*Buy Growth Large Caps, select midcaps, with EPS growth of atleast 10% over a long term.
*Allocate 5% of PF size to each stock.
Exit at 20% gain. Flat out.
Thesis:
*Buy only those stocks that readily touch all time highs, which is a function of the underlying growth in the business.
*Entry is made near 200 Day Ema. Generally.
But, if the stock is a great one then near 50 Day Ema, like Asian, Pidilite, Dr.Lalpath, Havells.
If growth is slower, then waiting for 200 Weekly Ema for entry is also wise.
*Exit could be 10% for low beta stock like HuL, Shreeram, Icicigi, Gold where 20% feels like a stretch.
Pros:
*Simple to execute.
*Quality of stocks in the portfolio is top notch.
*Diversified Portfolio
*Very little room to go wrong.
Cons:
*Gains are limited to 20%, so any follow up rally one would miss.
And that’s not too bad, because over the longer term a Large Cap PF is not likely to give better returns.
I am going to start posting the trades. Will start with a couple of recent ones.
This strategy doesn’t apply to every stock on the board. The stocks that we will enter are growth stocks. So, yes, there could be a time that we end up holding laggards, but they are all expected to give returns within the year.
20% Annual return target on the overall PF should remain intact.
Currently, I have allocated only 30% of my total cash position to this strategy. Only after seeing a bear market through will I be more confident.
Yes. Therefore a small position of 1.5% of PF has been taken. Whereas, non-cyclical linear stories get a full allocation of 5%…like IciciGI, HuL, Britannia, Shreecem
What is the definition of Large Caps? Should we follow only Top 100 stocks as Large Caps or is there any better definition?
I have been exploring strategy to invest only in Large Caps and Mid Caps but often find that considering only Top 100 companies as large caps and Next 150 companies as Mid caps is not correct.
There are lot of well established companies which are outside these top 250 companies but have Market cap above 10,000 Crores like CAMS, IEX, TTK Prestige, Exide, Blue Dart Express? But these are classified as Small Caps as per AMFI/SEBI.
Looking for more wider approach to define large caps and mid caps.
If we cannot stipulate to the classification by the regulatory and industry bodies, I guess then we can with our own classification, depending upon market cap, years in business, growth prospects, industry, and any other metrics. This is subjective, but I guess that is the way.
Yes, Having our own classification could help.
I am also trying following approach:
Classification based on Market Cap.
Mega Large : > 1,00,000 Crores
Large : 50,000 to 1,00,000 Crores
Mid : 20,000 to 50,000 Crores
Small : 10,000 to 20,000 Crores
Based on these Market Caps, I decide allocation to the stock. This ensures that, my allocation to unproven businesses is less as compared to proven businesses. I do not consider years in the business but I can add this as well, in addition to future growth prospects. I generally allocate same amount to all stocks based on above category i.e. Equal Weight Allocation. This has worked to some extent.
The reason for Equal Weight Allocation among the stock category is to avoid my personal bias and wrong convictions!! Recent example, I had low conviction on HAL, but it has surprised me as compared to Bharat Electronics where I had high conviction. So conviction does not help much in my case.
I am still looking to focus only on Larger companies in near future as I still remember 2018-19 days when small caps corrected much as compared to large caps.
I have seen that, some times Large caps can also give multi bagger returns with less risk.
Large Caps have done really well in as compared to many Mid Caps and Small Caps in past 2 years.
Small Caps like IEX, CAMS, AMARA RAJA have not given much returns compared to stocks like HCL TECH, HAL, BHARAT ELECTRONIS.
The risk reward is not always favorable as per this analysis.
May be, there are cycles when Large Caps do well but this is happening again and again in past few years. This has happened in 2018, 2019 and also to some extent in 2022-23.
Off course there are winners like CDSL, MapMyIndia and few more but those are quite a few.
This always makes me think whether investing only in Large Caps could be also sufficient for many investors. Many times, they have given better returns than Mid Caps and Small Caps for prolonged periods and have also beaten NIFTY handsomely. If you have carefully selected basket of Large Caps you may able to beat NIFTY as well. I have seen this in my portfolio during my early days of investment when corpus was small and no. of stocks was limited to 10-12.
I am not holding all stocks mentioned above. This is only my perspective about large cap investing strategy.
