My richdreamz portfolio - visit my portfolio to learn together!

[SlownSteady]

The wait for value investors have been a long and daunting one in India. Growth and momentum has been ruling the roost for a long time with GMM Pfaulder and Dixon being the most recent cases. People have been flocking to the temple of quality defying all logics and at any cost. The likes of HUL, Nestle, Dmart and pretty much all multinationals are quoting at more than ten times valuations where a value investor using DCF would arrive at. So it ends up being double hard for a value investor where some stocks that falls within the value ends up being value traps that the investor is unaware of (which happens to even great investors). So being patient and contrarian has become a must have quality for being a value investor in India.

I have deliberated multiple times to change my investment style in the recent past. But many great investors have said that one has to stick to the style they believe in. So being a value investor, I have decided, I will wait for the stocks to fall to the value I am comfortable with even if it means holding on to cash for long periods.

@richdreamz you can hold on to your ideas and make hay while the sun shines. But do not write off value investors fully yet as their time might be around the corner.

[tommy123]

@richdreamz - thanks for the wonderful writeup. Always a delight to read. As you pointed out there are zillion ways to make money in the market. All it requires is to be flexible whenever the market presents new opportunities/red flags and also have the acumen to seperate the wheat from the chaff and stick to basics/own conviction based on the groundwork one has done.

[richdreamz]

Thanks Tommy for taking my post in the right spirit and not misunderstanding my intention. My writing may be straight forward and blunt and I understand I may not please everyone. The point here must be to get the gist of the post and if not useful, move on.

I have been there and lost lot of money when a similar circumstance presented me in 2008. A similar opportunity is now available for investors, especially for those starting now. So my intention to to write my experience so newbies won’t make same mistake in the name of value investing.

Example, I bought IVRCL stock thinking it’s value investing. This stock is junk. It is still down a lot from 2008 levels while lot of stocks went up multiple times from 2008. Even large cap stocks became mega large caps.

Value investing:

One should have a coherent reason behind a value stock as to WHY a stock will be re-rated from 5 PE to 50 PE. We must keep track of the story as it unfolds and must ride the PE re-rating story.

Some attributes that help re rate a stock from 5 PE to 50 PE could be 1) working capital improvement 2) Debt reduction 3) Improving cash flows 4) Building various revenue streams 5) Improving RoE 6) minority shareholder friendly. So investing in such companies companies at 5 PE before institutional investors find it and re-rate it is value investing. There are innumerable examples in this forum of members having done so. Excellent members. Hats off to them.

Post this re rating some become secular compounders while some fall wayside. For example, riding a stock like Avanti Feed (I never owned) from the time it was value by identifying the attributes of why it should re-rate - exactly how valuepickr forum members did it is value investing. Buying a junk stock at 2 PE is NOT value investing.

I’m trying to explain people the difference between a real value investing (like a stock Avanti Feeds, which I’m not sure if it still is as was in 2010) and Junk investing thinking of it as Value investing (like a IVRCL India stock).

Generally speaking,

1. A growth investor compounds money over a long period of time.

2. A value investor multiplies money.

3. A junk investor loses money while all the while thinking he is a value investor (I once was).

Thanks!

[alexander]

@richdreamz Past is no guarantee of the future. It is true that quality franchises have done extremely well in the last 10 years. Buying Asian Paints or Avenue Super Mart at 100 PE comes with its own risks imo. I think many investors are just getting detached from fundamentals due to their past experience with Quality biasing them. Knowing how the world will be > 20 years from now is very difficult and risky in itself. Just compare life in 90s to what it is today. How much has the Sensex composition changed… For a 100 PE stock, the valuation has already baked in lots of future positives for a long time.

Discl: I am more of a cheap buy kind of person (the investing method you dismiss). I buy quality stocks if they fall in my valuation range but I don’t discount for 5-10 years future growth today and buy …Eg: Currently buying HDFC, ITC, Zee and Bajaj Holdings as I am comfortable with these valuations

[alexander]

Sharing this link on future of brands - https://intrinsicinvesting.com/2017/08/30/death-many-brands/

It’s an interesting perspective which if it plays out will be detrimental to a lot of “quality” branded stocks

In my mind, value investing is just buying anything for less than the present value of their future cashflows with a decent margin of safety. (Including bad businesses here. Eg: See recently jitenp pointed out how MOIL gave 50% return in no time as its mCap had gone below cash)

[dineshssairam]

@richdreamz

1. Performance over 1-2 years is not indicative of anything. My IRR for 2019 is +21% and for 2020, it has largely matched NIFTY Midcap and NIFTY Smallcap performance, only trailing NIFTY 50 itself by a little. What did I “learn” from this? Nothing, because there is nothing to learn over 1-2 years of performance. By the way, my IRR in 2017 was +333% (Yes). I could write 5 paragraphs about what this taught me, but in reality there is nothing to learn with 1, 2 or even 5 years of performance. I would judge myself as an investor only after 7 or 10 years.

2. Volatility is NOT Risk, at least in my book. A stock I own could drop 40-50%, but as long as the underlying business itself is good, I am a happy man because I could purchase more ownership in the business.

3. I have not taken any offense with your post. But I did flag it, because it is against the Community Guidelines (Be Agreeable, Even When You Disagree). Next time, please tag me when you need to ask me something. We are civilized men, after all.

[gurjota]

Thanks a lot @richdreamz for the candid portfolio update and sharing your journey and investment philosophy which I resonate with a lot as well since all these companies (Asian Paints, Nestle, HDFC Bank, Kotak, Page, etc.) typically fall into the coffee can style of investing philosophy as well. And I own most of them in my portfolio as well.

If I may indulge in the Value vs Growth investing debate - I don’t know how many consider Mohnish Pabrai to be a good/greatinvestor. However, if you do - please do watch his interview with Ramesh Damani especially from 5:15 onwards for the next minute or so.

Share Market Investment Tips by Mohnish Pabrai | Wizards of Dalal Street

Mohnish Pabrai, a self professed Value Investor talks about his investing career of 26 years and pretty much 25 of those years he’s made a mistake of looking at businesses from a value investing perspective where as the real big money lies in growth businesses. And he says he’s been looking to buy businesses which are worth $1 but trading at .40 or .50 cents but the real money is in finding such businesses which will be much more than $1 in the future.

To hear such a well renowned and experienced investor admit this is no small feat! However, this also doesn’t mean that businesses should be bought at any valuations (100-150 P/Es) - as he says the key is to try to find heavily discounted businesses which will grow much larger than their current market cap.

Now that is obviously not going to be so easy in this day and age. So then which should 1 prefer if we have these 2 choices:
a) Growth business - worth $1 today will grow to $2 in 3 years and trading at 80 cents
b) Value business - worth $1 today will grow to $1.1 in 3 years and trading at 40 cents

And in my view, anyday, any week we should pick no. 1 option! Growth is better than value.

[dineshssairam]

@gurjota

Now that is obviously not going to be so easy in this day and age. So then which should 1 prefer if we have these 2 choices:
a) Growth business - worth $1 today will grow to $2 in 3 years and trading at 80 cents
b) Value business - worth $1 today will grow to $1.1 in 3 years and trading at 40 cents

And in my view, anyday, any week we should pick no. 1 option! Growth is better than value.

I think you played yourself. The “Growth business” would have done a 2.5x (2/0.8), whereas the “Value business” would have done a 2.75x (1.1/0.4) over the same period. But we can modify these numbers any way we want to fit our narrative. After all, torture data long enough and it will sing.

Back to Value Vs Growth, here’s what Warren Buffett said on the subject:

But how, you will ask, does one decide what’s “attractive?” In answering this question, most analysts feel they must choose between two approaches customarily thought to be in opposition: “value” and “growth.” Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. In addition, we think the very term “value investing” is redundant. What is “investing” if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value – in the hope that it can soon be sold for a still-higher price – should be labeled speculation (which is neither illegal, immoral nor – in our view – financially fattening).

(Source: https://www.berkshirehathaway.com/letters/1992.html)

In short, there’s no such thing as Growth Vs Value. Growth is a PART of Value. In fact, everything you can ever think about in relation to a company or business ultimately ends up in Value. So all investing is in fact Value Investing. Everything else is just a convoluted variable of the same.

[hitesh2710]

Guys we need to take a chill pill and stop accusations and stay true to the purpose of the thread.

Lets not make this an ego issue and disrupt the thread.

The debate of growth vs value continues to rage on and there is no conclusive proof on either side regarding its superiority.

Everyone needs to follow a style that suits their own temperament and comfort levels. As said in the post by @richdreamz, there are no sacrosanct holy grails in investing. Different ways to skin a cat.

We should agree to disagree and move on.

[Aravind]

I think people do understand there are many different styles of investing but there are certain assertions made in @richdreamz post which had elements of passive aggression. None called IVRCL as a value pick. And picking and choosing data points selectively to make broad statements on how one style is better is done by most but this calling of others’ style as junk and what not is not civil. One can be frank and blunt while being civil too.

“Everyone needs to follow a style that suits their own temperament and comfort levels.” - Bang on head. Some are into growth, some into value, some into momentum, some into blended. Instead of making civil arguments on how one style suited one’s temperament it became a veiled attack on others. And that descended into muck, nonstop flagging. After all, one drop of poison is all needed to undo an entire bowl of milk of @richdreamz post. Instead a simple “I’m comfortable with my style, helps me sleep well” from @richdreamz would’ve done the trick.

And as I said in Bajaj Finance thread, flagging threshold may need to be revised. You guys might have a lot of work in the coming days .

[richdreamz]

Since my last post, the financials and autos have run up quite a lot with some of my positions like Eicher and HDFC bank ran almost 45% and 35% respectively from my entry price.

My thinking:
So, given the sharp run ups and the uncertainty on demand resumption and NPA status being still unclear for me personally, the valuation comfort that I had at those prices is not there because of earning growth uncertainty. Once the earnings visibility is there, I may consider buying them back. So, I wanted to be opportunistic and converted majority of these positions into Pharma.

Core long term positions remain as is:
While my long term positions in companies like Page, Dmart, Kotak bank etc. remain untouched.

Recent entries:
Dr. Reddy’s Labs (3865) , Divis Labs (2150), Abbott India (15650), Nestle (16600) - converted from HUL, Indiamart (2100) - converted from Asian Paints.

I’m expecting some of the very high PE companies like HUL, Asian Paints may report subdued organic growth for sometime so the price may not appreciate until the earnings catch up. So, the earnings growth vs valuations mismatch exist. The correction in these companies typically won’t be high as there are large free cash flows, very high RoEs and dividends.

How ever, at the same time,

1. The earnings growth for Pharma is looking up and the valuations have scope for upside. The initial re-rating has already happened. The next re-rating could happen based on this quarter results. However, as long as the RoEs do not cross 30% and they can sustainably give 30-40% of earnings as dividends, throw free cash and be capex light, most pharma companies may not fetch FMCG valuations but can come close. The few which do so already are near FMCG valuations (like Abbott India).

2. As I have indicated earlier, I depend on technical analysis as well. The current technicals of these pharma companies suggest consolidation after a steep rise. Most of them finding support at 50 EMA which is what generally the stocks do once they change trend i.e., (upswing and test 50 EMA, repeat).

One should be ready for further consolidation or 8-10% correction in Pharma before market recognises that change in earnings trajectory is sustainable.

3. Indiamart: While this is no SHOPIFY or a Alibaba yet, Indiamart is the only B2B e-commerce company that has made its mark sustainably. If the company can remain innovative and swift, I see this company with large potential. This company however needs some close monitoring. The near term looks hazy due to cashflow problems with its main customers (SMEs).

Edit 1:

After considerable thought and research (annual reports, brokerage reports, concall transcripts and of course this forum) and technical analysis, I have exited my financials holdings through this week and moved to Pharma. I personally think there is considerable room for portfolio alpha in this switch. At some opportune time, I will revert some of the changes, let the time decide that.

Since this switch entailed major PF juggle and my limited knowledge in Pharma domain the holdings are a bit diversified than I like it to be.

The technical picture is too good to ignore the long term change in Pharma trend. So, this may last for 2-3 years is my hunch. Fundamentals too are aligned and so I believed in larger allocation.

So, the new entrants are:

1. Ajanta Pharma (1405):
2. Sun Pharma (505):
3. Suven Pharma (565):

With this I have 6 pharma companies covering the below themes (of course cross themes exist like Sun Pharma where It comes in both domestic and international:

a. Domestic: Abbott India, Ajanta, Sun.

b. International: Sun, Dr. Reddy.

c. API, CDMO: Divis Labs, Suven.

The PF is heavily tilted towards Consumers (Staple, Retail, Discretionary) & Pharma and a little Financials & Telecom.

Disclosure: I may change my stance as the situation unfolds or even if technicals change and may not update in this forum immediately. I have bought or sold all the positions mentioned in this post in the past 30 days and may do so in the next 30 days. I’m not a SEBI registered analyst.

[richdreamz]

The objective of the post is to explain how technical analysis - if mastered and executed properly with proper emotional and psychological balance - can play a very important role in improving the long term returns of a fundamental investor. I will outline the very very basics and some soft aspects I have learned in my journey. I’m not an authority in the field of technical analysis but an intermediate.

This is not a debate on “for vs. against” technical analysis. So, let’s not get into that debate, please.

I have started showing interest in technical analysis about 5 years back and since then I have been learning constantly through failures. In fact, learning this skill can be a life saver and can be an independent livelihood but it takes lots of patience, thousands of chart readings and what not. You cannot quit job and become a trader overnight based on success of few trades. The success rate in this field of pure technical analysis is minuscule!

I observed that experts like @hitesh2710 are using technical analysis beautifully and I intend to aspire to that stage by learning, trial and error.

There are umpteen number of ways to profitability in technical analysis, few of them being listed below: (Some of them are a subset of the other.)

1. Visual patterns: Ascending or descending triangles, Head and Shoulders, Cup and Handle, Double or triple bottom, Rectangles, Wedges, Flag and Pole etc. Some are continuation patterns, some are reversal.

2. Candle sticks: Doji, Bullish or bearing engulfing, Hammer, Harami, Evening or morning star etc. Each signify either reversal, continuation or indecision. Candle stick patterns must be confirmed by the consequent candle formation for better trades.

3. Types of chart readings: Elliott wave theory**, **Point and Figure charts etc.

4. Moving averages: Some traders have a trade set up based entirely on moving average cross overs.

5. Indicators: For any technical analysis, the only leading indicators are Price, Volume and Time. All other are derived indicators or lagging indicators.

6. Break out trades: Break outs are the best trades that provide excellent returns on a very short period of time. Volume are very important to assess a break out of price from a particular pattern. The trade set up can be an entry soon after a break out or an entry after break out and a re-test. Again, each trader needs to have his/her own process and stick to it.

7. Trending or non trending markets: Trend is your friend, as someone said and I could not agree more. There is a fundamental reason why a stock is in uptrend or downtrend. Technical charts are nothing but a depiction of what fundamentals of a stock are indicating. An up trending stock could be the one where the earnings are on an uptrend or re-rating is going on or both. A down trending stock is the opposite. More often than not the market gets it right!
   No point arguing against the trend or price action because the chart patterns are formed NOT by the opinions of people BUT by the people who are actually putting money on the line! It is very important to realise this.

The larger the time frame, the lower the noise and whip saws and false breakouts, bear or bull traps. For a positional trader, a weekly chart is more important. It is best if you first start with larger time frame chart and drill down to shorter time frames.

A stock in an uptrend on a longer time frame (say, a monthly) could be in a downtrend in a daily chart while in an up trend in an intraday chart. So, you first need to be clear on what kind of trade you are getting in and place the STOP LOSS accordingly. A stop loss is the single most important price that will either make or break your trade. Not sticking to your stop loss is the biggest mistake of a newbie trader. Once the stop loss is sustainably broken, you should not wait for your price based on hope but do what your process before you entered into trade suggested you do.

8. Mind: Emotions, Patience and psychology are the best friends in your journey. None of the above works without having your emotions in check.
   How you behave when a trade goes against you will define your chances of success. As per my observation, your chances of success are higher if your trading process aligns with your OWN personal behaviour.

So, before you become a full time trader and are serious to make it a full time career, if will help if you first find peace through meditation etc. If you are person in hurry and react to losing money badly, the chances of success may be low. Markets are there forever and opportunities are aplenty. You need to only trade when your refined process tells you to do so.

Most often, for newbies, it is best NOT to anticipate a pattern and place trade before itself. A break out is NOT a breakout until the price stays above or below with volumes and for sufficient time (depending on your time frame).

9. Practice vs. Theory: All the theory you learnt goes for a toss once your own money is on the line! All the patterns etc.may go for a toss and you may freeze once you see red on the screen! So, it is very important to assess your own behaviour over a period of time and improve continuously.

10. Risk management, Process, Stop Loss: Before you enter your trade, you need to have the entry price, stop loss, exit strategy, risk management (how much to lose) etc firmly in place. Sometimes following these principles strictly may backfire, BUT if your own process is followed religiously, then in the long term your chances of success are higher. How much to bet on a single trade is a very important aspects of your risk management. Some place 1% of their entire capital, some 5%. But it should never be so high that one wrong trade will wipe you out of the game and sometimes forever, particularly, if your trades are leveraged (f&o). You must be long enough in the market to make money. So survival strategies are very very important.

11. Pattern identification: With experience, you will be able to identify patterns where none exists in the eyes of a newbie! In fact, looking at the same chart you can realy see many patterns. While a newbie sees none, an amateur may see 1 pattern but a professional can see multiple patterns (a descending triangle in shorter time frame and a rectangle consolidation in a slightly larger time frame). Both may play out according to the timeframes but your experience will decide which ones to play and which ones to not and where to place stop loss etc.

12. Greed and Fear, EGO: No matter how cliche these two may sound, how you react to these two emotions define your probability of success. When money is on the line, your emotions get whacked out. Your experience, risk management will help you to keep them in check. There is no short cut, you need to experience them to overcome. Don’t be on a mission to prove market wrong. Majority of the times, market is right in the timeframes you are looking the data at.

Any analysis which takes into account the Price, Volume, Time into account have a better chance of success. In fact, these 3 along with patterns alone are enough to make a consistent strategy.

The example of a trade set up in 2017 which proved to be a turning point personally and put me on the learning journey:

LUPIN:

I have entered Lupin around 1400 in April, 2017 post or around the break down of 1400 despite clearly seeing a descending triangle pattern thinking my fundamental analysis is supreme. To my astonishment, the pattern played out beautifully. I even averaged down post the break down around 1350 but finally exited around 1240 and this set me on this path of introspection and to respect the charts and what other people think and vote with their money.

Clearly, over 1 year from March 2016 till April 2017, people were selling lower and lower than 1900 anticipating the earnings fall. Clearly, so many people over a 1 year period cannot go wrong and the anticipated event could have happened around April 2017 (whatever be the event!). The pattern targets etc come when you learn about patterns.

So, I realised that patterns are formed by smart people (industry experts, company followers for years, insiders, MFs, FIIs etc) voting with money anticipating the change in fundamentals. Interestingly, my observation is that if all this selling turned out to be false, then the price very quickly turns towards the opposite direction. In this example, if the anticipated event did not turn out then Lupin could have turned around and have gone back to 1900 in no time. I believe the turning point in this case was, confirmation of pricing pressure by Lupin management and bad results.

[gautham1]

Lupin ( and many pharma companies) is a great example. At that point in time, most of the investors focused on the current sales/eps growth, PE,ROE etc which was very good. But they didn’t see the pricing erosion coming. As you explained, stock price damage already happened well before it showed up in the P&L. But in my opinion, only fundamental ( By that I dont mean just the fundamental related numbers but some homework on earnings visibility) would have helped here. Could you tell how technicals would have helped here?. For ex, in the above chart, at about 1700 or so, it looked very strong. Well above 2 moving avgs, higher highs. (It has also fallen from 2200 or so. So one could have assumed the so called healthy correction was over). Wasnt it a buy at those levels?. Not questioning, but trying to understand. ( Sorry if its a silly question. Dont know much about technicals)

[richdreamz]

Even with the hindsight benefit, a technical expert then would have clearly identified a double top pattern formed by lupin in 2015 the confirmation of which was done in mid march 2016. Then the stock pulled back to retest the break down level post which the down trend resumed in the form of descending triangle pattern.

From a technical analysis point of view,

1. Post the break down of double top and retest of 1700, a short can be initiated with a stop loss of retest area and carry the shorts as per your risk management.

2. After this, it took 1 year for lupin to form a descending triangle and the break down and a minor rest of 1400 is another point where short can be initiated.

3. As we speak I see a nice bottoming pattern and a long can be initiated on a weekly close above 1000. For conservative traders, a monthly close above 1000 or a 2 consecutive weekly closes above 1000 could be a signal to initiate long for targets of 1400 in medium term.

Disc: Only academic discussion. I don’t have any positions currently.

[richdreamz]

In continuation of my July 9th, 2020 update, I would like to share my experiences of last 3 months -

1. General Market conditions have been good and therefore my portfolio too has returned handsome gains not only from lows but from YTD perspective as well. My 7 year CAGR is very good at this point.

2. Changes done are as below (all indicated when they were done in above posts of mine):

a. The purchase of Auto and Banks around march lows has turned out well. I’m skeptical of both these sectors but market thinks otherwise. I’m also aware that Market always gets it right in the long term.

b. The switch from above a. to Pharma too turned out well with Divis, Suven, Dr. Reddy’s, Ajanta providing that quick upto ~ 30% returns in a short time. Sun Pharma, Abbott have remained laggards. I have exited all Pharma positions except for Suven Pharma and Ajanta Pharma where I believe market is yet to fully appreciate the companies.

c. Indiamart has turned out exceedingly well and I’m holding to my full allocation (~ It returned 2.5X in 3 months) despite this becoming a dominant position in my portfolio. Valuations is an art!

d. The pharma positions have been deployed in MCX (1500), IEX (190), Johnson Controls (2150), Infoedge (3200 - re-entry), Happiest Minds (345), Honeywell Automation (30400).

e. I have fully exited Kotak Bank (at 1410) and Dmart (at 2150) while Page stays as-is. They are invested in stocks mentioned in d. I will re-enter based on earnings recovery.

3. My position in Bharti Airtel has backfired me badly. I should have kept a strict stop loss of 500. However, I will hold this position for now.

4. I understand that I have frequently changed my positions as I believe the current volatility called for such moves. I however was always in stocks which are fundamentally very strong, the ones I could “value” and technically showing proper patterns . During past corrections, I was like a deer caught in headlights on a highway during night! An investor must always keep an open mind and behave according to the earnings trajectory of the companies one is invested in. It makes sense to take advantage of extreme mis-pricing that market provides from time to time. Those momentum or positional trading profits can be ploughed into long term holdings and then stay stable without activity until action is again called for. A bit of past cycle experiences help, for sure. Simply holding and not monitoring is uncalled for particularly when business conditions are as adverse as this.

5. Mis-pricing of equities happens from time to time but to such an extreme extent of March 2020 happens once in a decade and having seen past few cycles, I was able to take advantage to the extent I could or my experience could have allowed me. A mix of proper fundamental valuation analysis and technical prowess is mandatory to benefit from momentum trades. There is a rhythm to these trades and not simply trading in and out based on news. Otherwise, it’s better to stay out making such switches as they may backfire badly.

6. I fully understand that there comes a time to sit back and let the stocks run their course rather than keep jumping in and out for the fun of it. It is difficult to reign in the urge to trade but I’m keeping my temperament stable now so as not to ruin the gains made. My current holdings could allow me that sit back phase as I believe broader markets could outperform INDEX from this time. Some stocks in index are ridiculously priced for the growth and return ratios they provide.

7. I fully realise that I immensely benefited from the adverse market conditions and luck has played its part and my endeavour now is to preserve them and move up from here with of course intermittent corrections. Time will tell!

8. “How I made $2000000 in the Stock Market by Nicolas Darvas” is a short and very useful book in understanding market dynamics and other behavioural aspects necessary in markets. I personally was able to identify myself in most of the bloopers made by Darvas. “How to trade in stocks” by Jesse Livermore is one more such outstanding book. “One Up On Wall Street” by Peter Lynch and “The five rules for successful stock investing” by Pat Dorsey must also figure in any beginner’s learning phase.

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EDIT (23 Oct 2020):

1. Exited Johnson Controls at 2300 and Page too at 20600 and from these proceedings bought Persistent Systems (at ~ 1165) full allocation and distributed rest across to fill portfolio allocations.

2. This marks my full exit from Consumer and Financials. The portfolio construct is spread across E-commerce, Exchanges, IT (digital solutions), Pharma, Telecom.

3. The change in allocations did not start from macro point of view but from growth visibility vs. valuations point of view to generate alpha even if it comes at the cost of beta and automatically, my portfolio tilted towards the above construct.

4. The consumers and financials especially are showing growth fatigue but valuations are building in 25% CAGR so I’m not comfortable on these stocks at this point despite they being the backbone of my returns thus far. Example: Asian Paints, Bajaj Finance. The growth outlook is what is worrying me at this point - despite having excellent return ratios and long runway of growth. If there is visibility of growth, I will buy back few of my positions.

5. At the same time IT and Pharma have growth visibility and immense scope for valuations re-rating. The market at this point is valuing them as if the growth is cyclical and not secular (at least in the medium term). So, I find alpha in this portfolio switch. Let us wait and see.

6. I had to step outside my comfort zone, learn new things, read annual reports, con calls, management interviews online to get a better grip on fundamentals while technicals are already pointing towards relative outperformance.

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Disclaimer: Of course, I’m not a registered analyst and I have vested interest in all the stocks mentioned and have made changes to allocations in the past 1 month and I will sell nonchalantly if my theory gets wrong without informing in this forum prior to selling/buying.

[bijoy_ajj]

Any updates on your pf?

[richdreamz]

Hi Bijoy,

Apologies for delayed reply. Yes, there are lots of updates in my portfolio as there has been a lot of churn in my portfolio.

But now, my portfolio has stabilised and I do not intend to make many changes, save for any negative surprises in the stock story which is not built in while I’m buying the stock - in which case I will sell immediately. I’m also looking to add 1 stock that may IPO in October this year (Nykaa).

The past 1.5 years has been extremely volatile, frustrating, scary, rewarding and learning.

I think I might push it if I were to make frequent changes from here on as I observe a lot of stocks I followed have hit “valuation” ceilings and may from here on show earnings CAGR (I have said this earlier, but I’m more confident now). However, contrary to the majority opinion on TV, forums, Social networks, the companies I have currently invested in have a lot of headroom to grow and so valuation re-rating is still very much possible and then the earnings CAGR. There may be an inherent bias in the last statement but I tried to objectively look at my holdings. Actually, I’m mostly unbiased on the companies I hold.

This momentum that I have tried to benefit off has provided market beating returns but I want to be objective about my performance and so I’m currently analysing the excel dump I took from my broker. Some analysis I have written down. The output of the data must be respected than the thrill that it provided.

As for the current market positioning, there is certainly froth in some sections of the market like midcap IT. If the growth rates of the services IT sector can hold long term then valuations may hold, else they may correct severely. I think it’s the latter. But, let market decide. Otherwise, there’s not much froth in large cap stocks. So, headline indices may not correct severely. At the same time, the valuations are not cheap at all.

So, in the current situation, it is best to stick to large caps and/ or small/ mid caps where the conviction is very high. Speculation, story/ narrative stocks and leveraged positions may be avoided.

Rough numbers on how my PF performed as of closing prices 27th Aug, 2021:

PF value as of Feb 2020: x. (Good top of my PF just before the crash).
Lowest point: ~ 0.68x.(March 2020).
Current point: ~ 2.2x. (Aug 2021).
YTD, 2021: ~ 40%.
Last 1 year: ~ 80%.
PF value had I NOT sold due to fear in March 2020: 1.35x.

Performance of “realised” transactions only:

Average churn ratio: 4 transactions per month (1 buy & sell constitute 1 transaction).

Gain : loss ratio: 75% : 25%.

Largest win from average buy price: 84%.
Largest loss from my average buy price: -13%.

When I further drilled down the performance, whenever I gained they were in double digit percentages and whenever I lost they were in low single digits.

So, the main conclusion is, ride the winners and cut the losers.

Here’s how the most of the percentages are of winners and losers are if someone is interested: I believe this comes in a bell curve.

Interpretation: The first value below 3% means, I bought a stock and sold it for 3% gain.

3% 9% 5% 33% -5% -2% 7% -13% -4% 5% 51% 35% 22% 5% 3% 33% -5% 0.4% 12% -2% -4% 14% 13% 9% 4% 1% 5% 13% 3% 6% 2%
3% -6% 7% 1% 8% 4% 9% 1% 8% 15% 1% 4% -0.07% 11% -4% 6% -7% -4% -4% 1% 16% 47% 5% 5% 30% -4% 2% 37% -1% -2% 22% -3% -0.03% 13% 25% 6% 2% 3% 18% 84% -2%
28% 58% 0.2% -1% -4% 21% 17%

I gather that there are many people who have outperformed the market a lot more than mine and so time for learning curve for me. Another question to ask is "is the churn worth it - both performance wise and stress wise? For me personally it is currently worth it in both dimensions. I’m enjoying what I’m doing and I’m definitely learning how the market works as I move along. I think I have answers for under performance of ITC, Bharti, L&T etc. and excellent performance of Dmart, Bajaj Finance etc. I will keep it to myself.

Also, there is NO SINGLE MANTRA to follow to make money in investing/trading except of course the obvious ones like shunning junk, fraud stocks. Follow what you believe in. Value investing, Growth investing, momentum investing etc. whatever be the name be consistent in YOUR approach and be WILLING to change your even strongly held beliefs. At some point of time, each style of investing becomes trend and you make money if you stick to it. However, the style of investing MUST be in tune with your OWN mentality, behaviour. Example: If you are easily disturbed by 10% corrections then illiquid stocks or even very high growth and high valuations stocks may not work for you as chance are you will sell at exactly the wrong time! These kind of stocks are prone to high gyrations.

I have so far never took a single futures position or bought stocks on margin in my investing journey. Once in 2017 bought 2 options with little money just to test, lost it and never went back. Interestingly, 1 was call and another put and in both cases I was right, but the time factor plays a very important role in options. You not only need to be right but you need to be right at the right time. Add to this the vagaries of the market, I thought it is not worth it for me personally. As it is my PF is fairly large in value and I do not do something which I’m not expert at. Having said this, for someone with initiative and discipline, money can be made with leverage. However, make wealth and sustain it doing leverage is a difficult preposition. Before the market kills you, your own indiscipline will kill you. Conviction is to investing what discipline is to trading. Someone wanting to do this may read Mark Minervini’s books or follow him on twitter. Mark’s approach is smarter than “most” “buy-and-hold” strategies.

There have been lot of mistakes of both commission as well as omission. Mostly they are to do with lack of conviction, not falling under my area of competence. So, despite the fundamentals and technicals being good, I sold out.

Coming to current Portfolio:
I have always been a highly concentrated investor and know what I’m getting into. There should be no debate of which one is better as both work if your psychology is in tune with the portfolio beta!

I have my own story on these picks and hence the corresponding conviction. Most of the below are very high growth or may get into high growth based on the economy etc. The beta of these stocks will be very high and so are not ideal for most investors. The valuations will certainly be not comforting to most investors and please do not comment on valuations. If certain parameters are not met in any of the below tech stocks the corrections will be steep and I constantly keep myself updated.

One observation, during a steep market correction, a 55 PE stock will fall to 40 PE but a 12 PE stock will fall to 4 PE. Again, do not generalise, but mostly. May be because of the mortality of the business or even the market perception of the business. Valuations are mostly a factor of various parameters and "perception"of the market is certainly a major one!

Technology/ E-commerce (66% of portfolio):

• Indiamart

• Zomato

• Nazara

• Route Mobile

• CarTrade Tech

Consumption (25% of portfolio):

• Tasty Bite Eatables

• United Spirits

Electronic Manufacturing Services (9% of portfolio):

• Dixon Technologies.

As I always say, I have @hitesh2710 to thank - for his excellent posts on this forum and from whose posts I learn a lot. Recently, I found his sectoral calls and usage of fundamentals and technicals to take a position enriching or the macro call based on price behaviour etc. I too have been doing the same for past few years but there exists a learning curve. I’m not yet comfortable in taking sectoral calls in commodity sectors as the volatility beats me. I think it’s the experience that counts. 2 more bear - bull market cycles and I should be ready!

Apart from stock market, I’m quite a book reader and TV buff. I enjoyed several television series recently like “The Mentalist”, “The Good Doctor”, “The Blacklist”, “Explained”, “Grace and Frankie”, “The Ranch”, “One”, “Master of None”, “Lupin”, “The Kominsky Method”, “Dynasty”, “Ginny & Georgia”, Designated Survivor", “The Bold Type”.

Thank you for reading. Investing and outperforming markets is tough, it needs extreme levels of mental balance, patience, independent thought, discipline, learnability, decision making, pain tolerance, staying grounded. So, be careful with your money.

Disclaimer: None of the above should be construed as investment advice as I’m not a registered investment advisor and I may buy/ sell without informing in this forum first. There may be errors in my calculations. The intent is important not the data right to its decimal.
I’m just putting out here so if any one in future is travelling on the same journey as mine, they know what I have gone through and how I then fared.

[Investor_No_1]

@richdreamz

Technology/ E-commerce (66% of portfolio):

• Indiamart
• Zomato
• Nazara
• Route Mobile
• CarTrade Tech

Nice & Interesting picks. I would rather say, Brave picks if they form your major networth…possibility of giving or already given exponential returns!

Would be really great to have your thoughts on the “story” of each business - specially Zomato, Nazara, Indiamart & Car Trade…also if you can mention individual allocation to them?

I like these businesses and would like a significant exposure to Zomato & Gaming Industry…still have to pull the first trigger for Zomato…

[yourraj]

Good to you back i have question dont you think the customer facing IT platforms /companies always has plateorm leakes and there is always curremcy risk whem operating in multiple geographies instaed if you are Routine or API making like Persistent System wont be more sustainable business and higher growth … They dont have IP fees like NAZARA … and they always has alternative or replaceble Competitors and customer may replace them easily with new player for every . ROUTE MOBILE there is always Tanla kind company however in software the thirdpary developer has pie of royality and newr version they are not easily replaceble…
Regards

[richdreamz]

@richdreamz

I’m also looking to add 1 stock that may IPO in October this year (Nykaa).

Sorry, long post.

I’m not SEBI registered portfolio advisor or have any degrees related to finance and so below is not advisory but purely my personal experiences and what I would do hypothetically. So, stocks discussed below are not investment advice. Again, my thought process may resonate with similar minded investors, newbies and I’m aware there are diametrically opposite views and I respect them

I’m penning my observations of last few months based on social media posts, media headlines, narratives with self interests, interviews of fund managers etc. I’m not passing judgement on them as I’m aware of my utility and how small I’m when compared to the markets.

I, also, openly will provide my allocation details, buy prices etc. just to be transparent. Opinions are just that, but the opinions followed by money/ action carries more weightage. There are umpteen ways to legally make money in stock markets, each must have his unique one and stick to it or change it, refine it, learn quickly, adapt to market conditions etc. ALL this is to get that elusive “alpha” over index or mutual fund returns. One has to “heart to hand” independently evaluate your portfolio returns against funds like PPFAS equity fund, NSE Next 50, Marcellus etc and if you are underperforming consistently, time to take corrective actions.

Well, despite being ready with my independent analysis - not depending on the media headlines buffoonery of 1600 PE etc - I have not invested in Nykaa at these prices. As you would have already observed, I have mostly invested in

• high growth high valuations companies that have the below characteristics

1. Large addressable market opportunity (> 100000 crore i.e., 15 billion USD).
2. Founder run and/ or first generation entrepreneur.
3. Industry tailwinds (Digitisation, PLI, EV)
4. Emerging themes (Tech, Gaming, Music)
5. Revenue growth of 30% and above with a temporary leeway of 5%.
6. Debt free and squeaky clean corporate governance (a little leeway).
7. Visible road to profitability.
8. High valuations but not exorbitant (subjective and very debatable, pinches nerves of value investors). Wisdom, CAGR depends on how well one has a perspective on “what is high and what is exorbitant”.

Important: High valuations hold as long as growth holds. Growth is oxygen for valuations. No questions asked. Any temporary blip will cause severe drawdowns and if the growth loss is permanent then the bull market high is lost for decades! That’s why we need to track these companies closely and differentiate between fundamental growth vs. narrative or IPO related growth. There are companies which have very high valuations but are not supported by growth. I’m staying away from them. I would not want them to list here because they are blue chips and will invite wrath!

Beware: As a fund manager recently on TV said, Asian Paints is a Tech/ digital company because they use digital means or algorithms to arrive at demand etc is FALSE categorisation, in my opinion. Technology companies should be ASSET LIGHT, have network effects, and use technology not only as an enabler of business but have technology as an underlying business, differentiator, highly scalable based only on technology platform. Asian paints here is a very effective user of technology but not a technology company by itself. I have written this example because there are multiple narrative that drive prices with self interest and one should be able to call out the bluff.

I have actually fell for these below statements by star managers, experts on TV and did not invest in some excellent compounders:

1. I will not invest at these extremely elevated and bubble IPO levels. (Missed Dmart post IPO).
2. I will not invest even if the stock falls by 90% from IPO levels! (The stock listed at 50% premium and never fell below listing prices).
3. All the new age tech IPOs coming out will destroy investor wealth.

Instead of blanket statements like above, just be open minded - it helps in markets.

For someone with very high HNI portfolio, NESTLE for example may be the best investment with low beta, high dividends and medium returns but some people may be ready to invest time, learn, adapt and have more risk due to age can evaluate other high return BUT high corporate governance companies.

Point is, listen to all expert views and they may be genuinely right from their perspective, but you need to independently evaluate. Every one, most strategies made money during last 18 months except for the ones who quit markets in March 2020 lows for good or the ones who sold citing valuations at various points or the ones with excel theories. Of course this is NOT to say that every one should be invested 100% all the time with 100% allocation. There are sensible strategies people follow with 20% cash etc.

Coming to Nykaa, My hard stop was less than 20 times FY23 sales at maximum, which is reasonable for 40% growth AND has a path to profitability. I assumed sales of 4700 crore sales for FY23. But, given the market frenzy, I believe I have to wait patiently instead of participating in the listing euphoria and get in after some consolidation and observing price behaviour around 2000-1800. For all I know, if the sales I assumed turns out extremely conservative then these prices are sustainable.

For so much talk of bubble etc., one needs to go beyond the media headlines and make calculations and more importantly COMPARE with what’s existing in the market now - [Example below]. My understanding is valuations are relative in stock market. How much you want to pay depends on

1. You portfolio value.
2. Time horizon.
3. Return expectation.
4. Drawdown capacity.

IF, one has a small portfolio, then it makes sense to,

1. Learn technical analysis and apply on breakouts, bottom formations etc on sound companies with no corporate governance issues.
2. Have a greater portfolio turnover that is based on some sound rationale other than greed.
3. Learn quickly and observe markets and price action related to news.
4. Stay away from most TV/ online experts and don’t make stock market investments based on economists observation. Nothing against economists, but by profession they are more into theoretical fields and when writing about country as vast as India, there are innumerable problems to focus on and in that analysis the larger point is lost. India or any other developing country progresses despite all these problems. Having said that there are some economists that I respect, like Neelkanth Mishra of Credit Suisse etc. Aswath Damodaran is a great teacher but I categorise him as a not-so-great investor. Do not fall for these excel philosophies, they are a very good starting point for your analysis but do not end there. EXAMPLE below will explain further.

EXAMPLE of how I think while relatively comparing stocks from similar sectors:

Stock market is a place where one expensive and cheap are purely on “relative” basis and is a function of many variables like RoE, management, industry economics, scarcity, monopoly and most importantly a function of growth and profitability.

If you send a new born baby with 1 lakh rupees in his pocket to vegetable market to buy apples, he may buy 2 apples with each apple 50000 rupees, one for his mother and one for him because he has no information on relative value/ price. If you tell him an orange costs 10 rupees each then he may pay 20 rupees for 1 apple. Bad example, I know.

1. Let me take a stable company with relatively high probability of accurate growth projections. NESTLE INDIA. This trades at 10 times 2 year forward sales for earnings + dividend growth of 13-15%. Looking at technical analysis, 10% is the probable downside as 18000 is a point of very very strong support. So, market values it at 9 times sales in a bad market phase.

2. If so, then how many multiples should you give on sales for a company growing at 40% plus and has a credible path to profitability run by fantastic management? Once the profitability is set in 3-4 years, the return ratios, free cash flows and all other financial metrics will fall into place or at least that is the “LEAP of FAITH” you need to take based on your PF value, return expectations, time horizon, beta, drawdown tolerance. This faith can’t be taken on all management and on all sectors. You need to PICK and CHOOSE which management you will believe and which company has a right to win, who is the competition etc.

Based on the above factors, alternatives available, return expectations, personally, I believed the prices at which our Indian tech companies came are not bubbles. Nykaa IPO’ed at 12 times 2 year forward sales compared to 10 times for Nestle. Again, personally, at 1125 /-, Nykaa is relatively inexpensive. As people have been saying that the founder is cheating retail and IPO’ed in euphoria is laughable.

But, bought at these prices, they most probably will not be multi baggers in a year. NO WAY. If you can play momentum using technical analysis, thematic investing, quick switches and make higher returns? Yes, absolutely. Are there stocks out there that are undervalued and so re-rating will occur and give much better returns than these new age tech IPOs? ABSOLUTELY, YES. So, find your niche!

It makes immense sense to read about these founders, the strategy, the struggles, decades of conviction - all available publicly thanks to business media. It behooves upon us to read for our good/ learning and take the investment decisions and not blindly blame the founders. Yes, there are many other unscrupulous promotors who offload to retail investors and fleece, but we should be able to differentiate them through our experience and knowledge.

Coming to my portfolio:

Everything remain as is except for 2 changes:

Rough average buy price and allocation in brackets provided below.

I’m cognisant that my portfolio is high beta and not a multibagger one. There are other limitations that come with as written above.

• Indiamart (3000, 17.5%)
• Zomato (125, 17.5%)
• Nazara (1600, 16.8%)
• Route Mobile ( 1150, 10.5%)
• Saregama (4300, 8.9%)
• CarTrade Tech (1420, 7.8%)
• Sona BLW ( 640, 7.75%)
• Dixon Tech (3800, 13.1%)

Sometime in future, Nykaa will make an entry.

@Investor_No_1 Apologies for delayed reply, but I have more than 80% of total my net worth in the above stocks portfolio. I have indicated percentage allocations well, as on date. I have never had money in bonds, FD, FnO ever in my life. My last 8 year stocks CAGR has been well above a top performing equity mutual fund during this period. So, this strategy has worked well so far.

@Investor_No_1 I always keep looking for antithesis of why stocks will crash so as to exit equities. There will be 100 false “lion has come, take goat inside” calls for 1 true crash. And when that 1 true crash comes, no one knows from where. So, best is to stay invested and take out money when needed to feed family, buy wants, needs. And, if we keep looking for reasons to sell equities due to valuations, the problem is we will sell well before the peak valuation because of “the valuation is high, so sell” itch. I personally faced this multiple times. I sold a stock at 100 that is bought at 30 due to valuations and this stock goes until 160 and corrects will 80. Taking into account the taxes etc is not worth it. So, selling for valuations alone may be futile most of the times. But selling for better opportunities, story changed, momentum etc. is person dependant as long as the itch is working. My mistakes of selling due to valuations include: Asian Paints sold at 1800 (?) to see it go till 3500, Dmart sold at 2150 to see it at 6000, Bajaj Finserv sold at 5000 (due to fear) to see it at 19000, Sold IEX at 190 and this at 950, sold IRCTC at 1600 and saw this at 6300, sold Happiest minds at 400 and saw this at 1500 etc. Of course, this “rear view” remorse is futile and stupidity. Markets will kill us if we harbour this emotion. What we should consider most is overall portfolio returns is how much > best performing MF.

@yourraj I think companies like Route, Saregama which have IP/ platform are better than pure play IT services companies. Services are cyclical in nature but current valuations in them say otherwise. Let’s see.

Global companies that I track because of my portfolio holdings:

The below are some of the companies that I actively track for their results, price action to news, valuations, optionality of businesses, strategy, news, media interviews, future sales growth expectations etc because they are directly or indirectly related to my PF stocks. I have no investments outside Indian stocks.

1. Doordash
2. Meituan
3. SEA
4. MELI
5. Twilio
6. Synch
7. Carvana.
8. 1688
9. Tencent
10. Roblox, Activision Blizzard, Electronic Arts, Krafton
11. Pegatron, Foxconn.
12. Universal Music Group, Warner Music Group
13. EV related companies - Auto ancillary. Recently only.

Obviously, I track the stocks of MAANG which are the real torch bearers for tech industry.

Obviously, again, none of the stocks mentioned are investment advice. Intention is to write my thought process and not point to anybody. If someone is indirectly hurt or think they got referenced, I apologise.