Nice of you to have shared your portfolio and I am happy to note that you have had some moderate gains since December 2015. Nevertheless, there are few points which I would like to mention.
Firstly, you have to define your objective of investing. Are you expecting better than index returns by creating your portfolio?
Holding too many companies will not give you better returns. The reason being it would be hard to keep track of 26 companies for an individual.
Studies have shown that buying the best companies on the index, will not guarantee above average returns. The reason being these good companies will be over priced.
Transaction cost of active investing will be high for individual investors. More so, you will have to know when to rotate your stocks which is the hardest part even for professional fund managers let alone individual investors.
The key to successful investing is patience. One has to hold cash for a long period of time. Thoroughly investigate the company that you want to buy and when the valuations become compelling only then should you buy.
The easier and the most effective way of investing is by buying good mutual funds (growth option) via SIP’s. Buy stock only when you have deep insight about the company and a good understanding of balance sheet of the company.
hi Ravjan
Thank for your reply.
I agree with you to some extent.My aim of making portfolio is to create wealth for retirement and i also want beat index.
I agree 26 is big no and i will reduce it. Tell me some queries answers
Is divesified portfolio is okay or concentric.
If i have to curtail suppose 10 stocks from given list which shall be those
What is your view on if market is at peak i.e pe 24 and my portfolio has gievn 23% return then shall i sell all stock and sit on cash or shall i sell partly or shall i continue to this portfolio.
You have asked a very hard question. I don’t think anyone can answer your query other than you. Investing is not a short term plan. It is a life long process and it depends on each individual’s objectives, ability to spend time on research, financial planning etc. Going through your list, I am not in a position to construct a portfolio for you nor advice you as to which stocks will make money and which won’t. I wish I had a crystal ball to view the future.
However, there are few things in common that all great investors have done. I have listed them as a guideline.
Buy stocks only when you can value the business and understand it thoroughly.
Read Annual reports of the company spanning 5 - 7 years. Ensure you have read every item and particularly fine prints.
In case you do not understand balance sheet of the company, do not fret over it; give it a pass even if the company is good. The idea being; if you cannot understand the underlying business no point in investing.
Ensure, the business you buy has no debt or very less debt that can be easily serviced by the company.
Buy businesses that are less capital intensive and require less capital.
The most important rule is to remain on sidelines when others are buying aggressively. One should never get into the herd mentality.
Regarding market P/E of 24 all I can say is; for every Rs100 you invest, the company will take 24 years to return that Rs100 assuming it remains competitive for the next 24 years and all business conditions remain the same. Hence you can imagine the risk of high P/E. Though there are frequent talks in the media about India’s GDP growth, bull run … etc, it does not necessarily mean the stock market will do well. It is needless to say prices have run up due to media hype. To give you an example, Russian & Brazilian stock markets are this year’s best performers despite the economy not doing well in both countries. The markets of both these countries had fallen so low due to uncertainty. With such huge falls , all of a sudden valuations became so attractive that it started favouring investors for all investment risks.
One has to realise that money is not made when you sell a stock. In fact, it is made when you buy the stock. The price you buy is what differentiates the good and the mediocre investor. Experience tells us that stocks go up and down in unison. As a cardinal rule, astute investors buy only when valuations become very attractive. Till then it is better to patiently remain on the sidelines.
Dear Sir
Thanks once again and i got broad idea of your message. Going forward i have to take hard and calculative calls.
Till this time i have read well known books on stock market including warren buffet ,lynch Basant maheshwari and another 4~5 authors.i have got fair idea of financial statements and ratios.
Further can u suggest focused way of researching a company and managment and on portfolio management.
Firstly, I should congratulate you for getting into the stock market. To learn swimming, one has to get into the water and keep afloat. Similarly, to understand stock markets, one has to stake hard earned money and try to keep afloat before looking at returns.
I understand from your earlier statements that you have bought 26 stocks since 2015. This is too short a time to add so many stocks to a portfolio. I am not sure if you have done enough research on each of these stocks before adding them to your portfolio. Nevertheless, now that you have created a portfolio, I suggest not to add more or sell stocks in a hurry. Take your time to understand the business logic of each of these companies. This learning process will take you few years. During this period resist putting money into the market particularly when markets run up. Accumulate cash as much as you can and sit tight. When the exuberance and fizz of markets stop, it will be followed by rapid selling as everyone will try to encash their profits. This selling will continue till valuations become attractive. Only then deploy your cash. Patience is the key to good investing.
Word on portfolio management - There is a huge difference in the way mutual funds and astute investors manage their portfolios. Mutual funds by law are not allowed to hold huge cash and hence have no choice but to deploy it and at the same time they maintain enough reserves for redemptions. No doubt, mutual funds will be churning stocks. On the contrary, astute investors remain passive. They buy stocks only when they have a clear idea of the business and if it is available at the right price. These investors take around 2 - 3 years before they add a single stock to their portfolio.
Hope this explanation helps and all the very best with your investing.
This is about portfolio restructuring and i am in dilemma . i have got 35 stocks and i have divided it in two portfolios one is performing long term portfolio and second one is loss portfolio .
performing portfolio shows 53 % profit and average age of the portfolio is 1.5 years and that of loss portfolio stands at 10 % in loss and about one year of holding .
My holding will be for 10 years from now .
Now the question remain for me for both portfolios are as below.
Performing portfolio :
Since this is performing portfolio, shall i go on increasing this portfolio or shall i book the profit
Loss Portfolio
Since this is Loosing portfolio, shall i go on trimming these stock or wait for some time for performance.
if some one having such experience on restructuring portfolio he can help or suggest me how to handle this situation.
Nice of you to have shared your portfolio. Looks like you have made progress in your thought process when it comes to investing. However, there are few suggestions I would make.
Looking at your loss portfolio, I notice that you seem to buy stock when it is going down. Probably, you are trying to average down I am not sure. One thing you have to remember is, there can be no buyers without sellers. If someone is selling you have to fit into their shoe and analyse the reason as to why they are selling.
The better way to approach this is to follow principles of Karl Popper the mentor of George Soros. The principle being, if the market is in agreement with your analogy, prices automatically go up, and hence one has to take advantage and bet in that direction. Let’s say if the market is not in agreement with you, prices instantly go down and one has to cut losses and run. Price in an indicator of agreement and disagreement of your view.
One should average down only if the opportunity is net, net. That is if you see the company has more cash on books than the stock price. Or if you are confident of valuing a company and are sure it is net, net.
Do not invest in a stock if you do not understand the underlying business of the company. For that you will have to understand how to read company’s finanacial report and be able to co-relate between Income Statement, Cash flows and Balance Sheet. It is more of an art and needs lot of practice.
Have very few stocks in your portfolio and hedge your position when you buy. The simple way is, let’s say you have identified a potential stock after doing a thorough analysis and want to buy it. Then divide your investment into two parts and buy some mutual funds. That way you will make some money in Mutual funds just in case the stock you purchased loses because you missed something. If the stock keeps going up and you are constantly tracking and able to understand the business, you can redeem your fund holding after a year and invest in another potential stock or in the same stock. Same stock is better.
