I have been in the market for 5 years now, started my journey in late 2015 when I’m 18 Y.O. Over the years my investment philosophy has matured and evolved.
Today I am sitting on 300% ROI, with many ups and downs over the years.
I would like to summarize my journey here and along with the evolved thesis, would love feedback by my fellow VP members.
Starting in Nov 2015,
Wanted to become a long term investor in likes of warren buffet so, later realized that my definition of long term is less than 2 months, I have traded over 200 stocks in the first 1 year of my journey- Never made any returns.
few major stocks which i held for 2-3 months.
|Tata Motors||240||242||20%||My Father used a Indica car and is a known brand. purely on that basis bought few shares|
|Hindalco||80||85||20%||Realised that it is a Aditya birla group company and stock is avaiable at 52 week low so, bought it as a value buy|
|Vedanta||80||75||20%||Vedanta used to advertise a lot in Business Standard and felt it is a good brand and also, stock looked cheap and is at 52 week low|
|TIIL||175||190||40%||I used to follow https://dolly-bestpicks.blogspot.com/ blog and it suggested that TIIL has 4 different segments and individually they are worth more|
During Nov 2015,https://dolly-bestpicks.blogspot.com/ has suggested buying Technocraft Industries and I blindly bought it. It has been a game-changer later.
For the First time, I got acquainted with the concept of Buyback . Have read buyback offer document to figure out the tendering process and realized that there is “Retail reservation” of 15% of buyback size for people holding stock worth below 2lak Rs.
Over the course of the first 1.5 years after trading almost all the equity scripts, Met a tipster in a WhatsApp group. That man used to share screenshots of his successful trades. I made some money initially with those tips.
Being a gullible one got lured into his fixed income trap, I have funded my trading account with a million[Taken as a loan from my father] and gave it to him for generating regular returns.
I lost 50% of my capital in 1 month.
The small piece of knowledge related to buyback reservation has come to rescue. At the same time, Since the growth in IT fell, shareholders pushed these companies for buybacks- This has become my money-minting period. I have recouped all my losses due to those buybacks. In aggregate made 70% absolute returns in 1 year in all those buybacks- Acceptance used to pretty high those days[Dumb rule, take #shareholder with sharecapital less than 2lak in latest BSE filing/A.R and multiply the same with 70k[Avg ticket size] used to be total retail holding value.
(Later will the mainstream media coverage this opportunity is now lost)
Buyback trades are typically 3-4 month-long ones, this has helped me in building patience and medium-term investing.
After all this, retrospectively in 2018, I realized that instead of beating my head around trading and buybacks. If I left my initial portfolio as it is, would have made multi-baggers in all those stocks.
|Stock||Price||2016 Exit||2018 Price|
Seriously started to look at the long term at this point. Bought a couple of long term stocks in broking, NBFC sector in the same group companies.
[By this time,I am working with a leading NBFC in their analytics team & got to know the roots on Finance business…Scorecards, evolving securitizations market, stress tests etc] so, felt I should go with NBFC stocks- In that journey identified two long bets.
|IIFL Finance||170||20%||3rd largest gold financing company, Construction book an overhang, largest physical branch franchise[exc Muthoot & Manappuram], hardly at 1.5 book and took the bet|
|5paisa||160||80%||A 350 cr Mcap company with backing from 15kcr conglomerate(IIFL), with proven wealth creation track record, Completely digital culture but with hardly 30-40cr loss and fastest growing broker till date. Felt i could take risk and bought a good chunk|
While taking these bets, I took 1:1 debt on my equity capital and doubled down on my investments.
5paisa became by 2.5x and IIFL Fin became .5x. sold partly to clear my debt.
My Philosophy at this point is:
Management should be competent and aggressive.
There should be backing by big PEs or credible promoters.
Should be a mid/small cap with minimum losses or in bad times.
Intrinsically solid business models with strong operating ratios.
Betting on my understanding of finance businesses, Again leveraged 50%[Long term debt] on my equity capital-base and took positions in below.
|Stock||Avg Price||CMP||Allocation||Thesis||Exit Strategy|
|5paisa||170||320||32%||Digital focused business model with emerging business like P2P lending etc, solid execution, below 1000cr company & Promoter advantage||NA|
|IIFL Finance||180||85||5%||Securitization fee-based business model, with 20+% ROE and cool dividend track record.||NA|
|IDFC First Bank||26||34||40%||New to lending segment, cool loan spreads, ethical management, startup stage and available at 1X book and 17kcr Mcap||When the retail lending engine slows down to below 20% growth along with credit costs staying at 1.5%+ & ROA below 1% for 3+ years & low liability book growth|
|Bandhan Bank||270||340||5%||High ROA business model & always will trade at higher P/B, High reinvestment rate into 20+Roe model, Sold distribution and collection franchise entering Mortgage aggressively.||When loan growth falls below 20% for couple of quarters & ROAs below 2% & low liability book growth|
|Kotak Bank||1250||1750||6%||Super cool mature cash generating subsidiaries, chugging out huge profits and Kotak being 100% owner will have good re-investment of capital for longer period of time + Focus on Risk adjusted returns||PAT growth below 15% for 1-2 years, ROA in lending below 1.5% for 2 years.|
|Piramal Enterprises||1350||1400||12%||Access to reliance franchise in terms of distribution & collections of retail loans- huge potential. at 28kcr pharma business gives cushion on downside & demerger in not far away. Having see the way Bajaj becoming 2.5 lakcr company betting on franchise & Digital at code. Mr.Piramal will definitely try to build his business on those lines. I see this as a mini hedge fund becoming super big and chugging out dividends||By 2023, if Retail lending division is not leveraging Reliance franchise and after testing product positioning. will decide.|
My Thesis at this point:
- Money is made when profits multiply and not just the band value. So, buy stocks where you think profits will be 10X in 10 years. [Main reason not to buy reliance despite having love for massive scale+execution]
- Should have good re-investment opportunity else, should share max profits through dividends/buybacks.
- Should be backed by solid promoter/management with a reputation.
- Core business should be positioned in a niche segment with its own competence.
- Proven execution track record.
- Should have adapted to major changes in their business lifecycle at least once
- Should invest and adopt technology with solid internal processes.
- Massive opportunity [Compare the macro number with that of china and USA].
Points that I feel are missing in my investment thesis:
- Diversification across sectors and bet sizing
- Too aggressive on one bet.
That said, this is a voluntary decision at this point till I move into the big capital league while i can.
Would love to hear feedback and opinions