My current portfolio - Comments Invited

I’m putting down my current portfolio and my investment philosophy here. Comments / suggestions / criticism invited.

Current Portfolio

Avg Purchase Price/ Current Price / % portfolio at market price / Annualized return w/o including dividends (%) / Date Position Initiated
Piramal / 655 / 1,460 / 22% / 66%/ Initiated in Nov’12
Balrampur Chini / 60 / 130 / 22%/ 132% / Initiated in Nov’14
Relaxo / 91 / 496 / 15% / 94% / Initiated in Dec’13
Gold ETF / 2,701 / 2,875 / 12% / 9% / Initiated in Jul’13
Thomas Cook / 95 / 219 / 12% / 43% / Initiated in Jan’14
Shriram Transport / 835 / 1,222 / 9% / 20% / Initiated in Mar’14
Sunteck / 228 / 252 / 5% / Initiated Recently / Initiated in Jun’16
Max Ventures / 62 / 66 / 4% / Initiated Recently / Initiated in Jun’16

Recently I did a review of my current portfolio and the summary is given in the table above. I have given when was the position initiated in the last column but most of these positions I have gradually accumulated by averaging up (mostly) as well as averaging down. Let me talk about a few principles which are cornerstones of my investing philosophy. I would generally not consider an investment idea if all of the below criteria are not satisfied.

Concentration (diversification is overrated): as you can see from the table I am a big fan of concentrated portfolio as my investing philosophy has been influenced a great deal by Warren Buffet. Concentration makes a lot of sense to me – firstly since we are investing in only a few ideas, we really go deep into them and try to understand them better than anyone else. Of course, these have to be outstanding ideas as merely good ideas will not do. Being a concentrated investor means we say no a lot and invest only when all the stars line up. After we are convinced about the idea, we initiate a large position above a certain threshold. Because if you start with a small position, that just means you are not still convinced about the effectiveness of the idea. Of course, this is just the beginning of hopefully a long association and hence the work does not stop but merely starts from there. We revisit our thesis multiple times and keep learning more about the company and increasing the size of the position as our conviction in the idea increases.

I don’t understand the rationale for having a widely diversified portfolio, which to me just indicates a lack of conviction in your ideas. But I cannot say it as well as Warren Buffett – “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

Long term: I really like the following proverb – “People who are at the top of their game play by a different set of rules”. I think this applies to investing as well. And I believe that the most important competitive advantage (if you will) I have as an investor is my long term orientation. And when I say long term, I mean really long term. I have never sold any stock which I have purchased (except one where the investment thesis had changed) because I hate to sell.

Most stock market participants are focused on the short term and want to get rich quickly. No wonder that space is over-crowded and there is more competition in that space and hence it is difficult to win if you chose to play there. If we refuse to play that game, and instead chose to focus on the long, gradual, circuitous path to wealth creation; we are not competing with the majority. Instead we are playing in a space which is not at all crowded. Although the chances of winning are more in this space but that does not mean that it is easy. Because just buying and holding and not doing anything (sitting on your ass!!!) for extended periods of time is not at all exciting. It is in fact quite boring and hence does not appeal to a lot of people which is why the space has relatively less competition and increased chances of success.

Quality Management: The third tenet of my philosophy is the integrity of the management, which in my opinion follows quite logically from the first two. If we are running a concentrated portfolio where we want to buy for the really long term, the quality of the management becomes crucial. Because over long periods of time, there are always opportunities to cut corners or take short cuts which promote short term profits over long term sustainability of business. Investing with such companies can be profitable for the short term, but it is like playing with fire – sooner or later you will get hurt.

That is why I’m not too much concerned with short term performance focusing instead on long term sustainability. We want to invest in businesses being run by honest and hardworking people who have a track record in terms of integrity and fair treatment of all stakeholders including the shareholders. When we invest with such people, we can stop worrying about stuff like fraud, financial shenanigans, etc and instead focus on what is really important – which is the quality of business and its sustainability.

Business with moat: Which brings me to the final point. We look for businesses which possess a track record of good performance in terms of return on capital. If the company has a demonstrated good performance in terms of return on capital, that means that there is an evidence of presence of a moat. Our talk is to understand if there is indeed a moat which the business possesses and is that moat sustainable. The dream businesses have a moat which is not only sustainable but which becomes stronger with time.

Two investment above namely the Gold ETF and Balrampur Chini might be looking out of place and deserve an explanation. Without going into the details as that would require a separate post, let me try to give a brief on the reason for the same.

Balrampur Chini – sometimes I might make a bet on the cyclical stocks and this is one of them – a bet on the sugar cycle. I started acquiring this one when there was desperation all around and everyone thought that the bad times will never end for the sugar industry. Fortunately for me and to my delight, bad times have ended and sugar stocks have been in a secular rally. Although I’m still holding on because I think that this rally has sometime to go before it peaks.

Gold ETF – I think the next decade will belong to gold and I’m slowly building a large position there. Many value investors are averse to investing in gold because it does not have any future cash flows. But as Ray Dalio is fond of saying – “If you do not invest in gold, you understand neither economics nor history.” In normal times also Dalio insists on having a small part of the portfolio invested in gold. But currently the times are not normal. We are living in an age of loose monetary policy, a huge and unprecedented experiment called quantitative easing which shows no signs of ending anytime soon. Because the interest costs have been kept artificially low for so long in most developed parts of the world, it has resulted in misallocation of capital at a massive scale. The stress in the economies is slowly building up which gives rise to unintended consequences. Many of the investors I admire have been warning about the unintended consequences of the monetary policy for a long time including Prem Watsa, Seth Klarman, Howard Marks, Jeremy Grantham, Bill Gross etc. I happen to think as most of these investors do, that this loose monetary policy will end (whenever it does) in a disaster at some point. And gold I believe is a good insurance when the period of reckoning comes.


No expert here so please take my views with a pinch of salt.

You seem to have a pretty solid portfolio with mostly high quality managements and you’ve obviously reaped good rewards for the same - congrats :smiley:

Coming to the investment philosophy, obviously it is different for each person and I differ slightly on the concentration views you share and I believe it shows in your portfolio.

You are confident that major global financial market turmoil is not too far - but you (for that matter nobody) don’t know if and when it will be triggered. Hence, isn’t a >10% allocation to Gold ETF over 2013-15 an admission of not knowing the risks of global monetary policies and hence diversifying into a safe haven?

So you may not be widely diversified in your equity portfolio but at an overall portfolio level - you believe in diversifying/hedging your risks - otherwise with your stock picking ability - I’m sure you’d have 2-4x of your current gold allocation through the recent bull run.

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Thanks Gurjot. I’m obviously not saying here that diversification is nor required. I think diversification is important but sufficient amount of diversification can be obtained through careful selection of 5-8 positions. I’m against diversification as it is widely practiced by having a really large number of investments. If you have more than 20 investments, i think the chances are that the portfolio will track the market more or less. The chances of extraordinary returns goes down.

Coming to gold, I have built up a position very gradually through a SIP. Because I know that when the tide begins to turn i will not be able to initiate a large position. So instead, I have managed to build a large position very gradually over time. So far it has been a drag on the portfolio returns but my conviction remains strong. The time of gold might be already upon us with brexit acting as a catalyst.