The toughest thing about owning mid/small and micro caps during a bull run is deciding on when to add cash to them after the initial investments since
a) they either run up too high b) they don’t warrant more investment yet until they prove themselves more over a few quarters.
With blue chips you can set up similar to an sip where you can invest in them almost blindly on dips. But adding more in these spaces is not as easy and is infact the hardest thing to get right. So I’m setting up a system so that I can deploy cash monthly into my portfolio for FY22 and will see how it goes and reassess in FY 23. My current portfolio stands as
- Laurus Labs (40 percent)
- Deepak Nitrite (25 percent)
- Vaibhav Global (6.5 percent)
- Intellect Design Arena (6.5 percent)
- ITC (6 percent)
- Jubilant Ingrevia (3 percent)
- Borosil Renewables (4 percent)
- Expleo (2 percent)
- Astec Life sciences (2 percent)
- Racl (2 percent)
- Just Dial (2 percent)
- Xelpmoc (1 percent)
Here are the problems:
a) Laurus and Deepak are my main holdings but those have run up too high and taken up monster allocations in my portfolio. So adding in either of these looks tricky. Infact laurus has become such a huge position that I had to sell my other pharma holdings since I became too dependant on pharma and I wasn’t willing to sell even a share of laurus.
B) The runups in Vaibhav and IDA have been too quick and adding more here looks inadvisable at current valuations. So il need to skip investment here too for now.
C) Loaded up on Ingrevia at 241.50 and haven’t had a chance to buy more since then. I’m getting a bit overweight on chemicals so the plan was to sell astec(high valuations) and shift that stake to Jubilant(unbelievably low valuations) but decided against that so im overweight on chemicals too with not plan to sell but can’t buy either. Borosil Renewables isn’t exactly at comfortable valuations to add more in either with commodity prices cooling down so cannot increase there either.
D) the remaining 2 percent and 1 percent companies are basically my alpha bets and until a few quarters pass I’m stuck there too since there is no way I want to increase my allocation in those yet due to the risks involved in putting more money into those bets(for eg I like xelpmoc but sleep would be a thing of the past above 1 percent)
So that leaves me with the following investment loop.
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Aim to invest additional cash over a quarter and not monthly. An sip with this portfolio won’t work. I’ve setup a savings account in idfc first so my money never sleeps but I wont stay in cash for more than a quarter ie hoard for 3 months max but deploy in the below loop every quarter.
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Post quarterly updates and concalls check if the stories are intact long term with Laurus, Deepak, Vaibhav, Intellect, Ingrevia, Astec and invest in the companies that drawdown due to short term issues over the next 3 months.
Out of the companies above hopefully atleast one or two or more will crash to DMA levels /35 RSI in a quarter. When they do invest cash into them and let the others run. -
Do the opposite with xelpmoc, expleo, racl, just dial, borosil however… ie invest in them on dips as their story improves every quarter and panic in a corner during short term issues but do not add more since they may turn out to be long term issues.
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If no dip presents itself then invest in ITC on dips. It’s an evergreen stalwarth for me and I don’t mind it taking up even 30+ percent of my portfolio so this will be my failsafe investment. Also an safe undervalued compounder like idfc first bank, Rites, Embassy or even a mutual fund like ppfas or a long term axis bank tax saver as my failsafe investment too so I have one more Avenue to sip in similar to ITC
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If an opportunity that screams out Investment ie nesco at under 2500 MCAP presents itself then invest some money there instead of just my portfolio
This is by far the toughest thing about a mid/small/micro cap portfolio that isn’t discussed enough. A large cap portfolio is easy to maintain and sip in. If going with a high beta portfolio it just doesn’t seem advisable to do the same. Will follow the above rules alongside my tranche based system and re assess post FY 22.