My portfolio updates and investment journey

[satk333]

Thanks Jaiprakash for sharing your thoughts and its been extermely informative. I do have a question on the rationale behind bying PB Fintech. I was also very much interested in this stock for a time being, one because I used to buy policies from PB and also thought this would be the future. However two things have changed my perspective recently.

1. I was recently looking to get a insurance for my two wheeler and I stumbled on PhonePe comparison service just like PB and to my surprise, the rates were lower than PB. And similarly, when i was in the market for buying health insurance, again the previous policy was from PB, but the rates & features I got from Acko were far superier. So that made me think that PB model is doesnt have any MOAT as the same feature is available in Phonepe and other would do the same in near future…

2. There was an excellent interview podcast from Varun Dua of Acko, hosted by The Ken, as part of First Princples podcast series. In this Varun makes a clear point to say, why the current model of agent/PB type of model is not good for consumers and long term, all insurance companies will need to build their own repositeries of customers to offer better product/value.

So would be keen to hear your thoughts the above. Again, not being critical on PB, but just trying to clear my doubts on the business model and ablity to succed against future competition.

Thanks
Sathish

[karunbirsingh]

Excellent choice of stocks.
Rategain is also on my watchlist.
There is no other Indian company which offers similar services to Tourism industry.

Would you suggest a buy at these levels ?

[joinjp2003]

Satish thanks a lot for your comments. You raise excellent points. PB, PhonePe and Paytm Insurance are just brokers so I beleive there is some pricing gimmick. Either PhonePe is subsidizing it with low take rates or products offered are no-frills. The main strength of all these players is customer reach and conversion ability. As an investor we need to monitor and take the pain whenever necessary. We can take assumption and work with those. I have following back of envelope worst, base and optimistic scenario:

I assumed 15% insurance premium growth in all scenarios. In all scenarios in 6 to 8 years, return (CAGR) range is 4% to 28%. While on 2-3 years basis range is 7% to 28%. I played around with online penetration, take rates and lose in PB’s market share. All scenarios are on topline, while bottom-line growth might be higher than top-line owing operating leverage. Also note that PB has 5k crore cash, which can be used for buybacks in future.

In my assumptions Insurance online penetration best level is 7%, vs. 14% in United states and 6% in China.

Keep an eye, no investment is sure shot investment.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation

[joinjp2003]

Karun I can not comment on buying and selling. Its based on own conviction. Also valuations are personal to each one based on conviction levels. I have had many cases in the past where I acted on other’s conviction and I could not hold onto them as conviction was not mine.

My rationale on Permanent Magnets (PML) and Shivalik Bimetal (SBL) (allocation of 5% each, profit of ~300% on PML). I am not able to calculate my profit % on Shivalik as its giving cost price 0. However, my booked profit on Shivalik is 2x of my outstanding position.

Background: My first buying in both stocks was on same day in August 2021. PML entry was at ~360rs and SBL at 115 rs. However, PML I fully exited by February 2022 at 5 to 10% loss. Re-entered PML in August 2022 at ~ 350 rs. My average cost of PML is 390 rs. I am not able to get the average cost of SBL. My last transaction in PML and SBL was sell at ~1500 and ~700 rs respectively.

In 2020-2021, Indian government announced its intention to replace 25 crore conventional meters to smart meters. So I was looking to play this theme. I noted PML’s ~40% revenue was generated from electricity meter components and it supplied to top 3 global electric meter companies. In addition, PML supplied electrical components to ~50% of tier-1 auto companies globally. Its auto application products go into both EV and ICE vehicles. The huge surprise to me was that it was exporting to China as well (~13% of revenue). Any company which is supplying to China must be cost effective. PML used to report operating margin in single digits until 2018 and then suddenly margins jumped to 19-20% in 2019, most likely due to its foray into aerospace application components. Since then margins continued to improve.

I had exited the stock by February 2022 but after seeing their presentation of June 2022, I became interested again. The presentation mentioned that they shall move from components business to modules business which shall deliver 5-6x value. This sounded exciting to me and anyways company was exposed to high growth areas like EV and smart meters. Valuations were attractive below 20 PE.

Source: PML June 2022 presenation.

I did not have to work hard on SBL as it was well covered on valuepickr sine 2018. SBL makes shunts which goes into EVs, energy storage, IOT etc. Also it was available below 20PE.

I believe both PML and SBL’s revenue shall grow in 18-20% range. SBL has given guidance of 1600 crore revenues by 2030 which is 3.5x of current TTM revenues.

I would like to share my whatsapp snapshot in which I shared rationale with my friend on both SBL and PML. This snapshot expresses my enthusiasm during that time very well:

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

[Manan_Nandu]

Hello sir,
I saw your portfolio your and mine stocks are similar but i dont have enough capital so to go way forward with portfolio of such stocks with limited capital as i am a student. age of 20
AND i more thing about no of stocks you are having about 20 stocks in your portfolio whats your view on portfolio diversified or concentrated portfolio ?
Happy to seek your views

[Sumit_K]

Refer this link of value educator there are some anti thesis of PML ,I have PML 3% and thinking to switch to SBML due to current 27% crash due to promoter selling,what’s your view on it let me know https://youtu.be/8Ysox_r2QzU

[joinjp2003]

Hi Manan thanks for your comments and having the trust in me to answer a very important question.

Based on my personal experience when we are starting to build the portfolio then we should have 9 to 11 stocks. This is not about having diversified or concentrated portfolio but it is about being focused and building our own investment process. If we spray around 30-40 stocks then it is unlikely to assess ourselves and process well. If you feel confident by 3rd year then you can have a 12th person for your small R&D (less than 3% of portfolio). During this period refine the process, make necessary changes, see if you are able to evolve.

After 5-7 years based on your success. If you are successful then you can expand the stocks to 20-25 and shrink back based on market breadth anticipation/cycles. This is to allow yourself to increase your circle of competence and allow certain R&D (risk) in your portfolio. If you are not successful (i.e. returns are below markets/benchmarks) then invest in ETF/Index Funds or mutual funds. If you are investing in direct stocks just for money then the drive and ambitions will weaken at some point as money is not constant. I have gone through deep corrections (50%+ during COVID and 30%+ during NBFC/ILFS crisis). However, if you are here for learning every day and intellectual satisfaction then you will be driven and you might have unfathomable success.

The expansion of portfolio should be aligned with changes in market breadth levels and with certain threshold level of your portfolio. Just to elaborate this more with my own example, when I reached certain threshold of portfolio level (let’s say 50 Lakh or 1 Crore) with about 20% CAGR in 5-7 years then I thought of adding bit of risk and allowed myself a bit of R&D. You can call R&D “Samudra Manthan” where you shall get Amrit or Vish. Hold onto Amrit and get rid of Vish. You need to align your expansion of portfolio to market breadth level. Again, to my personal experience, I noted that in 2020 end mid and small cap was beaten up badly and there were chances they make a comeback. Generally broader markets exhibit 3 to 4 years cycle. So small-mid cap peaked earlier in 2018. So likelihood of they making a comeback in 2020-21 was high.

I started expanding my portfolio from 11-12 stocks in 2020 to 35+. Just to give examples - I nibbled at - Xelpmoc, Ugro, Apollo Finvest, Sasta Sundar, Carysil, Somany Home innovation (Hindware), Astec life, Avantel, Danlaw Tech, and few more. However, by early 2022 I again got my portfolio back to 20 stocks as market started narrowing. From this Samudra Manthan I got Hindware and Carysil as Amrit and made about 3-4x from these stocks. I sold them just couple of months back. However, I went wrong on selling Avantel and Danlaw as they went up 5-7x after I sold them at meagre profits of 20-30%. However, no regrets as this part and parcel of an investor’s life.

My recent expansion happened in May/June of 2023 with buying in PropEquity, Aurum Proptech, Markolines, Birla Precision, Emkay Taps, Salazer, Archean Chem etc. However, again I have rationalized my portfolio to 19 stocks as of today.

Please note that we need to continue to evolve with markets. We need to have freshness in our portfolio, also have anchors and a few times a tail to wag. Look at the trends and play the trends. In my portfolio, lead allocations have been different at different times partly also driven by their performance. So from 2013 to 2017, AB Nuvo, PVR, MCX, Yes Bank, Bajaj Finserv and Britannia were my major holdings. From 2017 to 2019 - Bajaj Finserv was lead with almost 20%+ average allocation along with Hindustan Foods. Then in 2020 and 2021, Tips and Saregama, Affle, Indiamart, Dixon, Lombard, Hindustan Foods etc. From 2022 to 2023, new age businesses like Rategain and Mapmyindia.

You would think I had such a wonderful run but this is only in hindsight but when we are going through them we are nervous, we make lots of mistakes. However, still hindsight looks so good . Please note that from an almost 100% equity allocation until mid-2022 I have moved to 47% cash and bonds in 2023.

Play the trends, preferably with second and third order thinking and rarely direct or first level. Keep evolving keep learning. Keep reading. You will become better every year. We shall make mistakes and hope those also become part of our learning.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example and learning purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

[Manan_Nandu]

Thank you jp sir for explaining in such detail and i will definitely and surely learn and grow day by day.
I had i doubt regarding churning or holding for long term as you explained you had kept changing your stocks due to trends. It is advisable to churn our portfolio on regular basis as the trends keeps changing or buy right and sit tight and go long with such stocks because i do want to keep businesses to compound my wealth year after year but with such sudden drawdown changes my thesis for holding good businesses as i am unable to hold them.
i would like your opinion.

[Mudit.Kushalvardhan]

You keep on doing samudra manthan. Recently read Pulak Prasad book, where he is talking about becoming permanent owners of the company , never selling, unless business deteriorates. Pls share your views on this.

[joinjp2003]

Thanks a lot Mudit and Manan for your comments. I can’t tell you how much I try to understand myself before responding to you and to this forum. I went back to most of my sell decisions.

Reasons for churn:

1. At the heart of it, the two main ingredients in my “buy” decisions are growth expectations and valuations. Simply put amalgamation of growth and valuations result in my buy and sell decision. So, first reason for churn is easy to say that growth lagged my expectations vis a vis valuations or valuations overshot vis-à-vis growth.

2. Screening avenues and tracking: Why should I just trust myself only or limit it to myself? I have my own limitations, so I piggy back, leverage, tail, and copy other skilled investors. I get my ideas from Ishmohit (Sandhar Tech), Sahil Sharma (XPRO), Amit Jeswani (PB Fintech, Paytm), Dr. Prashant (Pitti), Forum Valuepickr (Shivalik Bimetal) to give few examples. I study those ideas and try to make them mine as much as possible. Its like screener giving you ideas and then you do your own work. How do I make them mine? Read annual reports, investor presentation, conference calls and industry research. Sameer Arora says even if we take one idea from each of the concentrated investor/fund manager then we still might end up with 30-40 ideas. However, the key is to make these ideas our own. Sometimes to make these ideas our own they need our attention, one of the way to give them attention is by taking a tracking position (1% or less). If we are not able to make them our own then invariably we shall end-up exiting them, sometimes even after scaling up the position. So churn is the result. New will look always attractive because its new to you, discovery bias.

A side note here: you don’t have to look for ideas always. You might wait for inflection periods or period of pain. So, in my case I look for ideas when my portfolio or market is down 20-30% or market has consolidated for 12-18 months.

3. A quote from economist John Maynard Keynes - When facts change, I change my mind what do you do sir? I sold PVR as I thought Netflix will kill it. I sold Yes Bank as I could not understand the reason they pull back QIP in 2016 (How Yes Bank’s billion-dollar QIP ended in failure - The Economic Times). I sold Dixon after solid downgrade of guidance. Affle started giving flat earnings and has remained flat for last 5 quarters. Indiamart reached PE of 80+ and growth also tapered down.

4. Emotions and rash decisions : this one is the one I need to avoid. Example of my emotional/rash decision: When I entered insurance businesses like HDFC Life in 2018-2019 I could visualize 15% cagr for next 10-15 years. However, one budgetary announcement of removing insurance premium deduction/simplification of tax led me to take rash decision of selling it 6 months back. I am wrong because I never included tax benefits as reason for HDFC Life’s growth. My reasons to buy HDFC Life was under-penetration, increasing awareness and increasing income levels.

5. Cash build up for personal reasons: In the last year I sold many businesses to beef-up cash levels to deploy them in fixed income securities.

Bottom-line is, I find reasons to buy or sell. I make errors and I try to rationalize my decision. Someone correctly said we are not rational but rationalizing animals. Having said that I have also following points:

Long-term bucket - For a company to be in my long-term bucket in addition to growth and valuations, I need pristinity of the cash flows. So how do I define pristinity of cash flows – granularity, predictability (stability), and in B2B businesses strong counterparties. Bajaj FinServ and ICICI Lombard have kind of businesses that have granularity as cash flows coming from millions of customers and are in mostly collected in advance. Hindustan Foods and Saregama are B2B business but have strong counterparties like HUL, Reckitt (Dettol), Bata, Tata Consumer, YouTube, Spotify etc. I have been invested in Bajaj Finserv for now over a decade, while in Hindustan Foods over 5 years now and ICICI Lombard/Saregama/Tips its been ~3 years. These businesses accounted for combined 40-50% average allocation in the last 5-7 years. So I have not done bad on long-term side. Its worth noting that despite Saregama consolidating for over a year I have not sold it (but trimmed ).

New businesses – I have invested in new businesses like Affle (exited), IndiaMart (exited), Nykaa (exited) I entered them at 25-30 PE but they started trading at 75 to 100 PE while in Nyakaa I had to bear 30-40% loss. I am always bit nervous on tech businesses (partly owing to limited understanding) and when they hit such high valuations, I cannot hold my conviction. For me to pay 70+ PE, I need to have very good understanding of the business and visibility. These businesses got listed 2-3 years back only so I could not have long-term time to show on these. Currently these businesses account for ~30% of my portfolio.

Having said that I might go feeble on new businesses as they can be disrupted as well as my ability to understand them fully is limited. However, I don’t know when they will be disrupted so I need to be very balanced on my views here given growth momentum.

R&D stocks: Now if you see my two above buckets those account for ~80% of portfolio. Remaining bucket is 20%, which I use for R&D and to play trends (EMS – Syrma, Permanent Magnets, Shivalik), .

I have tried my best to explain however as investing is personal, apologies if I was not able to do justice to your questions.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example and learning purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

[Shakti_Srivastava]

great insights jaiprakash ji…

any reasons for not having allocation in capital goods, infra and SBFCs… with the likes of Apar Industries, Action Construction, Equitas, Ujjivan Small finance bank…

[sandeepnikita]

I am very new to equity investing world. I have question whether each equity allocation as a %age of portfolio should be based on ones average buying price or current market price. If possible please provide rationale as well.

Thanks in advance

[joinjp2003]

Thanks Shakti and Sandeep for your responses. Thanks to all who keep liking my posts.

@Shakti_Srivastava construction and capital goods is the area where I have not built my competence. However, I will keep my eyes and ear open for any future opportunities.

Sandeep, I do not look at the cost when looking at % allocation, I look at them from current market value levels only. Warren Buffet also answered this recently Warren Buffett: Ignore Original Costs When Reviewing Your Portfolio | The Acquirer's Multiple® . However, people who just spray and pray (like having 100s of stocks) they should look at cost allocation only.

My rationale on XPRO India (3% allocation, 67% profit): First time I bought XPRO in February 2023 at 550 rs. My average cost is 560 rs. My last transaction (buy) was in March 2023.

First time I came across XPRO was when I was screening for Malabar Fund’s investments may be in February 2022 or March 2022 that time its price was ~1000 rs. The price had shot up some 40-50x in one year. So I did not muster the courage to buy it. I kept reading about the company. Valupickr (Xpro India - getting bigger? - #5 by sahil_vi) and Sahil Sharma on Twitter (https://twitter.com/sahil_vi/status/1614152532946821123) has good content on analysis.

XPRO historically been in commoditized Coex plastic films which accounted for over 70% of the revenues (I think single digit EBITDA margins). However, revenue mix is changing towards biaxial dielectric films which are used in capacitors. EBITDA margins of dielectric films is 25%+. Capacitors growth is going to be exponential given so much of electrification and increase of electronic items. Further, this product is straight away import substitution as everything else which XPRO does not manufacture is getting imported.

The business seems to have great moat as to expand one line business it takes about 3 to 4 years. Many customizations to SMT lines are required for production. Additional comfort was that it is from Birla group.

I kept eyes on stock and was able to buy it at ~550 rs. Lucky to get that price.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example and learning purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

[karunbirsingh]

I was also holding ICICI Lombard for quite some time. I also considered similar points however as on date there is so much competition in GI SPACE (more than 20 players).

Moreover as GI in usually for shorter duration people are not very Brand c conscious/ loyal. Eg Motor insurance is for 1 year and People tend to buy one with lowest premium.

[sandeepnikita]

Thanks JP Sir for answering the portfolio allocation query. You have mentioned that good AA rated bonds are available at 10%+ yield. Can u name it and which is the good platform to purchase the same.

[Bunty]

@joinjp2003 It has been an enriching experience going through your posts. I could see that you have moved from 100% equity to large portion to bonds. Is it due to attained goal of capital appreciation and now targeting the goal of protection of capital?

[joinjp2003]

Hi Sandeep and Bunty, thanks for your responses.

@sandeepnikita I have shared below snapshot of some AA rated bonds with 10% yield. I buy these bonds on ICICI direct website and Paytm Money app:

ICICI direct, I have filtered on 10% + yield:

Paytm Money:
Below is screenshot where you can filter bonds as per liking (rating, yield, tenure etc.)

Below are some 10% yielding AA rated bonds:

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example and learning purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

[joinjp2003]

@Bunty you are right I am looking for capital protection as well as regular income. I left my job a month back so regular income is also a requirement. Once, I get a job then I might go back for very high allocation to equity.

[joinjp2003]

@Sumit_K I forgot to respond to you, apologies for that.

I dont have a strong view that PML has weaker competence or strong. I will let my ignorance allow to hold both the stocks.

Just couple of things to counter what is given in Video - 1. Shunt accounts for ~30% of PML’s revenue. It means PML is currently substantial (~10%) revenue contirbutor to SBL. So I doubt that SBL will let such customer go by supplying to others.

2. PML has broadly similar margins even after allowing for SBL’s similar margins on Shunts. This means either PML is able to charge its customers well due to its relationship with tier 1 suppliers or its other products are too good which have high margins.

We shall keep any eye if there is any weakness on PML.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example and learning purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.

[Sumit_K]

Thanks for your reply, appreciate ur efforts to answer