Journey of a Small Cap investor!

Thank you @RajeevJ for writing this note. It helps each of us to learn from your journey. I am more young at investing journey with only 8 years experience starting at more ripe age of 40.

Would you be able to share atleast one of stories of your biggest successes and biggest failure ? How did you build conviction in the success story especially as you are small cap investor?

I am diversified small.bet guy, but trying again to increase my allocations. Would you say typically how many stocks you remain invested and how big was your current big bet in terms of total PF%. How long you remain in cash, before redeploying it in another idea. For eg,you recently exited Pix. Did you already redeployed the gains to another stock ?

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Apologies for this answer, but he is a big investor. Investor in a business in a more direct sense. Remember seeing him owning 1% or so of shares, traveling long distances to meet managements etc. So the scale at which he does is not the same as ours, assuming you don’t have positions like he does, and assuming we are the same. Just saying.

Interested in the details of his endeavors though, because I cannot recollect another member like him quickly, so there will be a lot of learning.

@RajeevJ Your post might look like a few paragraphs of common knowledge to newbies, but for anyone who has been active in the market for some time, these are great words of wisdom, which come only from experience, and all of which, while may not be practically doable by all currently, but if understood will help as the journey progresses and positions scale up. Thank you very much for this.

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Great sir,

I kindly request you to share your story, including examples, about how you started your investment journey in stock picking.

I am curious to know your thoughts, views, and doubts during the initial stages when you were accumulating stocks and how the growth story of those stocks unfolded over time.

Additionally, if you have any failure stories from your experience with certain stocks, I believe that would also be valuable to learn from.

Thank you.

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Thank you for sharing your journey. It’s been an inspiring read as someone in their 30s aspiring to achieve Financial independence and just starting off on that path. Over the last few months I have started taking this forum more seriously as well, and there’s such a vast ocean of knowledge on this forum! My awareness into finance came through first reading Robert Kiyosaki’s Rich Dad, Poor Dad. He also mentions books by Peter Lynch to get more useful information into the Stock market and criteria for picking good companies. Though my financial knowledge is still pretty basic, im sure it can only grow. and experienced members like you sharing their knowledge reinstalls my faith.

I had tried reading Intelligent Investor, but at the time i couldn’t get into it. would you recommend any subsequent reads as a progression to One up on Wall Street?

Please share a reading list if possible. Thank you!

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Thank you
The more I read your note the more convinced I am about the joy of being in markets even if it’s in a small way that I am in. The money does matter of course but the happiness of being right about a bet can’t be traded for just money

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Thanks for sharing your experiences, Rajeev! A well-written piece. Learning a few new things, and a reaffirmation of many things that one knows, from successful investors like you is always so valuable. All the best for the next leg of your journey…

Great points of your journey.
I request if you can give few examples of you investment where you got right and wrong with reasons (mistakes)…this will be useful to our group

Responding to some of the points raised above & a few other thoughts:

As regards to my hits & misses, I have been writing in some detail, of most of my investments carried out over the last ten years on ValuePickr, which is such a wonderful site that I think you can access it all. It will pretty much cover stocks, both, which worked out well & otherwise. I think I may have given my reasons for both getting in & out in most cases.

In terms of the number of shares in the portfolio, your top 10-12 stock ideas should be enough to absorb 90% of your corpus. That too not equally. The weightage for different stocks should be in direct proportion to your conviction levels in each Co. 10-12 stocks is enough diversification and it also forces you to take meaningful positions in stocks where you feel bullish. Frankly, there is no point in being right with your investment thesis if you don’t make it count.

A few thoughts on selling: For starters, losses don’t happen when you sell or book them. They have already happened when the share price fell. With that clarity in place, it becomes a lot easier to sell & cut losses.
I always found selling to be trickier than buying. Stocks tend to have a bad habit of going up after you sell! I try not to track stocks after I have sold them. It helps me in managing stress. Earlier, I used to put down in writing, my reasons for selling a stock as it brought a lot of clarity. Reasons could be any, like valuations getting stretched, lack of growth, a mistake in buying the stock in the first place or simply finding a compelling story so having to sell an existing stock.
Try not to fall prey to the easier option, that of adding to the number of stocks in your portfolio as they do not necessarily help with your returns. I also found it easier to sell while the stock was going up than when it started to correct, more so as your scale of operations increase. When stocks are rising, as is the case in the current bull market, it’s all the more important not to get complacent & to keep revisiting your investment thesis & keep a close eye on the valuations to see if it makes sense to book profits. If its not a buy any more, it could be a sell!

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Thanks for sharing your thoughts and experience in brief. i can relate somepoints with my limited experience in market & also feel motivated.

I like to mention some of the stocks that I like at current valuations. I am holding them & may have possibly have written about them on their respective threads.

  1. WPIL (CMP 3,414/-): The Co. has just received the full amount of over 600 crs for sale of one of their european subsidiary. Able mgt. Huge growth opportunities.

  2. Godawari Power (CMP 687/-): Debt free Co., owns captive Iron ore mines with lease period of another 35-40 years, so barring unprecedented fall in ore prices, GPIL will continue to generate huge cashflows year after year. Steel companies buying ore end up paying three times the cost, which almost means free money for the next many years!

  3. MPS (CMP 1,730/-): Companies ability to acquire profitable Co.'s at reasonable valuations & integrating them with itself has the potential to generate huge wealth. The Co. has been walking the talk & has been rewarding its shareholders handsomely along the way.

  4. Va Tech Wabag (CMP 607/-): Turnkey water supply & Water recycling have huge growth potential. A technology based Co. run by technocrats has of late come on the radar of the MF’s who are increasing their stake. Amounts written off earlier are also gradually coming back.

  5. Vedanta (CMP 256/-): Demerger into 5-6 focused companies has great potential of creating wealth over the next 12-18 months. Meanwhile, enjoy the steady stream of dividends!

  6. Lincoln Pharma (CMP 612/-): A Co. with decent operating margins & valuations. Mgt increasing stake over the last few years. Potential to get re-rated as the Co. gathers scale.

Also invested meaningfully in Redtape (CMP 445/-), but its more a hold currently than a buy with a somewhat muted Sept qtr. Needs to be given a longer rope!!

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Great List. Just a query on Vedanta. We do not have an accurate picture on debt repayment. Once Cash Rich HZL is now sitting on debts due to consecutive large dividends.

I am conflicted here as once the metal cycle turns it would throw profits but concerned on this above aspect. What is your thought process and how have you overcome this concern?

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Thank you for sharing your experience. As a newcomer to the market, I am finding it difficult how to go about researching a company and how much time does it takes (on average ) to do research before taking a position .

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@hardik_shah1
Regarding Vedanta, I feel the valuations are what they are precisely for the reason that there are some doubts in the minds of investors. I feel that the promoter is a wily operator who has been in similar situations multiple times. The Co. has after I wrote the post has paid another round of interest on its NCD’s.

Meanwhile, the shareholders too have received a dividend of Rs. 11/- per share. I feel comfortable holding Vedanta & expect the demerger to go through which should result in decent value creation. At least the downside is pretty limited.

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VEDL: Vedanta: 97% bondholders approve $3.2B restructuring

  • Vedanta Limited: Bondholders approve restructuring of $3.2 billion worth of bonds More than 97% of bondholders of Vedanta Resources VRL approved the restructuring of $3.2 billion worth of bonds due to mature in the next three years.
  • The company said in a statement that the restructuring will reduce its debt by $1.1 billion and extend the maturity of the bonds by an average of three years.
  • Vedanta’s shares were trading at Rs 263.80 on the National Stock Exchange on January 3, 2024.”

This is indeed good news for Vedanta shareholders as the Promoters now have enough time to successfully split the company into multiple focused entities which could create enormous value.

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MPS Q3 numbers were clearly disappointing, more so as the mgt. had needlessly upped the guidance just a qtr ago. The numbers themselves were not that bad, with operating margins getting better despite the set back in the e-learning business. I guess the mgt too has learned its lessons & will hopefully, going forward, let their numbers do the talking! I guess the the pressure of having concalls after every quarterly numbers also gets to the mgt whose enthusiasm to please shareholders can sometimes get the better of their judgement! The mgt. though has stayed committed to their vision 2027 of 1500 crs, & hope to actually achieve it before time with similar margins.

I am of the view that the mgt. is well meaning & have by & large walked the talk over the last 7-8 qtrs, which is a sufficiently long time. I also believe the the mgt. has the wherewithal & ability to grow inorganically by successfully acquiring companies & then integrating them. That is what will create shareholder value in the long run. It matters less that the vision 2027 is realised 2-3 quarters behind schedule but the journey forward should clearly show a pattern in that direction.

The Co. is generating free cash flows of about 130-150 crs annually. Has given a interim dividend of Rs. 30/-, & could easily give another similar final dividend (I think the mgt has mentioned something to this effect in the previous concall, admittedly to be taken with a pinch of salt!) That would make the stock give about a 4% dividend yield.

I feel any meaningful correction from current levels of about 1490 could present a decent buying opportunity & I will look to add.

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Sir
It’s nice if u can elaborate this with some more details…

Disc. invested

@Kuldeepjadeja The following graph from the Co.'s investor presentation will clarify better. Those manufacturers who do not own captive mines end up buying ore at market prices that are substantially higher than the cost of ore extracted from captive mines. This difference in price goes straight to the bottom line of the Co.

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So They own both captive coal and iron ore mines or alone?

Disc, invested in godavari and prakash industries