ValuePickr Forum

IcyHot's portfolio-Down 46%- Corona Impact

Hi All

My portfolio is mostly small and mid cap, I built it by tracking large investors and then doing my own research on financials balance sheet and ratios. Unfortunately when I started building my portfolio in October 2017, I hadn’t discovered Value Pickr Forum so couldn’t calibrate my investment rationale with the excellent & mind boggling financial analysis done on the threads here.

I have read the book Black Swan. And I fully believe that a lot “rides” on luck (besides IQ/stock research etc). In 2012 I had some excellent picks in portfolio. But I never anticipated Modi will get a majority because the AAP wave was very strong. At best, I was thinking a hung parliament. I sold out with minor profits thinking I would buy again when market crashes at hung parliament & so I missed on a huge rally.

But in 2017, I knew that markets were all time high yet I didn’t want to miss the rally at any cost, high FOMO.

Due to his first term performance Modi’s likelihood of returning was high, so I bought some stocks in the anticipation of Modi 2.0 victory. Modi won with majority yet again, my hunch was right. But this time only black swan after black swan in mid caps since then.
IL&FS collapse, skeletons of corp governance issues, Essel group, DHFL, NBFC crisis, Mutual fund realignment, extremely bad budget. Mid caps and small caps have been battered consistently since 2018. And now another black swan.

My portfolio is now down 46% taking into account the Corona impact. Although its a good time to average but need feedback because I have made mistakes…some impulse buying & some cloning.

Attached is my portfolio summary. Humble request for a feedback.
IcyHot Portfolio.xls (33 KB)

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I havent seen anybody document the TRUE reasons for buying a share like the way you have done it … Hats off for your honesty and humility! Can see lot of parallels between how I had looked at some of these stocks (exact same reasons !) but for some other reason or the other -didnt take positions and am thankful for my indecisive self for not inflicting serious portfolio damage! Your spreadsheet is nice and simple.

I am not knowledgeable to comment on your entire portfolio - but 2 cents from my side … Not sure whether it helps

  1. If I were to take a 2-3 year punt and look at potential survivors - Lupin, D Mart and LIC do clearly standout. And Sonata also may do fine.Not able to comment on most of the rest.
  2. I have also followed Bakshi’s picks quite closely and to be honest- am not too impressed. Its quite different being a suave finance professor …and then being a decent investor!
  3. You might want to explore booking losses in this calendar year( to offset any capital gains)- have around 24 hours to decide!

All the very best!
Ram

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Really appreciate your honesty.

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Thanks Ram. Truly appreciate your time reading it and your feedback. Yes I am long on Dmart & Sonata and on others I will wait for advise by the learned people here.

Regarding “Cloning”, you are right he is an excellent teacher, one of the best in India.

But now I am completely disenchanted with super investors. At times, I feel superinvestors are only marginally better than average investors in their outcomes, some of them may also be hand in glove with promoters to jack up the interest in a stock and then exit, they are also prone to black swan events unless they are insiders (like Porinju acknowledged to his investors that LEEL was a mistake). Absolutely cannot trust anybody.

So my advise to fellow investors is to develop your own style, own conviction and question every damn thing before investing or better yet as Buffett says simply invest in an index fund in SIP mode and sleep easy.

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The most important thing is to remain in the market and not quit. The first question is to ask yourself how much of your net worth is this portfolio and how much of cash flow is left in your life (this depends on your age, salary and other income)? The answer to this question will give you an idea as to how important it is to get this portfolio right. The next question is to ask yourself how much cash you currently have and whether you need to raise it by selling existing holdings or raise it from other sources (I would recommend staying away from debt considering your time/experience with the markets)?

Assuming you decide on selling some stocks - You already seem to have a fair understanding of these names, why you bought them and what has changed now. If you have to book losses in some of the names, I think you are the best judge to decide on which ones to cut out.

A couple of suggestions from my side

  1. Not to follow famous investors and attempt to clone their portfolios (I read that you have already called it out)
  2. Averaging down is not always a good idea
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Just curious. What is the amount of time you invest to analyze a stock before you make a decision? Also, what are some factors you look for while filtering stocks? Everybody has their own method for stock picking based on their risk profile. It would be a good learning for us if you could elaborate on your process of stock picking. And how are you modifying it after the recent crash?

Hi IcyHot,

Thanks for your courage to share your holdings and reasons behind it. Your feelings are well articulated. Before I share my feedback let me tell you that my first investment in the market was in year 2004 and I think my experience and hard learnings all through these 16 years in the market qualifies me to share some pointers for you and gullible retail investors. I hope you will get more feedback from some learned members of this forum in times to come.

Common mistakes of Retail investors (you and me included):

** Taking impulsive actions in financial matter by blindly

  1. Following celebrated investors like as you mention Jhunjhuwala, Kedia, Damani et.al
  2. Following finance blogs and website like this, Valueresearch, Equitymaster, Reserach & Ranking, PMS, morningstar blah blah
  3. Tuning to CNBC, ET Now, Zee business, NDTV Profit and its gang
  4. Following Youtube for crash course, discussion, tips, market analysis blah blah
  5. Reading to rating agency Moody, JP Morgan, Care, Crisil blah blah
  6. Believing govt and its regulatory agency SEBI, RBI, FM, NCLT and its gang

** Next thing is analysis of your PF and feedback thereof:

  1. Who makes PF of only Mid and Small cap alone? Do you want to become Tycoon like Buffet or Ambani in short span of 5 to 10 years?
  2. Except DMart (lucky that you got in IPO else had you purchased at high price then again a bad investment), Not a good choice of companies to be in: Lupin, Wonderla, LIC, MPS, TVS Srichakra, Piramal, Ashiana, Kitex, Sonata, Hindutan Media, CCL, Aditya Birla Capital, SP Apparel, Quess corp, Thomas cook, Sintex. Reasons you already described in your remarks.
  3. IMO the worst of stocks being recommended by equity master and i can see you are one of the victims in Lupin, MPS, Sonata, HMV, TVS Srichakra.

** Actions to take:

  1. Never average any one of your holdings mentioned above no matter how screaming the low price is.
  2. Wait for the market to rebound for the next two years and slowly take your money out even at no profit and no loss position. Don’t wait for the minimum gain. Mind it.
  3. Don’t put any fresh money in the stock market either in MF or Stocks for the next 10 years unless you educate yourself by reading at least 50 important books written by Graham, Lynch et. al
  4. Save all your money in Fixed instruments like PPF, EPF, FD etc. (Not in LIC)
  5. Don’t be afraid of forced and false statements like inflation eating your money, 100% invested in equity, don’t time the market etc.
  6. Unsubscribe yourself from all the noise of the market.
  7. Wait for the next market crash that may come in the next 10 years. Till that time keep saving your money and keep reading and gaining knowledge, analyze business
  8. If you can’t wait to be in equity then Start investing the minimum amount in SIP mode in Index Fund that too in Direct Plan.

Do remember that the stock market is a ruthless game for the unprepared and you will be eliminated in no time. Your hard earned money of decades will be vaporised in a one good stroke of the operators within a few days.

I wish you all the best in your investment journey.

Vijay Kiran

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Hi, can you please shed a light on the above statement of yours, on why you think that is a false statement ? You don’t think inflation reduces values of money ?

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Dear IcyHot,
No body is perfect.It seems you bought your stocks based on the recommendations on Business channels and others.I suggest you read 2-3 books before making your portfolio.
Before investing in any companies you should ask yourself the following questions

  1. Do you think that the business model of the company can operate in the standalone mode or it is just because of the gap between incompetency and expertise?

2.Is it a pure holding Company?
3.Is the company’s business is Subject to Disruption ?
4.Is Value Migration happening or going to happen in the company
5.Is there much economic Life left for the company ?
6.Is there entry barriers ?
7.Is there advantage for established brands ?
8.Is there pricing power ?
9.Is there opportunity for sales growth in the industry ?
10.Is it High capital Intensive Business?

the above conditions are some parameters .You can develop more conditions as you get more knowledge.
After that you can dig the balance sheet and P/L statement,Annual reports etc. ?

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Thank God you did not clone Pabrai and invest in Rain or JK Bank!!

I think cloning makes sense if you align with their strategy. For instance I like the consistent compounder strategy of Marcellus - Sure the valuations of these companies will come down in this bear market but all of them will survive and increase their market share while their competitors die and will emerge bigger and better in the next cycle.

Most of your picks are mid/small caps which have their own issues like high chances of fraud, lack of moat etc.

At this point in our markets, I think it makes sense to invest only in companies which are debt free and are leaders in their sectors. Also invest only that much amount that you are willing to lock for 5-10 years and not-worrying about the volatility. Make your asset allocation plan and follow it rigourously.

I think “consumption” is one theme which always works in India, so you should look to slowly SIP into companies like DMart, United Spirits, Nestle, HUL, ITC, Dabur, Godrej Consumer, Marico, Colgate, Hatsun Agro. Maybe add a few domestic focussed pharma companies like Glaxo, Alkem, FDC, Eris. Add FMEG (Fast Moving Electric Goods) companies like V-Guard, Polycab, Crompton. Other consumption areas like - 3M India, Akzo Nobel, Asian Paints, Pidilite. I would not add any financials because they are complex to analyse. We are paying a high valuation for the quality of these companies, for their cashflows, for the fact that there will be less/nil chances of fraud.

disc - Planning to invest/add in most of these names

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Dear Mr. Vijay
Wonderful advice.Bang on and very valuable specially for young investors. Will try to follow. I admire that you dared to say, that “inflation eating money” is a false statement.
I actually see merit in it. I have seen people who have money locked in PPF and FD and they have a rental property and they are just doing fine through their retirement. They sleep easy. In fact a vast majority of people in our country have savings in fixed income. Inflation never killed any of them and so this truly is a campaign propounded by those who want people to be in MF or equity

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Dear Mr Bhaskar
Thanks for the inputs. Professor Bakshi talks about dopamine,a harmone which is secreted when a person gets a kick from sex or gamble victory. In mid 2017, everything I bought went up…almost doubled… NIIT tech, Dmart IPO, Apex frozen food IPO and Sonata, clearly I was high on dopamine.
So in the anticipation of Modi winning second term, I came across these stock ideas, did my own basic filter check of BS, debt and ratios and invested there… but Modi is no Trump plus he also lost Arun Jaitley… & the mid caps were already heated so the bull run ended amidst poor financial budget and decisions by the govt.

Now Corona virus has finally shaken me up from the roots & an inebriated stage. The truth is a bitter pill I have to swallow. But thanks to everybody for their advice… I hope to get through this stage and be more educated. At least now I am a certified witness of a 2008 like crisis.

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I don’t know if I can comment anything negative about your portfolio as hindsight is always 20/20. And in the bear run, every equity investment looks like a bad one even though they are just like riding tsunami. But I have noticed a few themes in your portfolio that are worrying me.

  1. Total lack of largecap stocks. I mean you have Avenue in your portfolio but besides them, I don’t see any HUL, Asian Paints, TCS, HDFC. I get your reasoning behind investment in Smallcaps/Midcaps for their the potential of becoming multibaggers but sometimes 30/40% returns are also good.

  2. You caught lot of falling comets. The stocks which had historically high prices and started to fall and you invested in middle of those downfalls because of how high their picks used to be.

  3. Your faith in super investors who have specific stock in their portfolio. Sometimes they are buying stock at certain prices which are penny change for them but you are investing your hard earned money in significant amounts in such stocks.

  4. No matter what everyone say about “you can’t time the market” but timing the market is absolutely important. You can’t buy any good stock at a year high and then complain about how they’re not performing as well as an inferior stock. You have made bulk of purchases in small/Midcaps during historic 2017 surge. When overall P/E of whole market was quite high.

I still think there are many good companies you are holding. Your reasoning behind investing in such stocks are also valid.

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Hey!
A large number of your picks seems to be influenced by Dr. Bakshi’s positive stance on the company. Cloning is not a bad idea, but then you also have to clone the position sizes. I have a few observations:

  • Lupin is your pharma play in the current downturn. The tricky thing with pharma sector is its hard to identify the winners apriori. If you want to have a good allocation to pharma, take a basket approach of 3-4 good pharma companies which have done well in the past cycle and have a reasonable balance sheet.
  • Wonderla - I have done some basic digging into this company, it has generated very low ROEs in the past 3 years because of their new park in Hyderabad. This is a consumer discretionary play and might do well when the economic cycle turns. You have to be careful though of the price you pay for this.
  • MPS - There was a lot of bullishness on this scrip in 2016 (look at the valuepickr thread). Coming from academia, I can tell you that the publishing sector is cut throat in terms of competitiveness. Companies like Elsevier, Springer & Wiley are having a tough time in maintaining margins with the shift towards open access. Players which are lower in the supply chain (like MPS) will be squeezed. Chinese players like MDPI are winning this race so far. You might not want to clone valuepickrs on this sector, its understanding is much more nuanced.
  • Jagran - Declining business but stock prices reflects it. So might mean revert at some point but may not be a great long term compounder.

Now that you have already played the fancy names at fancy prices once, please do not repeat (fancy prices: most things related to Indian consumer story, fancy names: things that have gone up 10 times without their profits going up 10 times).

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Hi IcyHot,

I would just like to give one suggestion.

Use stop loss even for so called fundamental based picks. Calling oneself a value investor gives a high and feeling of being smart. When some stock corrects and if you do not have thorough understanding of business and ongoing concerns it is better to get out rather than averaging down. Most often the market knows something which will get revealed very late. Cutting your losses short and riding your winners is what will increase your wealth.

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Dear Harsh, you have given some wonderful insights, specially on MPS. Thank you so much for taking time out to write this. I am sure this insight will be useful to other investors also.

I’ve noticed most super investors or famous ones like mr. monish, bakshi, Sagar RV and others often invest in companies with bad looking balance sheet, cyclicals or where the business is in doldrums.
Maybe they see something in there we normal investors don’t, but for most retail investors, such deeds end up turning into bad memories most of the times.

They say we can borrow ideas, not conviction.

I’m an ardent follower of investors like Saurabh mukherjea, Basant Maheshwari, rajeev thakkar, Neelesh surana.
They have a huge focus on not finding short lived multibaggers. Because then once the run is over you have to sell and look for a new opportunity. More margin of error and that is tough. They focus on finding consistent compounders which keep compounding your money. That means you can buy once and sit on it for a long period. And that what I also love to do.

After reading coffee can investing, unusual Billionaires, buffetology…I was able to create my own checklist which helps me prevent death traps like I see above in your portfolio and the remarks you’ve written.
These checklists will help you reduce your downside, eliminate bad choices you might have made.

Like:
Increase sales growth, profit growth.
Focus on Roe, roce
Debt free
Growth of market
Presence of unorganized sector in that market
Competitive advantage
How sustainable is the competitive advantage
Is the industry regulated
Checking porters 5 forces
Is it cyclical
Does it need regular high Research and development and capital investment to keep growing
Is the ticket size of their product or service high
Are the products or service consumer facing
Most important, do I understand the business.
Are the margins and sales fluctuating, if yes why.
Do they have a strong brand
Sector analysis.
Does the players in sector or the specific company have pricing power.
Are the products commodity type

These simple checks will filter out a lot of ideas which initially look good just because they are low pe or because some xyz investor bought it.

Because it’s our hard earned money after all and the only people responsible for that is us. No one else.

Like Charlie munger says: tell me where I’ll die, and I will never go there.

Staying in a forum called valuepickr doesn’t suit me saying this. But Value investing is very overrated imo.
A narrow and high focus on price often leads to mishaps when the earnings don’t catch up and justify the low price of a stock. which could have been easily avoided by focusing on a companies earning power. Whose growth itself with negate the high price and make the price of a stock rise to match the new higher earnings of a company. Aka consistent compounders.
I have never regretted paying up for high quality. We can hardly ever buy gold at prices of iron.

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Mr Alam.
Your checklist is irresistable, so I copied it over to an excel as a filter for future. Thank you. And your note on consistent compounders is also worth following, strangely enough I have also read unusual billionaires & outliers but could never apply it. If I had rather cloned Saurabh’s picks, i would probably be much better off today.

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Saurabh is one of those few people in the market who actually want to educate Indian retail investors. Have massive respect for him and some more similar Investors. I hope you will read his coffee can investing book in future. One of the most easy and effective lazy way of investing.
I have been able to use his framework along with addition from other gurus. My portfolio was -10% when nifty went 7300-7500 and now it’s -5%.
Saurabh was right when he said with coffee can approach, we can generate good cagr at very less volatility.

With those checks I was able to avoid dhfl, yesbank, aviation sector, real estate sector, infra sector and telecom in this cycle.

More details here on the checklist: https://www.quora.com/What-are-the-best-stocks-to-buy-for-long-term/answer/Sahiriar-Alam?ch=10&share=c5e2d127&srid=XwBw

All the best, sir.

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Prof Bakshi also meta morphed from a cigar butt type of investor to a quality buy & hold type around 2012, but sometime I feel his “cigar butt” personality is still alive. It keeps coming back specially as reflected in Value quest portfolio Kitex garments which he exited.
He also keeps advising on twitter that in a way short term trader is much better because he is not attached emotionally to any business,which is the right way of investing. Philosophically speaking this logic runs perpendicular to coffee can investing approach.

Thanks for the quora article, its useful

https://www.quora.com/What-are-the-best-stocks-to-buy-for-long-term/answer/Sahiriar-Alam?ch=10&share=c5e2d127&srid=XwBw

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