind of entries help in sharpening the focus in momentum investing/trading. At the time of entering the trade, I put up brief levels regarding stop loss, possible targets etc. And then as the trade progresses, I keep entering details of how things pan out. It often appears tedious work but is useful all the same.

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Hi @hitesh2710 sirā€¦ I am big fan of you and really found your guidance very useful to meā€¦ I just want to ask one question that how many stocks are there in your tracking zone at a timeā€¦

I know it is not possible to track all 4000 stocks in the marketā€¦ So you might have choosen certain number of stocks for tracking purposes. How many at a time are in your tracking zone?

Second, how do you feel when one stock which you are not tracking goes 2x or 3x within short period of time. Do you change your strategy so that next time you shouldnā€™t miss that opportunity?

Thanks youā€¦

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@dinesh111a

For tracking purposes, I usually have a list of around 20-30 stocks. I keep tabs on these and keep abreast of its fundamentals and chart patterns.

Besides these, I have a list of stocks which have good chart patterns. I keep a list of such stocks in an excel sheet and try to keep looking at the developments from time to time. Basic information is about stock price at that point of time, the type of pattern visible, potential targets and anything else that is of interest to me at that time. This helps in monitoring how the patterns have played out over time.

The above leads to the second part of your query. The way to deal with stocks that have gone up 2X or 3X or more and which we have not loaded up inspite of them being in the list of technical picks I mentioned. Or some stocks some savvy investor friends suggested but which we missed. Here the problem is that the current market is the kind of market which tends to spoil us and our thought process. We feel entitled to see upper circuits in atleast a few of our stocks from time to time. Or atleast strong moves in these names from time to time.

Personally I have moved beyond these worries. I tend to keep tab of my portfolio stocks and overall movement of portfolio. And I think I have realised that one way to outperform is to excel at allocation in stocks with high conviction. I think thatā€™s where I feel I have some edge and hence I try to keep improving on that process as much as I can. e.g ICIL has moved from levels of around 170 to 270 now which is close to 55-60% upmove. If I have allocated around 15% of my portfolio to this kind of name, then a 50% upmove will increase my portfolio value by 7.5% within around 1.5 to 2 months. That is the kind of thing that has worked for me in momentum investing. So I am okay with missing with some multibaggers.

I had a strong pitch given to me by a Mumbai based friend on subex system. Stock price I remember then was around 4 Rs. His target was around 25. I somehow ignored it and some time back looked at the stock price and it was 70 plus then. Thatā€™s nearly a 17 bagger in a year. Only problem I had at that time was I did not have enough conviction and hence high allocation was not possible for me. In hindsight I think I could have allocated around 2-3% of my portfolio to it and tried my luck. But allocating such small amounts does not come naturally to me. So there is not much regret, but a realisation is there that these types of bets too could work in the kind of markets we are in. So maybe in the future I might dip my toes.

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Hitesh Sir,

Any views on which of the below patterns has maximum correlation on prices.

  1. Absolute Quarter numbers
  2. Yearly growth (QoQ)
  3. Relative growth scores (Q1oQ1), (Q2oQ2)ā€¦

I am not sure, whether I am able to put my doubt clearly, so thought of putting it in a excel below.

Here in the example, Y2(Q4) has maximum record sales and profit. What happens generally is the stock prices will go significantly after Q1, Q2, Q3 results but go down after Q4 results despite being the best quarter results. Prices tends to follow the score - a very simple scoring on average I have shown to explain. Score of Q4 is lesser than Score of Q3. Turns out to be bit counter intuitive for me.

So for me, option -3 shows more correlation with stock price movements.

Thank you hitesh sir you have given a great advice for selection of stocks, If possible, please guide us about the exit triggers also. It will be great help for us. It is easy to get entry in to the stock depending upon the Techno Funda but it is really difficult to make an exit. If Stock goes 2x within short period of time then lot of thoughts restrict us to make an exit from the stock.

One thought comes in to mind that why I should exit this stock? It is going good so I must go for compounding in this stock and let us have some more profit. Our mind stops us to exit the stock. It always says- do not exit, it will go another 50-60% up, you are going to miss that gain (and it really hearts also if stock goes up after we exit from the stock). So it makes exit a really really difficult decision.

Second, if techno funda didnā€™t work for any reason and stock goes 10-15% down then also if feels really difficult to book the loss and make an exit. We always feels that it will recover, techno funda was right and let us wait for some more time. How to recover of such situation sir?

Thanks and regards

@amishra

One rule to remember regarding movement in stock prices is that they follow no rules. :grinning: Trying to capture the movements by looking at only a few parameters is an incomplete method. We have to look at the company in its entirety and then take a call.

Its like blind people touching an elephant in different parts and describing it as either snake (people touching the tail) or pillar (people touching feet) and so on and so forth.

Idea should be to avoid becoming an excel cowboy and try to fit everything into an excel sheet. Markets usually do not work that way.

What is most rewarding is consistent growth. The other significant parameter of big multibaggers is consistent positive surprises. For an example of this , most recent company to look at is Laurus, Try to go through the investor outlook regarding the company at various price points in the last 2 years and how perception changes.

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