Great going with the original posting of a concentrated portfolio. You must have a conviction beyond most other investors to be so so so concentrated. There are many roads to success in investing, and just as I would only buy 1 or 2 or 3 stores in a city and operate it, if I strong conviction, you are doing the same with Stocks.
But, I would recommend that what is happening with China today will happen at some point in time with India also. Japan went thru this a couple decades ago, and now it is China’s turn. Remember, the FIIs go “hot” on the hottest economy and throw it away as if it is a cigarette stub. It did that with many economies if you see a chart of which country (as a sector) makes it to the top in any given year. There is a fund manager that puts that together. Brazil was in that list at one point in time, and so was Israel etc.
Coming back to your allocation per stock, I would advice you to go into the same strategy but invest into the top 2-3 companies of that market, and hence when there is a Gold/Silver/Bronze winner of market share, you will be invested in that sector/industry thru the 3 companies. So, for example if you love IT, you would have invested in TCS + HCL + Mindtree or Infy + LTTS + TechM or some other combo you like. So, when market-share shifts, it does not hurt you much, but when the entire IT sector goes down, you will see all 3 correcting. This was you are still concentrated but less so, with a spread of risk.
Hope this idea helps. I implement it all the time for example I am in top 6 Real Estate Stocks from Oct-2020 to Mar-2021 since I did not know who will win huge, big, great and good. It has worked out well…
Thank you. However, I did not understand this point.
Steel use is proportional to GDP per capita.
India steel usage/capita is very very low, similar to paper use or plastic use.
Every incremental increase in GDP per capita in India, will lead to much higher increase in steel usage per capita.
Once basics like food, clothing is covered, people progress to buy a vehicle, home, kitchen utensils, so steel usage increase much higher once that inflection point of GDP per capita is crossed.
From a macro point of view, India steel consumption is going to vertically move up in next 10 yrs.
Just that no research report is able to see this yet.
Also, India was an iron ore surplus country till 2020. A very fundamental change happened in 2020 when the mines allocation rules changed to an open auction mechanism. The big steel players are taking away these mines at 140% premium which has never happened before.
Just 2-3 days ago, Tata steel won a very big mine at 141% premium and market has been stunned by this move of Tata steel.
So, we have a situation of increasing demand over next 2 decades, but very limited supply!
Over and above this, valuations are at very low level to give a very good comfort. Risk is minimal if a stock is at 3 PE, in my view. Valuations matter!
Morever, risk is a function of execution, corporate governance and business strength.
Here, I feel all three are pretty good and there are examples of all 3 happening.
What I am talking about is the Nikkie performance from 1950 to 1990 and then from 1990 to 2021. When global business and global funds shift to a country, we get the bull, then we get the bear. We can justify what happened to Japan, but you can see it clearly from the chart at Nikkei 225 Index - 67 Year Historical Chart | MacroTrends this site shows what happens.
Is it time for China to start to experience Nikkie from 1990 to 2021 starting in 2020?
And, then is it time for Indian Markets to experience the 1950 to 1990 of Japan starting in 2004.
Worrying about these macro trends will change the way we invest and how we invest, and how much we diversify.
Hope this helps.
KKP
PS: I agree with your short term assessment of China and India relative to GDP.
Indian index and top companies like Bajaj finance, Dmart etc are so expensive (GPIL EBITDA and PAT > DMART EBITDA and PAT), that I will not be surprised if our index doesn’t give any return for next 5 years or more.
This is very much a possibility.
Individual stock returns have no correlation to the index however.
That’s why I have chosen companies with very low valuations and very high growth prospects + long lasting business strength. So that I am not impacted by index performance.
Yes, I have been doing some serious sector rotation from 2016 and it has worked out well. Investing in fallen angles has worked out well for me from that time. Pharma was 1st, IT was next, FMCG was 3rd, and most recently Real Estate starting Oct to Mar, Hotels from Jan to June, and now Entertainment from Sep to Dec. In a bull market this strategy works well, since these were beaten down sectors, and I would buy multiple ones in each sector. My disadvantage is that I am not in India, do not know all of the companies and good vs chor management, ground 0 feelings, and hence go to charts once I know which sector I want to get into.
Good luck with your valuation and concentrated portfolio approach. It is working for a friend of mine (analyst) also who analyzes balance sheets and management to the nth degree, and then puts big money into it. Mix it with “sector selection” ahead of the cycle (peaceful buying, instead of panic race to buying Real Estate in Sep-Oct’2021 for example!).
To give a context on valuations, the closest peer of GPIL is Sarda energy.
Sarda energy EV = 4100 Crores (it has debt of 1700 cr)
GPIL EV = 4100 crores
Sarda energy last quarter EBITDA = 272 cr
GPIL last quarter EBITDA = 573 crores
(can compare previous quarters too, GPIL is more than 2-3x of sarda EBITDA)
(Sarda hydropower plant will add additional 175 cr EBITDA/year, and GPIL solar power plant will also add 170 crore additional EBITDA)
Moreover, Sarda energy mine is smaller, it has to buy 50% of iron ore from outside. So, some of the gains in EBITDA would be due to cheaper raw material inventory gains.
Sarda and GPIL are neighbors. Their mines are located adjacent to each other.
Iron ore price now above 120 USD “A few pellet players are offering standard grade pellets at $170/t CFR China but we are yet to observe firm buying interest. Price indications currently could be around $150/t CFR levels”, highlighted a trader.
Surge in last 1 week because all 4 stocks have gone up- dynemic products, GPIL, meghmani twins (including today’s surge)
Also had been adding GPIL 1 week ago from the dividend I had got.
Continue to hold all 4 stocks and plan to add more if there is any dip.
Overall asset allocation- 80% Equity, 20% cash, zero real estate, zero gold, zero crypto.
Also, Dynemic looks more liquid than GPIL to me. Even though GPIL has much higher mkt cap, it seems free-float of GPIL has been cornered by a few big PMS or big investors, or it may be due to ASM. Not sure, but the bid-ask spread is sometimes pretty high in GPIL.
Manas bhai, if you don’t mind sharing: What % of your net worth is invested in equity?
If your portfolio is 50x of annual expenses, I reckon that you could simply put all (or at least a very large %) of this in a FD and simply look to match inflation. So your floor is set, for the rest of your life. Anything you earn above this (by doing what you enjoy doing only) will serve to top up your wealth.
If you still have a large chunk of your net worth in equity, what is your objective behind continuing to take more risk? Building generational wealth? Improving your lifestyle (i.e. 50x of current expenses is not enough if you want to dial up your lifestyle and that expenses number)?
Thank you for sharing. It’s a different thought process from mine (“go into protection mode, and leave maybe 20% in equity/ risk capital”). So I was curious to understand your thought process. It’s fascinating to see the diversity of thinking. I guess this diversity is one of the things that gives our world beauty and resilience.
All the best to you, and wish you Godspeed in your quest.
Thank you.
Also, I see risk in everything.
If I buy a big apartment, there can be an earthquake in that area, leading to big fall in property value.
If I buy a lot of Gold, there is big risk of it not going anywhere for next few yrs, while the prices of everything else increase by 30-40%.
If I put money in FD, I will get post tax return of 3.5%, which is negative 5% real return (based on actual inflation), and I will lose 5% of my capital every year.
I can’t afford to lose 5% capital every year (if majority is in FD), then my portfolio will fall by 50% (in real value) in 8 years for sure, and I will have to reduce my expenses by half.
Yes, there is risk in everything. But there are degrees. Ultimately, you can never remove all risk, and have to reach a state of “acceptance”. I had already penned my thoughts on this here.
Agree! One thing which you can do is shift within equity to compounders gradually where you can handsomely beat inflation over long term, get decent growing dividends yoy and have decent downside protection as well.
50X expenses is a dream, which must be protected before achieving and also when once achieved. Its no wonder that risk management is so crucial in every business.
I am sure you must have done your risk analysis & management as well. When you say no real estate and 80% in almost smallcaps…does that mean your entire family’s (spouse, parents etc.) 80% portfolio is in smallcaps in a bull market? (Age & Job profile is another factor for risk analysis) If yes, then that is an amazing risk taking ability but you must think of ways to protect what you have achieved as well…
Yes, that’s right. 80% of our entire corpus is in small caps.
Small caps are more volatile than large caps and Nifty obviously.
But, this does not mean that they have more risk.
Risk arises when you don’t know where your money is invested in- for example, people who bought flats from Unitech and JP associates, or even readymade flats from Supertech (very poor quality). They lost their life savings in physical real estate.
Then there are people who lost money in PMC Bank fixed deposits or DHFL Fixed deposits.
Risk is not dependent on asset class, but where you invest in that asset class. In large caps, Yes Bank and DHFL stock led to 99% erosion of value for a lot of investors.
I do detailed research on my stocks and invest only when I am confident. Both valuations and future growth are important. Only undervalued stock with no big growth trigger is not a good investment for me.
For me , my investments not going up is a risk. Coincidentally, 2 of my stocks- Dynemic and Meghmani Fine (42% of portfolio together now) are locked in upper circuit today. And I have gained around 3x of my annual expenses in one day.
I am surprised by the 20% circuit on Dynemic products post the information shared in AGM.
With such a big plant, it was already known that profits should be 2x soon, and can be upto 3x depending on price increases etc. Why did investors need an AGM to repeat what was already known?
The stock was still trading at very cheap PEG ratio despite the fact that plant is totally ready now.
Markets are not always efficient, they need an AGM to tell simple facts to investors.
All my stocks are based on the same theme.
