Have you explored the concept of core and satellite portfolios?
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I think, this is why the returns in the long run deteriorates for equity investors compared to Index investors. If we just find some 20-25 good ideas, then we are settled. Now there is no need for futher search to replace them. Any good stock, will give sufficient returns in the long run compared to debt products as well as index, provided we stick to it in its thick and thin. This is just like marriage. Just because you are married, doesnt mean that more prettier and more attractive girls are not there . We need to feel satisfied with our choices and be done with it. Otherwise there is no end to it. You will always find some or the other more good.looking, more earning and.more educated girl somewhere, …but you cant keep on changing it every day.
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Yes but its only in my mental accounting.The conundrum is about those stocks in which I have not yet grown enough conviction to hold long or consider as part of core holdings. Once I have moved it to the core,they are already in too deep to be popped out by a new stock.
You are absolutely right but the problem is in being sure that the ideas were indeed good ideas . Nowadays there is so much information (VP, MC, Twitter , News channels etc.) that its very difficult to filter actionable info from the noise . Recent trend I am noticing is that good investors with social media presence are busy to point out weaknesses in the investment thesis on their own suggested stocks or bragging about successfully selling at the peak after they have posted youtube reviews on the same company for long term investment with 10 year time horizon. In some cases value investors with superb experience & achievements are moving to momentum investing and calling it Techno-Funda. No doubt they will be very successful with their new approaches as well but the problem is that these guys are closer to home and have been more helpful in getting investment ideas or learning stuff in past 2 years than Buy and Hold gurus like Buffet or Lynch or Vijay Kedia .
Even if I buy a stock with full conviction that it will be good one for long term, continuous flow of ante-thesis makes me doubt it as I have only two years worth of experience and that’s very little by any yardstick .
I know the simple solution would be to chose the option A and tune out for a few months from all forums and social media but at the moment I am simply unable to do so 
.
Being patient is the greatest virtue for a long term investor and unfortunately I do not have a lot of it yet. I only hope I get better at it .
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IMO, the problem with retail investor lies in the fact they were always into the look out for guess paper, shortcuts, crash course, one night study to pass the exam at the cost of hard grueling approach of completing the entire syllabus by burning mid night oil through out the year. Well, the smartness of these folks do get highlighted for passing the exam in short span of time while doing all year round of fun and masti with mocking intent to those who strives passionately.
Result is all out there in all professional field. At the end of the day people seek professional expertise and excellence from those who committed whole heatedly to the cause of achieving excellence than to those who just acquired information in the guise of knowledge! In one line - there is no shortcut for achieving highest level of expertise, excellence or the mastery of subjects. One has to undergo though the funnel of sheer and frustrating hard work.
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I think ,best solution to this problem is diversify in atleast 20 to 25 stocks for medium to large fund and dont sell for minor hiccups.
And one more point, take time before buying.Once u buy ,keep it for 5-10yrs or more.
… …
Quotes from" 100 bagger by cristopher mayer"
YOU SHOULD BE RELUCTANT SELLER
=If you are hunting for 100-baggers, you must learn to sit on your ass.
Buy right and sit tight.
…
WHEN TO SELL
In his book Common Stocks and Uncommon Profits, Phil Fisher had a chapter called “When to Sell.”
…If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
=But even Fisher allows thrre and only three reasons to sell:
A…You’ve made a mistake in original purchase
B…The stock no longer meets your investment criteria(change in fundaments)
C…Better opportunity
… Switching is treacherous .
Every stock that’s moving looks better than the one you’re thinking of selling. And there are always stocks that are moving.
…Investors too bite on what’s moving and can’t sit on a stock that isn’t going anywhere. They also lose patience with one that is moving against them. This causes
them to make a lot of trades and never enjoy truly mammoth returns
=So in summary
“If you’ve done the job right
and bought a stock only after careful study, then you should be a reluctant seller”.
…
.DONT SELL WHEN
=STOCK IS TOO HIGH OR HIGH PE
=STOCK HAS FALLEN
=STOCK IS GOING NO WEHERE
(Stock price is not indication for reason to sell)
A…STOCK IS TOO HIGH OR HIGH PE
=During periods of rapid share price appreciation, stock prices
can reach lofty P/E ratios. This shouldn’t necessarily discourage one from continuing to hold the stock.
B…STOCK HAS FALLEN
=Monster Beverage became a 100-bagger in 10 years,
…I count at least 10 different occasions where it fell more than 25 percent during that run.
… In three separate months, it lost
more than 40 percent of its value.
… Yet if you focused on the business—and not the stock price—you would never have sold. And if you put $10,000 in that stock, you would have $1 million at the end of 10 years
C…STOCK IS GOING NO WEHERE
=Sometimes stocks take a long time to get going. Phelps had plenty of examples of stocks that went nowhere (or down) for years but still delivered the big 100 to 1
100 baggers by cristopher mayer
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Philip Fisher on the contrary to your post has suggested to invest only in 5 to 6 largecaps…but if you are putting into midcdp, he suggested make it fouble that is 10 to 12 stocks and never invest into two stocks where clients are common, or business is similar or prodcts are same…then invest only one out of two companies, not both.
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Why cant we invest in the business which are growing/already proven their excellence like Asian Paints & Berger Paints ? Both are well known companies… Products are same… I agree if there any issues with paint sector which will impact both the companies… I think Company management will also brainstorm if any issues arises…
Im biased as im invested in both the companies.
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Point is if you are investing into any company, then there is no point in investing in similar company from same sector as it will not provide any diversification for your portfolio. For true diversification to happ3n, each company has to be totally different sectorwise, productwise as well as business territory. Instead of investing in both you can put that money into just one of them. This way, you are adequately diversified.
You are absolutely right.
But this para is from book 100 baggers in which author cristopher mayer has mentioned quote from philip fisher.
What about diversification from company specific issue like CG issues ? For example, few months ago, there was accusations against Asian Paints(Baseless IMO) and Hero motocorp(Very suspicious indeed). Suppose someone picked YesBank from banking sector back in 2019 … with the benefit of hindsight, wouldn’t it be better if that some one had picked some other bank as well ?
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While selecting itself, you need to be extra catious. And even after selecting, you need to keep a very close watch on all sorts of news and financial and business performances. Yes bank is something, which is beyond anybody’s control.
The basic idea is to achieve true diversification such that no two companies intersect each other in any way, whether business segment, sector or even geographic situation. Just for example you have put lets say 5 % each into TCS, Infosys, HCL and LTI…then 20% of your portoflio is exposed to the inflationary pressures of US and business slowdown will affect 20% of your portfolio.
Similarly if you are having duplicacy in other sectors like Pharma or Banks, your major portion will be affected by similar geo political situations. You may be under impression that by investing into 20 -25 companies, you are well diversified, but in reality, they may be affected in much the same manner and not exclusive to each other.
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That point is valid but does not handle company specific risks. Also, as a retail investor, you are hardly likely to be able to judge 10 companies from 10 entirely different sectors with equal amount of efficiency or accuracy of judgement. For example, I do not understand the banking sector as well as I do the Pharma sector(that too not well enough ) or the QSR sector.
IMHO, lots of very good investors have written very good books about investing …but all of them are not suitable for same style of investing or the same person .If I had crores to invest and I were already wealthy, I would be happy with 15% return and I would invest in sector leaders. Not much research is needed to buy Asian Paints\TCS\reliance\HUL or the likes. Its much easier to hold them and never sell as well and many people do it successfully.
Things become difficult when you buy relatively unknown stocks and they do not perform immediately (even businesswise) and a bear market starts .People like Buffet will say just buy more and he is absolutely right but it is very difficult all the same in practice. Its like reading about Dravid’s forward defensive stroke. You may read all about it and even practice at home , but playing it successfully in different conditions and against different bowlers is an entirely different ball game .
So with all due respect to Fisher, Buffet, Mayer et al , one should not follow all these stalwarts at the same time . Too many cooks will surely spoil the soup . Its much more important to know oneself(temperament, mental biases and weaknesses) and invest accordingly . This self awareness will not come all of a sudden or by reading books(they can help though - Parag Parikh will do…no need to read Kahneman or Taleb), it will only come with experience and introspection about ones own decisions(why I bought so soon… why I sold in panic , why could not I add more at higher prices etc. or why did I buy so little of it) .
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If we go as per your thoughts and if we are unable to judge 10 different companies from 10 different sectors, then the only option remains is to clutter the portfolio with 20-25 companies from same 2-3 sectors in which we have somewhat respectable understanding, thus making the portfolio highly concentrated in just 2-3 sectors and its highly unstable as well as imprudent. If this being case, I would rather handover my money to any active fund manager where he has 20-25 stock analysts with expertise in different sectors thus using their experience to my adavantage , instead of investing the whole portfolio in just 2 sectors.
As you have earlier said that you are all into equities, indeed that is not a bad option if you want to see a non volatile NAV all along. However, in my case, I am not fully into equities and have a higher risk appetite . Also, cluttering my portfolio with 20-25 stocks is just what I have done because I am yet to gain the confidence to concentrate further. I will do so once I am convinced that I have it in me to pick and hold stocks correctly with more success than failures .
Also, I am not a follower of top-down investing. Good stocks for long term investing can come from any sector or any industry but some sectors are more likelier than others(FMCG, Consumer goods for house, IT service companies) . If I were to construct a SIP based long term portfolio, I would stick to 4-5 sectors and I would not expect anything more than saving the MF management charges .
I have a part (25% or so )of my portfolio dedicated to these biggies(TCS\INFY\AP\ITC\DIVIS) to reduce overall portfolio volatility but for the rest, I am mostly sector agnostic . I try not to have more than 3-4 stocks from same sector but if I think that I can judge the companies better than some others from other sector, then I am OK to keep them. I try to stay away from cyclicals\High Working capital companies and sectors where there are too many factors at play(Banks, NBFC, RE etc.) .
The scattering allows me to sleep well at night as I am not yet very good at detecting shady accounting and I still would like to invest in smallcaps\microcaps where not many analysts follow.
At the right price , even a bad stock can be a good investment . Only important thing is to not to get maimed too much if the thesis blows up.
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Portfolio action:
Moved Chemplast sanmar to a sattelite portfolio(kind of a bad bank funded by my speculative activities in another game) in order to make it easy for me to hold it longer. After 3 quarters of good result, they have delivered a bad one (Profitwise) .This result was sort of expected after their Q4 concall and I expect them to deliver one more quarter of soft result because of similar reasons. If things improve results should get back on track.They have not posted losses and without the notional markdown of finished goods & RM in stock, result would look better than it does.I do not want to jump ship too quickly as this is one company where I invested looking at the longterm prospects. It would be wrong to bail out after one bad quarter.
Added the below stocks in small quantities to the main portfolio …
Novartis (1.2%) A business model change has led to OPM going from 6 to 26%.Novartis india let go of their entires sales distribution team of 400 people and tiedup with Dr. REDDYS for the same activities .New CEO had done the same trick in astrazeneca India in 2016 or17.Not much deep thinking went into the decision. Once the market decides that the OPM will sustain ,it should give better multiples.
Aegis Logistics(1.2%) Long term bet . Good business with moat and scaling up.The deal with VOPAC may keep things tight for a while but will lead to more volume .The chemical logistics business and autogas business can provide extra triggers .
Piccadilly Agro(1.5%) An optimistic bet on the success of the premium brands of whisky Indì-trini,Kamet.These are well appreciated and seeing their capacity expansion in storage as well,it looks like a turnaround .
Edit: Details added.
Can you pls elaborate on what this change of business model is and details on your rationale around Novartis…thanks
Portfolio update:
Cashed out of Borosil renewables today. The removal of the ADD ,removes the certainty of selling whatever quantity they can produce . This means its no longer certain that they can sell their entire produce after the new furnace comes online . The margin will also probably reduce and become uneven .The company may even have to postpone their further expansion plans . Too many uncertainties .
I would not buy BR now if I was not already invested …hence having already made 5X here,it does not make sense to weather this storm for a very iffy 2x. I like and trust the management so will keep an eye on the developments.
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Just saw your pic of Circa Paints in your PF…
Would be interesting to know your views on Asian Paints and Berger Paints? I hold both. So what are your views of their client duplicacy and can investment be restricted to just one instead of both? Will that avoid over-diversification?
@Mudit.Kushalvardhan I do not think I know enough about Berger paints to comment on this. AP has two big things in its favour …
- Their own TiO2 source and hence cost advantage as no other paint company have their own.
- More paint mixing machines than all others combined .
I believe even Saurabh Mukherjea had both in his consistent compounders portfolio … so keeping both is fine as well.
Sirca Paints is not in exact same line as these two giants. They focus on premium italian wood coats and has good track record besides sole distributorship of the brand in India .I am hoping they can expand pan India as they plan to do in next 3 years…that in itself should give good returns.