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.
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 ?
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.
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) .
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.
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.
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 …
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.
@Ghonarbochon I am holding both as well. Was thinking of letting go of Berger Paints. Your insight is helpful. Thanks
Added GAEL (2.5% @276) Possibly OPM is at its lowest now and it should get better from Q3 if not Q2. Lots of Capexes to come online from Q3. Should be good for next couple of years.
Increased…
Allcargo to 3%(Avg 298)
Aegis to 2.5% (Avg 256)
HBL to 2.5%(avg.89.5)
Optiemus to 2.5%(avg 268)
Exited Satia at about 40% gain . Still a good company but its just my impatience .For long run mgmt decisions are fair but being the industry it is in ,the tailwinds may pass before they depreciate out the new plant.Also the paper cutlery is likely to become just a side business. Better looking options available in market.
In past 2 months ,decided to take some extra risk considering we are already in a bear market and sold off Pidilite,AP, and Divis at minor profits and some loss incase of TCS. Since I am not adding incremental capital to my portfolio , I think its time to be greedy…
Added 2% MSumi Wiring, 1.5% BEL,1% Sadhana Nitro along with the ones mentioned in my previous post. Sadhna Nitro is the riskiest bet and I am very likely to lose money in this bet but still…Risk hai to Ishq hai😅
I also have about 3% cash incase I get a good bergain .
This is mistake we do when we move from bull to bear market, its most important to keep strong companies when bear market rally start as it will save your capital. I did same mistake when i sold my winners in 2018 and bought some risky stocks though to me it didn’t look risky Yes Bank, DHFL, PC Jeweller and Reliance power, rest is history, it took me 2 years to regain my losses, thanks to my lord Ganesha. Dont risk your capital more than 5%.
I always wonder, if somebody wants to sell stocks within 1 or 2 years of purchase and replace it with some other stocks, doesnt it reflect something on the original methodology of purchase itself? If you are giving enough thoughts and doing proper analysis, then why the situation should come to replace them? Why not ride them for atleast a decade? Offcouse if some scam happens then its altogether different matter.
@Mudit.Kushalvardhan The answer to your first question is …Yes , it does. But the point is I am yet to decide on a methodology . Unlike you ,I have invested only about 15% of my networth into direct equity .I want to double it every 3 years and that is more important to me than being theoretically right or constructing a well diversified low beta portfolio . Investing and staying invested in bluechips is unlikely to do it for me.The purpose of the stocks like TCS,Asian Paints were to reduce volatility of the overaĺl portfolio without the necessity of too much research . But I noticed that lesser known smallcaps midcaps like Polycab,VBL, Borosil renewables,Laurus etc. have done much better job than TCS or Asian paints pricewise. Ultimately if the business does well, bears can’t stop the stock from appreciating .Check Deepak nitrite or Laurus labs progress from 2016 onwards. So, I am trying to catch a few outperformers early by looking at business triggers and opportunity size. I try to keep some margin of safety( low PE,low or no debt) and except Saadhna ,Optiemus and Cineline, I have not taken much risk and those 3 have less than 5% of my total PF as @Cshar suggested.
I do not have any plans for holding any stock for 10 years at the outset. Usually I buy with a 2 year view and re-evaluation thereafter .With smallcaps , the comfort of mean reversion is not there if theý go downhill and hence deciding on a 10 year marriage can be painful.
Ok. Understood your point of view
