Journey and Portfolio of a goal-based NEEV investor

[goofymanager]

Dear community members,

I have been actively part of this group for over a year. Needless to say, I have immensely benefitted from everyone here. I really want to thank everyone here and share my own personal journey and investment ideas/thesis. Here goes…

I started my financial journey in 2017 onwards. Although I wasn’t actively involved earlier, but in 2019 I started actively looking at my investments i.e. primarily, I started to invest time to learn the art of becoming a better investor.

Started by reading investment-related books. Then slowly dabbled in other topics like history, economics and behavioural psychology. This allowed me to understand two broad lessons that I’ve deployed personally in my investment journey as well in my personal and professional life.

In my humble opinion, success in life, like in investments is governed by 2 broad ideas

1. Probability
2. Mean reversion

Once I understood the above, I quickly framed an adage for myself - “always in probability, never in absolutes ”.

This simple, yet profound learning has helped me commit fewer mistakes over time. Although I am sure I am going to commit many more mistakes, but hopefully, none will take me out of the game permanently (if you’re a poker enthusiast like me, you know what I mean).

Goals

I have 3 major financial goals/milestones over the next 20 years. Each milestone has it’s own

• Target corpus
• CAGR required
• % allocation to equity vs debt
• Monthly investment at set allocation

In the early days, these helped me create boundaries to commit fewer mistakes (which I did plenty) like buying expensive stocks, selling too early, following 2nd party narrative, not doing in-depth research about the company/sector, investing outside my circle of competence and many more.

Portfolio allocation:

With these crude tools, I decided to jump into the unknown. Let me share the asset allocation I have currently (19th Sept 2023):

1. Public equity: 38.7%
2. Unlisted equity (private): 52.6%
3. Crypto: 5.6%
4. Cash & Cash equivalents: 3.1%

Let me share each of the above with my quick thesis:

1. Public equities: Public equities are sub-divided into three strategies to maximize returns across bull/bear markets and the inherent nature of business cycles

• Long-term (buy and hold strategy)

• Momentum (max holding up to 3 yrs; then either sell or move to long-term bucket)

• Special Situations (self-explanatory)

2. Unlisted equity (investment in private startups): I have been deeply involved in the Indian startup ecosystem from 2008 onwards. I, myself have started 3 venture-backed startups as a founder (currently running my 3rd startup - want to keep it private for now ). Due to my exposure, I am more often than not approached by smart & eager founders who want my advice/help. Hence, I started angel investing in 2019 onwards. So far, have done 20 investments (on average do around 4-6 investments a year). While it’s a very risky proposition for many, but given my exposure, learnings and connection I find it worth pursuing towards my goals.

3. Crypto: This probably would be the most controversial endeavour. Given my risk profile and my understanding of the underlying technology behind blue-chip crypto ideas, I wanted to dabble. Today, I only have exposure to ETH (highest weight), BTC and then MATIC. I felt ~5% exposure is the optimal number for me to keep tabs and continue learning about its evolution in our modern society.

4. Cash & Cash equivalents: I try to keep my C&C within 10% at any given time since from my vantage point there are plenty of opportunities. However, I feel with time I will be increasing C&C %.

With that context, today I want to broadly share my thesis, learnings, and returns from the public equity portion of my portfolio.

Portfolio and asset allocation:

Here’s my list of 20 companies + 2 ETFs that I currently hold:

Stock name	Investment type	Weight %	P/L %	IRR %	Narrative
BAJAJ FINANCE	Long term	9.3%	107%	19%	Largest NBFC. Strong mgmt + risk mgmt. Consistent profits & ROE profile. Fintech ready. Risk: Regulatory disruption
MOST 100 ETF	Long term	9.0%	28%	25%	Global tech will (STILL) lead the way forward. Software is deflationary.
TITAN	Long term	8.8%	156%	29%	Largest jewellery brand. Siginificant status play for growing middle class.
BANK BEES ETF	Long term	8.4%	25%	23%	Do not have visibility into individual banks but believe a growing economy needs functioning and rubust banking services.
IRCTC	Long term	6.3%	49%	52%	PSU monopoly. Zero debt. Profitable. Cash-rich. Frequent use-case. Risk: Privatisation
ASIAN PAINTS	Long term	6.0%	45%	14%	India’s leading paint brand. Proxy to real-estate market growth. Risk: Real estate
TIPS LIMITED	Special Situation	5.4%	134%	65%	Optionality play on music subscription business. demerged from loss-making film biz, making core music royalty biz very profitable
PIDILITE	Long term	5.0%	43%	16%	Dominant player in the adhesives & sealants segment. Risk: real estate
TATA ELXSI	Momentum	4.4%	104%	63%	Digital transformation is the need of the hour. good proxy play for disruption in auto, telecom and healthcare sector
TATA INVEST CORP	Long term	4.1%	44%	115%	Treat TIC as a mutual fund which pays dividend but concentrated 80% across dividend paying TATA group of companies (HoldCo Return = Underlying Portfolio Return + Higher Dividend Yield ± HoldCo Discount)
DIXON	Momentum	3.8%	84%	87%	Electronics consumption will go up. PLI helping it’s business case. China+1 might play out in long term.
NARAYANA HEALTH	Momentum	3.6%	33%	115%	Hospitals will benefit from rising healthcare spending. Focus on low-cost healthcare providers (scale economies shared like Costco, Amazon, and Walmart). Capacity to Suffer mgmt mentality.
DMART	Long term	3.5%	82%	22%	Brand + retail efficiency play. Scaled up EDLP play which is scaling and profitable. Frequent use-case.
COAL INDIA	Momentum	3.4%	27%	72%	Contra EV play. Giving dividend yield of ~10% + high probability that it can generate another 10% return YoY basis from revenue growth (due to very low PE of 4-5x)
IEX	Momentum	3.3%	-1%	16%	Bet is marketplace approach to buy/sell energy will be the future of distribution power across states. Optionality in MBED implementation + IGX.
VARUN BEVERAGES	Momentum	3.2%	24%	78%	India is a cold drink market, not soft drink. With rising Affordability, Urbanization, Electrification, VBL can hugely benefit going forward. Value unlocking possible if PepsiCo gives Kurkure (snacks) distribution business also
SATIA INDUSTRIES	Momentum	2.8%	-3%	-4%	Company has focused raw material procurement + thorough backward integrated mfg facility leading to sustainable margins + Deeply rooted Customer relationship = Leading to continuous growth. Risk: Cyclical + Smallcap
INDIAMART	Long term	2.7%	33%	44%	India’s largest B2B marketplace (60% market share). Zero debt. Growing FCF. Full-stack discovery + payments + SAAS pricing. Macro tailwind of SMB enablement + digitization bringing tech access to MSMEs
NAUKRI	Long term	2.4%	84%	18%	Largest player in jobs search and real-estate. Virtually debt-free. Strong management. Strong startup investments (Zomato, Policybazar etc). Risk: Low profitability growth. Declining promoter stake.
AMARA RAJA	Momentum	1.8%	0%	5%	Tracking position. Play in the growing EV economy. Valuation is lucrative to take a small bet to learn about the company and overall sector. With time, will be increasing position size.
PHANTOM VFX	Momentum	1.5%	20%	122%	Tracking position. Play on growing digital media content consumption via OTT. Diffentiated approach in the industry as a creative player, than sweat shop. Risk: Micro-cap, info asymmetry.
KRSNAA DIAGNOSTICS	Momentum	1.4%	26%	1%	Tracking position: Diagnostic chain across 14 states (1900+ centres) under PPP model (unique). Asset ownership model with Govt. Disruptive pricing (40-60% lower). Risk: Small cap, lack of pricing flexibility, B2G biz model

Date: 19th September 2023

Portfolio return:

Overall portfolio IRR return (portfolio tracks the market value of my investments. Benchmark indices (nifty500) track their market value if I had bought/sold them instead)

• 1 year IRR: portfolio (7.7%) vs Nifty500 (16.7%)

• 3 year IRR: portfolio (36.4%) vs Nifty500 (17.3%)

• 5 year IRR: portfolio (26.4%) vs Nifty500 (13.9%)

Other portfolio metrics to consider:

Few other metrics I keep a close track for the portfolio:

• Revenue by region: India: 71% vs RoW: 29%
• Portfolio PE: 29 vs Nifty 500: 24
• Median ROCE: 25% vs 3y median ROCE: 26
• Median Revenue growth: 24% vs 3y revenue growth: 21%
• Median OPM: 25% vs 5y OPM: 21%

Stock selection:

Now, let me share a few thoughts on stock selection. Below are a few ideas (not exhaustive but should give one a glimpse):

1. Growing revenues
2. Growing EBITDA margin
3. Low PE (ideally current PE lower than last 5y average PE)
4. Low EV/EBITDA (ideally current EV/EBITDA lower than 5y avg)
5. Higher NEEV* score
6. Growing Cash from Operations (CFO)
7. Low debt (ideally zero debt)
8. Growing ROCE (ideally current ROCE higher than last 3y average ROCE)
9. Higher promoter shareholding
10. Higher rule of 40 (ideally current R40 > average 5y R40)

*NEEV framework (in short, it means NarrativE vs EVidence) is my custom investment framework I built using my learnings which helps me remove the narrative from the evidence. It’s a weighted score of 4 parameters incl. revenue growth, EBITDA margin, reinvestment rate and promoter holding. This framework has helped me commit fewer mistakes in my investment journey.

Tools I use:

Since I have a company to run full-time, I realized early on that I can’t spend more than a few hours every week (mostly on weekends). So I used my constraints to define my process to achieve optimal results.

What helped is that as a person, I am more process driven, than results. So I try to spend more on the optimal process to accrue my desired results which will help me reach my goals. So over the years, my portfolio churn has reduced from 80% in the first year to now low single-digit %. So indirectly, I have reduced the number of decisions that I make every year. For example,

In 2023 so far, I have taken around 12 decisions (it will be max 15 decisions); which I feel a lot already. Ideally, I want to reduce it to 5-6 decisions every year.

Hence, choosing the right tools is very important since time is a precious commodity for me. Here are a few:

• Screener (premium)
• Tijori (premium)
• Google sheets
• Tradingview
• ValuePickr (of course)
• Notion
• Trendlyne
• Stratosphere.io

10 timeless advice I picked up in my journey so far:

• Savings rate will always beat IRR
• Process trumps outcomes
• Consensus is not truth and what’s conventional is rarely wisdom
• Asset allocation is more important than stock selection
• Recognize and appreciate luck
• Be curious about fields that have nothing to do with your career
• Investing is not a zero-sum game
• Sustained success requires us to "subtract”, not “add”
• Money doesn’t grow arithmetically; it compounds geometrically (AM ≥ GM)
• Investment is all about learning the art of using imperfect information to make probabilistic estimations about an unknowable future

5 habits I want to continue:

• Read multi-disciplinary books/articles/journals
• Write down every time I buy/sell an asset
• Zero leverage - never take debt/loan to invest - NEVER
• When no opportunities available, SIT ON CASH
• Ignore market predictions, tips or similar

My top 5 mental models I use:

1. Opportunity cost
2. Occam’s Razor - simplicity is key
3. Lollapalooza effect - positives compound over time
4. Invert, always invert
5. Look for your unfair edge/advantage in your game

5 Books that helped me the most:

• Thinking in Bets - Annie Duke
• Masterclass with Super-Investors - Vishal Mittal and Saurabh Basrar
• Fortune’s Formula - William Poundstone
• Filters against Folly - Garrett Hardin
• What I Learned About Investing from Darwin - Pulak Prasad

With that, I want to use this thread as a living journal of my learnings where I and others can positively contribute to helping each other.

Also, my sincere hope is that this thread will meaningfully help and inspire someone like me who’s too shy to share so much in public. Cheers

[Mudit.Kushalvardhan]

Very nice journey. I also aspire to become process-driven than Result driven. Thanks for sharing your learnings.
One question- do you Invest in active mutual funds too? And what are your views about them? Specially Small cap funds?

[goofymanager]

Thank you, Mudit.

To your question, yes I did dabble with MFs early in my journey but with time and confidence, I moved towards having direct exposure to individual companies and their respective themes and risks.

However, if you look at the portfolio, I do have exposure to specific themes via baskets like NASDAQ (via MOST 100 ETF) or Indian banks (via BANK BEES ETF) alongside TATA INVEST CORP (Tata group cos) - totalling ~20% of overall equity exposure. Personally, that works for me and I intend to keep it for now.

Discl: I am not a SEBI registered advisor. So please use your discretion to make any buy/sell decision and not use the above as a recommendation.

[LarryWink]

Hello Goofy

I am newbie to stocks/investment as a general. You seem to meticulously follow time and investment management.

Do you manage everything by yourself ? or would you take assistance from a team for calculation, analysing your investment.

For stock selection do you use specific application/site ? How much time is enough for managing onces portfolio ?

Why i am asking …as an individual with full time job and other interest in deep tech…all my investment are in equity…all in small cap (90%)…time management becomes difficult.

A question different from stocks…how a start up should value itself if it is still on working stage into developing a technology ? and if there are an investors eager to jump in ? in your opinion what could be an approach to take in investments ?

[goofymanager]

Yes, I personally manage everything by myself using the tools I mentioned above. Although I have been offered help/assistance by a few including WM’s, I refrained from all since I am very conscious of the attached fees which will impact my overall returns.

Also in 2019, I took it upon myself to learn this art of investing as I feel it helps me personally to be a better business operator as well

For tracking, I use Google Sheets linked with Google Finance which auto-fetches current/historical data - GOOGLEFINANCE - Google Docs Editors Help

This helps to maintain perpetual records without my constant prompt i.e. saves tons of time and allows me to focus only on the process, given my time constraint.

Regarding, “how to value early-stage ideas/startups”, wish I could help since there’s no one size fits all since I don’t know your context.

However, if I may add what might help is that early-stage valuation (if I wear my angel investor’s hat) is much more about signalling to woo investor interest than purely about data/nos since in early days most of the investors are “pattern matching” than anything else. Hence, angel investing is so risky and I can fully appreciate why.

Hope this helps!

[Subham_Jain]

Can you share your google sheet

[LarryWink]

Hi Goofy…Thanks for the response

@goofymanager

in early days most of the investors are “pattern matching” than anything else

What exactly do they do/try to ascertain at early stage when there is no operation yet ?

For generation information and learning if i may take guidelines, May I DM you to explain situation in general ?

[MACROFIBRE]

This post deserves more thank a like! Very helpful advice and interesting thoughts on your learnings from the various books and how you apply them. I personally hear a lot of peers talking about the latest new thing and entering and exiting which all sounds very tiring to me. I have now adopted a boglehead mentality where I buy it and forget it. I dont need the cash or the earnings currently and its just less time consuming and more fruitful I think growth wise to hold long term.

[Mudit.Kushalvardhan]

You are on right track. I would suggest you read What I learned about investing from Darwin by Pulak Prasad of Nalanda Capital

[goofymanager]

Hi Shubham,

While I won’t be able to share my personal spreadsheet (for obvious reasons), this blog post by M Pattabiraman should do justice.

Please go through this elaborate post which also has many interesting links to similar spreadsheets that effectively help one to track and measure investment performance in an autonomous way Track your mutual fund and stock investments with this Google Sheet!

Hope this helps!

[Subham_Jain]

I understand, thanks for sharing the link

[goofymanager]

Selling a position (in tranches or in entirety) is possibly the hardest decision for any investor, including myself.

While we all might have frameworks for the same, I found this article quite interesting.

Letting Go: Why Selling is so Hard to Do

I like this approach from the article:

While there’s tremendous value in learning about a small set of companies over many years, the lifeblood of an analyst is in finding new ideas. Even if it’s to stretch the imagination and learn about new competitors, business models, etc., a passionate investor should always be turning over rocks.

However, when a new idea gets interesting, you wonder if it should replace an existing position. But which one?

The longer you hold onto a successful position, the more likely you will place a halo on it and not want to sell. Conversely, you will likely resist taking the loss with an underperforming position, hoping it will at least get back to break even. These biases are obstacles to swapping out an existing idea for a new and better one.

To remove some emotion from the equation, quantify your qualitative judgments about each company. Rank characteristics like moat, management, and financial strength relative to your other holdings. If a new idea has better rankings than one treading water at the bottom, the bottom rank is the one to go.

[goofymanager]

Date: 30th September 2023 (Q2 FY24 portfolio update)

Wanted to share a quick update (hopefully end of every quarter). I hope to collect constructive feedback and criticism from this esteemed group. Here goes…

PS - Please go through the start of this thread where I shared my investment thesis and respective weight, P/L and IRR - Journey and Portfolio of a goal-based NEEV investor

Stock name	Investment type	Weight %	Profit / Loss %	IRR %
BAJAJ FINANCE	Long term	9.7%	115%	21%
MOST 100 ETF	Long term	8.8%	25%	22%
TITAN	Long term	8.3%	142%	27%
BANK BEES ETF	Long term	8.2%	21%	19%
IRCTC	Long term	6.2%	47%	51%
ASIAN PAINTS	Long term	5.9%	43%	13%
TIPS LIMITED	Special situations	5.3%	126%	63%
TATA INVEST CORP	Long term	5.0%	75%	198%
PIDILITE	Long term	4.9%	40%	14%
TATA ELXSI	Momentum	4.4%	102%	63%
DIXON	Momentum	4.0%	97%	88%
NARAYANA HEALTH	Momentum	3.6%	31%	98%
COAL INDIA	Momentum	3.5%	33%	83%
DMART	Long term	3.4%	76%	21%
VARUN BEVERAGES	Momentum	3.3%	29%	87%
IEX	Momentum	3.3%	-2%	15%
SATIA INDUSTRIES	Momentum	2.7%	-10%	-11%
INDIAMART	Long term	2.6%	25%	43%
NAUKRI	Long term	2.2%	71%	16%
AMARA RAJA	Momentum	1.8%	-2%	-6%
KRSNAA DIAGNOSTICS	Momentum	1.5%	33%	4%
PHANTOM VFX	Momentum	1.4%	14%	58%

Important portfolio growth metrics and ratios:

Portfolio IRR	Portfolio	Nifty 500
YTD returns	16.3%	11.7%
1-yr returns	10.2%	18.4%
3-yr IRR	30.7%	16.5%
5-yr IRR	26.0%	12.7%

• Portfolio P/E: 29.7 vs Nifty 500 P/E: 23.5
• Revenue by region: India: 71% vs RoW: 29%

Note: portfolio return tracks the market value of my investments. Benchmark indices (nifty500) track their market value if I had bought/sold them instead

A few other macro that changed significantly (watchlist):

• Brent crude crossed $90. Crossed my mid-range blue line. Will keep an eye if this moves towards the red line or falls towards the green

• US Dollar Index (DXY) crossed 105. Crossed my mid-range blue line and quickly moved towards dreaded red-line

Disclosure: I am not a SEBI registered advisor. So please use your discretion to make any buy/sell decision and not use the above as a recommendation.

[goofymanager]

15 useful mental models I’ve found workable in many life scenarios including investment decisions (h/t george mack)

1. Bragging Razor - If someone brags about their success or happiness, assume it’s half what they claim. conversely, if someone downplays their success or happiness, assume it’s double what they claim

2. High Agency Razor - If unsure who to work with, pick the person with the best chances of breaking you out of prison.

3. The Early-Late Razor - If it’s a talking point on Reddit, you might be early. If it’s a talking point on LinkedIn, you’re late.

4. Luck Razor - If stuck with 2 equal options, pick the one that feels like it will produce the most luck later down the line.

5. Instagram Razor - When you see a photo of an influencer looking attractive on Instagram – assume there are 99 worse variations of that photo you haven’t seen.

6. Narcissism Razor - If worried about people’s opinions, remember they are too busy worrying about other people’s opinions of them. 99% of the time you’re an extra in someone else’s movie

7. Everyday Razor - If you go from doing a task weekly to daily, you achieve 7 years of output in 1 year. If you apply a 1% compound interest each time, you achieve 54 years of output in 1 year.

8. Bezos Razor - If unsure what action to pick, let your 90-year-old self on your deathbed choose it.

9. Creativity Razor - If struggling to think creatively about a subject, transform it:

• Turn a thought into a written idea.
• A written idea into a drawing.
• A drawing into an equation.
• An equation into a conversation.

In transforming it, you begin to spot new creative connections.

10. The Roman Empire Rule - Historians now recognize the Roman Empire fell in 476 - but it wasn’t acknowledged by Roman society until many generations later. If you wait for the media to inform you, you’ll either be wrong or too late.

11. Physics Razor - If it doesn’t deny the law of physics, assume it’s possible. Do not confuse society’s current lack of knowledge – with this knowledge being impossible to attain. E.g. The smartphone seems impossible to someone from the 1800s – but it was possible, they just had a lack of knowledge.

12. Skinner’s Law - If procrastinating, you have 2 ways to solve it:

• Make the pain of inaction > Pain of action
• Make the pleasure of action > Pleasure of inaction

13. Network Razor - If you have 2 quality people who would benefit from an intro to one another, always do it. Networks don’t divide as you share them, they multiply.

14. Gell-Mann Razor - Assume every media article contains a % of false information. If that is important, then sandbox the article from your worldview until you’ve:

• Seen primary sources
• Spoken to 3 domain experts

15. Taleb’s Surgeon - If presented with two equal candidates for a role, pick the one with the least amount of charisma. The uncharismatic one has got there despite their lack of charisma. The charismatic one has got there with the aid of their charisma.

PS - I have found that many times mental models help me avoid bad ideas, people, scenarios or investments rather than choose one.

As our beloved capitalist monk and philosopher, Charlie Munger once said “all I want to know is where I’m going to die, so that I’ll never go there.”

RIP dear Charlie

[goofymanager]

Date: 30th December 2023 (Q3 FY24 portfolio update)

A quick update on how Q3FY24 has performed and overall 2023 performance with a few general thoughts on what worked, what didn’t and how/what I expect going into 2024.

Right now, I am off to the hills with family and friends. Feel I needed this break more than ever at a personal level. On the investing front, 2023 has been a stellar year and I feel, we got very lucky given how 2022 ended and how 2023 started. And that’s concerning since every tom, dick and their uncle is bullish in 2024. More on that later…

General update on my portfolio:

Stock name	Weight %	Avg P/E	Profit / Loss %	IRR %	Action
MOST 100 ETF	9.2	21.3	39.2%	29.8%	Added more
TITAN	8.4	49.4	100.5%	30.0%
BANK BEES ETF	8.1	13.1	29.9%	22.5%	Added more
BAJAJ FINANCE	7.9	23.6	43.4%	16.2%
IRCTC	6.7	23.4	137.8%	56.8%
TIPS LIMITED	6.2	28.0	78.1%	59.4%	Added more
TATA INVEST CORP *	5.7	29.0	128.5%	145.5%
ASIAN PAINTS	5.5	50.6	27.0%	14.6%
COAL INDIA *	5.0	5.3	56.4%	124.0%	Added more
INDIAMART	5.0	46.9	10.4%	39.6%	Added more
PIDILITE	4.7	65.0	40.9%	16.9%
TATA ELXSI	4.6	34.5	100.4%	65.4%
DIXON	4.4	50.2	149.0%	96.3%
NARAYANA HEALTH *	4.3	25.1	31.4%	71.1%	Added more
VARUN BEVERAGES *	3.8	47.9	68.1%	60.5%
IEX	3.6	15.8	189.6%	23.1%
SATIA INDUSTRIES	2.5	5.8	-2.9%	-1.5%
AMARA RAJA *	2.0	13.0	25.7%	72.4%
KRSNAA DIAGNOSTICS	1.4	29.1	35.9%	4.9%
PHANTOM VFX *	1.2	29.7	9.6%	18.4%

• (asterisk) signifies <1 yr holding period.

Exits in Q3 FY24

1. DMART - 100% exit. Want to move into cash for other opportunities that might present better future growth prospects, either momentum or value basis e.g. INDIAMART, VBL, NH, TICL, TIPS etc. Although on a short-term basis, opportunity loss could be high.

Other reasons for selling:

• Sold 100% of the holding over the last 5 years and generated 40% absolute returns and 20% IRR
• Lack of growth triggers, although P/E remained >100
• Business hasn’t fundamentally changed, although margins (OPM) remain constant at 7-8% which might mean that although the business moat is intact but not helping in pricing
• Promoter still owns 75%, hence free-float remains low
• Reduced DOL (degree of operating leverage) - Current Year (CY): 0.38 vs Previous year (PY): 1.19
• PE remains very high (>100) but growth has slowdown which gives me discomfort of de-rating
• High valuation has very little room for disappointment
• Such high PE stocks are priced to perfection, wherein any negative news takes a toll

2. NAUKRI - 100% exit. Want to sell all high PE + low growth stocks + no visible sight of immediate (6-12 months) growth triggers. Although the company has given 16.7% XIRR over the holding period.

Other reasons for selling:

1. Low profitability growth
2. Low ROCE growth
3. No visible outlook from the VC portfolio after Zomato and PolicyBazar’s IPO
4. Such high PE stocks are priced to perfection, wherein any negative news takes a toll

Overall portfolio key metrics

Portfolio metrics	Current	3Y Avg	5Y Avg
Sales growth (median)	20.3%	20.5%	18.4%
OPM (median)	25.6%	-	22.8%
PAT growth (median)	30.5%	29.1%	25.7%
ROCE (median)	26.2%	26.1%	-
ROE (median)	30.4%	22.9%
Portfolio P/E	31.1	Nifty 500 PE - 24.48	-
Revenue by region	India: 91%	RoW: 9%	-

Overall portfolio returns (via VRO tracker):

Portfolio returns (via VRO)	My Portfolio	Nifty 500
1-yr returns (2023)	32.3%	25.2%
3-yr returns	20.0%	19.0%
5-yr returns	22.0%	16.1%
Since inception (10th nov 2016)	21.1%	15.1%

Portfolio churn rate:

Portfolio churn rate %
FY21	78.4%
FY22	44.8%
FY23	25.9%
FY24 churn rate till date	8.9%

I think this is one topic worth thinking about a lot more than it’s given credit for. Hope to share more thoughts on this. I have noticed that overall portfolio returns improve as the churn rate reduces (inversely proportional). Although I need to do more more research than falling into confirmation bias so soon!

Investments in Q3 FY24

1. MOST 100 ETF - Averaging NASDAQ as the belief is that the DXY index will move towards the 100 mark allowing risk-on mode. Although this is interest rate sensitive.

2. BANK BEES ETF - Averaging BANK INDEX since I believe it has bottomed out and should move up once Q3 results for banks post better results after the RBI’s circular on increasing risk weights.

3. TIPS LIMITED - The company continues to scale faster than expected.

• Management expects 30-40% growth in FY24
• Mgmt expects to spend around 30% of revenues on content acquisition
• New CEO (first time) who was added to mgmt team (gives a sense of trying to build a professionally run company, than a family-owned business)
• TIPS has been a holding from early 2021 onwards. I bought it as a part of my momentum portfolio (max 3y holding) but closely tracking it to see if there is long-term value in shifting it to my long-term portfolio (3+ yr holding).

4. INDIAMART - Even though, the company’s OPM and ROCE have reduced but reasons are clear and expected:

• OPM levels were all-time high but expected to settle around 30% OPM levels (mismatch of investor expectations)
• ROCE is low since the company is investing a lot in growth (ROCE will increase once investments have matured)

5. COAL INDIA - Play in India’s capex cycle with a high dividend yield. Bought at valuations (PE) within reasonable levels compared to 5y and 10y average. Realization/ton is still at elevated levels (Rs 1800) compared to 7y avg (Rs 1500)

6. NARAYANA HEALTH - This is a long-term investment for me as I believe that the best is yet to come for the company. The investment was made when the PE ratio was lower than its peers (25 while the 5y avg PE is 42 with the industry avg PE being at 37 while the company is growing revenues and margin at industry best levels)

Lessons from 2023

1. Focus on lower portfolio churn (started treating my portfolio as a bar of soap - the less I use, the more longevity it has)

2. Focus heavily on my personal NEEV framework to deeply understand current portcos and watchlist companies (revenue growth, OPM growth, reinvestment rate, promoter holding). Continue to track every quarter to keep myself updated.

3. Focus more on learning and less on doing. Doing very few things for a very long time could yield higher results in the mean reverting, probabilistic game called “equity investing”.

4. Concentrating my learnings on 4 parameters:

• Starting valuations should be low (entry point) i.e. ideally <20 or max 30
• Critical to understanding business’ competitive advantages (aka MOAT) - NEEV framework is helpful.
• Business should have immediate growth triggers (next 12 months).
• Only invest in companies where you understand its problem statement, solution and customers.
• Position sizing

Expectations from 2024

While predicting the future is a fool’s errand, but it helps if done to set expectations. Here’s how I see 2024 panning out:

• all signs point towards a bull run in 2024. personal view Is NIFTY 50 can touch 26,000 i.e. 21-22% higher than current levels since NIFTY50 PE is a tad under-valued from historical PE of around 26-28

• if the above scenario pans out, I intend to sit on cash focussing on doubling down on the existing portfolio and opportunistically DCA if needed on certain key themes

• will look to re-inter-market when NIFTY PE goes 18-22. although I doubt this scenario in the next 12 months, given all the macro factors are aligning towards goldilock scenario - majority BJP win, US fed cut interest rate (between 3-6 cuts expected), inflation falling.

• a few of the known risks can be commodity prices like crude surging > $100 (due to further escalation to MENA crisis), BJP not winning with a majority, US not able to achieve a “soft landing” and similar geo-political crisis increasing short-term volatility.

That’s it for now. Hope you have a fantastic and blessed 2024

[goofymanager]

Do durable companies create outsized investor returns?

That’s the question I was wondering at the end of 2023. And lo and behold, I found an interesting take to this question using the age-old concept of the Lindy effect.

To quench your thirst further, read more here Lindy Effect in Investing - Market Sentiment

PS - I tried creating a similar benchmark using Indian data but was unable to. I am attributing that to my idiocy and lack of intelligence. So if anyone is smart and intelligent enough, please do so and share!

[goofymanager]

Today, I want to share a few thoughts on how churn impacts overall portfolio returns (at least in my case).

This graph compares what happens if Rs 100 is invested in my portfolio from 2019 onwards (5y return cycle). In comparison, the portfolio has returned better than NIFTY 50 but has under-performed NIFTY 500 which is my benchmark index.

Below is my portfolio beta over the same time horizon as well (avg beta remains at 0.86 which I guess is decent)

Now I want to present the curious case of June 2022. In June 2022, I decided to sell a portion of my stock portfolio to move to cash. This was a mistake since I didn’t follow my investing principles and panic-sold. And then re-entered again around Nov 2022 in the same stocks which I still hold today.

BIG MISTAKE. Here’s how that decision impacted my overall returns:

tl;dr I lost 4.3% of my annualized returns due to this mistake (difference between low teens vs high teens)

To summarize my lessons:

• Don’t sell due to market volatility unless the fundamental yardsticks of business have deteriorated
• Probability of selling now to buy at lower prices later has a very low success rate
• Market volatility is a feature, not a bug

Any thoughts here?

[axiskumar]

@goofymanager

Probability of selling now to buy at lower prices later has a very low success rate

This is 100% correct in my case too… I tried… failed multiple times… stocks went up by 300 % later…

[goofymanager]

are you doing anything in particular to avoid such a scenario in future?

[axiskumar]

Ride the story until all story points delivered… and constantly looking at qtr results , trends, and listening to conference calls