ValuePickr Forum

IcyHot's portfolio-Down 46%- Corona Impact

If you read his presentation on ergodicity, his theme has clearly changed from investing in cigar butt or turnaround type situations into a portfolio which is more resilient to black swan events. My view on the same is that he is now managing more funds then ever and hence does not have the comfort of waiting things to change at his leisurely pace. THIS I beleive is a major difference between a Buffet and almost every other manager since Buffet manages his own money and can take a low return decade for his investments any day over changing his investment philosophy. Such a strategy would essentially kill a fund manager managing other peoples money.

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This is the most valuable advice on cloning. For a super investor, 5-10 crore position in his portfolio could be penny change. And for most retail investor its a large value & if they happen to assign it the largest weightage on portfolio, in impulse, they are doomed. As also pointed out by Harsh above, cloning may not be a bad idea but only if one is aware of the respective size in the whole portfolio.

Since its more of a sizing problem I would like to quote from a brilliant book titled “How to measure anything”, a man who drowned in a pool which had an average depth of just 5 feet 5 inches. Notice the word “average”.

Although its unrelated here but maybe somewhat relevant in other sizing problems. The author Douglas Hubbard also talks about the “Mark and Re Capture” method to estimate the population of fish in a pond.

Catch a sample size, mark all the fish and release them back in the pond. Lets say there are 20 fish.

Catch another sample, count the marked ones in it. Lets say 5.

An estimate of the total population size can be obtained by dividing the total number of marked individuals by the proportion of marked individuals in the second sample. So it is 20*4=80.

I shared this because in investing and in life to be successful, it is vital to get a probabilistic statistical estimate right.

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Hey sorry for the late response. When the markets were high in 2017, I knew it was high but I still wanted to build my portfolio to encash Modi 2.0 bull run FOMO, so I devised a very strict criteria of investing in IPOs only and that too when it oversubscibed more than 10x-20x at least and not a single analyst disapproved it.

Ideally for investing in IPO one should read the red herring prospectus to poke holes in it but me being a non finance professional didnt have time or patience to do that. My only two picks for 2017 Avenue and Apex frozen food both were super successful and I also added more immediately after ipo and it doubled in just 6-7 months. But as I have mentioned above this was a start of my ‘gamblers ruin’ high on dopamine.

So I deviated from my strict IPO criteria and started checking what else can I buy and again I devised a criteria that I would only buy what super investers held. So I started looking for small cap stocks which were relatively cheap and some or the other large investor was in it, like RJ, Prof Bakshi, Premji, Prem Watsa, Ashish Kacholia and Ayush Mittal. And did some basic checks and hence the above portfolio was built.

Now I have these options, as suggested by some seniors above

  1. Wait for 2-3 years at a stretch and when the tide turns exit with no profit no loss.
  2. Book a loss on my toxic stocks and deploy it immediately into beaten down large caps such as hdfc twins, tcs, itc infy ril etc. Its easier said than done, to book a 50% loss in stocks would be really painful.
  3. Continue my conviction in some of my picks regardless of what people say and I average it down to the hilt so that when the sector gets re rated I exit with profit. (Not advisable as per many seniors above- so ruling this out)
  4. whatever cash I have, I deploy it in a couple of large caps to balance out my portfolio.
  5. Do nothing at all and take a break from the markets for next 1 year or so

Will keep you updated.

In general, average up stocks, average down index/mutual funds. Never deploy your capital to average down beaten down stocks. That’s like going into black hole in anticipation of coming out.

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your article on quora - “what are the best stocks…” analytic and a very insightful read.

thanks

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Hi All

Trust you all are healthy and doing well. Its been 6 months since I posted my portfolio, the markets were at historic lows then so I took that opportunity to average down on Thomas Cook (CMP:24) and Sonata (CMP:165) at that time. Fortunately both these bets have paid off handsomely. Thomas Cook has zoomed 20% in a single day today. And Sonata has already doubled my investment.

I recently read that Ben Graham would stay invested in his cigar butt idea only for an average horizon of 3 years. Beyond which, if the idea proved to be a dud he would book a loss. Therefore taking a cue from Graham’s approach, I revisited my portfolio and decided to cut off some weeds

Hindustan Media Ventures and Aditya Birla capital. They were classic value traps on my portfolio for almost 3 years. They recently announced results and there was no movement in the stock, nor there was any dividend announcement. Swallowed my ego and booked the loss.
It is to be noted that both stocks are from Birla stable and Birla group is notorious for exploiting minority shareholder. AB Capital has never distributed any dividend being a profitable company. And HMVL have been giving Rs 1.2 as dividend for last 10 years which is a joke. 1100 cr is locked in investment done as series of acquisitions which are questionable in nature. Moreover they cannot even issue buybacks now because the parent company HT media is already a 75% owner. So its a huge huge value trap that ways.

Also completed Exited Lupin & CCL products in June to August time frame. Nothing wrong in fundamentals but needed some cash at that time.

Participated in MPS buyback and got a profit of Rs 100 per share. The acceptance ratio of my shares was 23%

With this surplus ammo, I am looking to reinvest in IT large caps to recover my loss and to increase the large cap weightage of my portfolio. Its a shame that I have been an IT industry insider for last 10+ years and yet I was tempted to dabble in small caps knowing fully well that IT industry is the only cash cow in India and the only reliable sector which has grown year over year and built phenomenal wealth.

So going forward I will only and only invest in IT sector. Evaluating Infosys, TCS, HCL Tech, Tech Mahindra , Wipro and the likes. Will invest when the time is right.

Thanks for reading. Good luck for your investment journey.

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Glad to see you back and the recovery of portfolio just by staying invested. March was tough time and everyone’s portfolio was hammered! Regarding IT sector, which of largecaps interest you most? Any midcap companies from LT twins, Persistent, Oracle you see potential to join big 5?

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I already hold Sonata in midcap. I will deploy my entire sum in one large cap IT (no diversification) …for a horizon of 3 years… will share when I do that

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What is your analysis of the latest result by sonata and the guidance given by the management for the next year? If you have gone through it already and would like and have time to share it. That would be great.

You mentioned that your purchase of CCL was influenced by watching lecture of Prof. Sanjay Bakshi: “Investing in Niches”.

Could you please share the link for the same? I am unable to find out.

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I have the recording but that is for personal use only. Cannot broadcast it for legal reasons. But will share the notes here on forum.

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The 5 stocks that I purchased in April timeframe to average out my existing stocks, that portfolio is 79% up as of today. I am happy with my decision that I doubled down on the right stocks … instead of picking up new stocks.

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That is an extremely deterministic view.

Maybe you will be right, but what if you are wrong and are loading up all your money on IT stocks at precisely the worst possible time? Think about the implications of that.

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One thing I will ask myself is why this statement is being made now and wasn’t made in 2017. What has changed since then? Growth profile has not changed, cash generation ability and cash distribution has not changed, only thing that I can see is price. So is the bet that these companies will trade at these valuations (or even higher) going forward, or has something changed in the business profile?

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Nothing has changed, but If you look at TCS, Infosys, Wipro, Tech M and others on a long term basis like 10-20 year horizon they have made phenomenal wealth plus all these companies are epitome of corporate governance. NRN (murthy) practically taught to the business world what ethics and transparency is all about. So yes, not buying such IT gems at any given point in history not just 2017, is a blunder. (which ironically is a sin I comitted).

I have friends in TCS who just pounced on the IPO in 2006 and some of them took loans for IPO,
I scratched my head… why in the hell would someone buy shares on loan…But these people were entry level engineers who knew TCS very well… still sitting tight on it…Just 100 shares worth 10000 are now worth INR 60-70 L +

And of course we all have heard that story of 100 wipro shares in 1983 becoming 600 cr+ now…

These companies have been very reslient and always have been at the forefront to pivot themselves to new technology. They have proven it. Be it mainframes, open source or Cloud, digital, IOT, blockchain or AI. So in a way these companies are quite agnostic to obsolescence & corporate governance scandals. The dividends, bonus and buybacks are also done at frequent intervals.

And so for that reason for the next 10 years I dont care about crazy gains… all i want is protection from obsolescence & corporate governance scandals… so that my investment is in auto pilot mode, earns money while I can sleep easy…

Of course I am not buying now when the market is at all time high. Will enter at the right time when market corrects a bit. For example the best time to buy Infy in recent times was when Vishal sikka resigned.

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Quality indian and foreign FMCG bought at dips fits the bill. Thoughts?

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Okay so this is something that you are realizing now. I also studied past return profile of different sectors in 2017. My conclusions can be summarized in the chart below (these are average long term monthly returns normalized by their standard deviation). In essence, the chart shows a measure for risk adjusted returns (until 2017 end). Surprisingly, IT doesn’t show up at the top, the top is loaded with FMCG, MNC companies and auto. The nifty number is 0.12, so sectors showing a value > 0.12 are the ones which have shown higher risk reward than nifty in the past.

Sector Mean/Std
Nifty FMCG 0.30
Nifty MNC 0.24
Nifty Auto 0.24
Nifty Media 0.17
Nifty Pharma 0.17
S&P BSE Mid Cap 0.17
Nifty Services Sector 0.17
Nifty Bank 0.16
NIFTY Free Float Smallcap 100 0.15
Nifty IT 0.14
NIFTY Free Float Midcap 100 0.14
S&P BSE Oil & Gas 0.14
Nifty Energy 0.13
Nifty 50 0.12
S&P BSE SmallCap 0.12
Nifty Commodities 0.10
Nifty Realty 0.05
Nifty Infrastructure 0.02
Nifty PSU Bank 0.01
Nifty Metal 0.00

So if your bet is on buying longer term compounders which have done well so far, maybe you should consider including FMCG and auto companies which have shown much higher risk reward than IT in the past. Of course, bobody knows what will happen in the future. Good luck man!

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Why is your current opinion on Jagran? ALso do you know if promoters are in any other business like real estate, power etc like DB Corp promoters?

I fail to understand how a stock with 7% div yield and largest circulation just before UP elections is priced at PE of 4.5 FY2020. Newspaper might die out but in the next 10 years that too in India …i dont think so

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The sole reason I entered Jagran was that its a well managed company with 6-7% dividend yield. Buffett loves regional newspapers. He frequently states that such newspapers are the only source of classified information or in a way best source of local information which no other medium can give you.

For example no publication medium will talk about what is happening in D grade towns for example Hajipur or Samastipur in Bihar, Modinagar or Hapur in UP. Nobody gives a damn to these cities… Even on internet and youtube you won’t find anything about these cities… But vernacular papers do care about these cities… They have their local “patrakar” every where who report about the town and nearby villages and areas and happenings, local obituaries, school. functions and even the local matrimonials and politics… which is central to the people living there…

These newspapers are household names for a reason. Teachers, farmers, local businesmen, traders they spend an hour reading these newspapers on morning tea before moving out.

So I don’t see internet as a competitor for these businesses… Also Jeff Bezos love affair for Washington post and recent bid for New York Times is a proof in the pudding.

However a lot depends on raw material( paper) prices and monetization of its digitial stream & FM right. I have no clue if they are doing it right or not. But financial analyst rarely differ on the opinion about its fundamentals. No corp governance issue.

Personally speaking I am so fed up of my screen time that I have started purchasing paperbacks and hardcover books for the real feel and to protect eye strain…

So I am not sure reading a newspaper in PDF or digital format is a very enjoyable act as such and people who hate screens will revert to physical. newspapers and books.

So like you, even I am keeping my fingers cross… This was a falling knife or a value trap due to entry at high price and I have confessed this as my mistake above… But I do have hopes of about 6- 7% return of dividend which is better than bank so at least i can go long on it till the price recovers…

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Hi @IcyHot, there was no Dividend paid for FY2019 2020, so we can’t consider this Dividend stock

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