Navaneeth's Portfolio

Q&A: Questions & Answers Portfolio Q&A
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Dear Friends,

ABOUT: -

I have been involved in the stock markets since 2007. But I have not made any money as I have not consistently invested in the markets. I have been reading through valuepickr posts for all few months.

I also do short term trading depending upon the market conditions. I also try Options. I would like to have a long-term investment portfolio and would like to start with a fixed amount & do SIP. In this thread, I would like to discuss only the long-term investment & get the feedback from the esteemed fellow members.

OBJECTIVE: -

I am 36 years old with 2 kids. With this portfolio, I would like to invest long term & generate Alpha returns and would like to use this for kids’ education/future.

My Objective is to have CAGR of 15 to 20 percent. Also, I would like to invest mostly in large caps since capital preservation is equally important.

INVESTMENT PHILISOPHY: -

Invest around 15 to 20 stocks. Have a watchlist of 10 stocks and shuffle during periodic evaluation.

Invest in sectors that are appreciating and invest in leaders (Example: - Private Sector Banks, Consumer Durables, Insurance. Etc.).

Avoid Cyclicals as much as possible.

Invest trend changers. (It is very rare to find in Indian Markets. But would like to find that can do).

Avoid PSU’s. (Although most of the companies are good & have value. With government policies, it is very tough to make any value for Investors. Who makes money here?)

Avoid Sectors that might lose value. (Automobiles – with the sharing model, this is definitely a disruption).

Do periodic evaluation of portfolio every 3 months. (I don’t think the idea of coffee can period with so many disruptions happening in the last 2 decades).

PORTFOLIO: -

Stock Percentage of Allocation Investment Rationale
HDFC Bank 8 Leader in Retail Banking. I strongly believe HDFC Bank will be the next HDFC Bank itself.
HDFC 8 Market Leader in Housing – with push for housing and all the problems with housing companies. It is better to stick to it.
Larsen 5 Infrastructure play
TCS 7 IT – Market Leader. With the growth it has shown in the last few years, it is a must have. Infosys & HCL Tech are also slowly losing the competition to TCS.
HDFC LIFE 5 Insurance. With western culture being replicated, I am pretty sure we will be buying insurance for everything in the next decade. This is one sector that I am very optimistic about.
Asian Paints 8 Paints / Consumer Play. With the middle class growing & the growth shown by the company, it will continue for future.
Marico 7 Consumer Durable play.
Pidilite 5 Market Leader in Adhesives.
Kotak Bank 7 Private Sector Retail Banking.
Bandhan Bank 5 My Bet. If it can be successful in EAST India, it can be definitely do in any other parts in India. Also, with the merger with GRUH Finance
Bajaj Finance 7 Market Leader in Consumer Finance. The leadership & the process that they have to approve consumer loans, it will continue to grow. It might be challengeable but with the scale they are doing across PAN India, it has the extra edge.
ITC 6 Diversified presence in Cigarettes, FMCG, Hotels. Price of the stock does not seem to reflect it.
Reliance 6 With the money that they get from refinery, they are ready to invest into other sectors like Retail, Telecommunications. Will closely watch how it performs in the next few quarters.
LTTS 5 Leading global ER&D services company.
Godrej Consumer 5 FMCG Play. Bet in African markets for Godrej Consumer seems to be challenging.

Since we are in a bear market phase, I would like to stick to the proven leaders. Once the market condition changes, would like to consider other options.

Please provide your valuable suggestions and help succeed to part of the investment journey.

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Hi Navneeth,
Indeed an excellent portfolio, on the lines of coffee can portfolio.
I am sure you will meet objectives of 15-20% CAGR as per your expectation.
Infact, I must say that my overall philosophy,sectors(BFSI and consumption) matches with you.
While from a hingsight mirror,we think we could have made crores from a lacs investment 10 yrs ago and all that, the chances of hitting this jackpot rarely happens.And even if someone is able to find one, he will hardly have 4-5% of the overall portfolio, so the impact is limited.
Its better to stick to tried and tested market leaders which you have already chosen.
I could not find any flaw except that I would add more allocation to bajaj finance and HDFC bank(may be 10 to 12% each).
The key is to wait patiently and buy more when there is some downside in these(no matter how solid business it, external factors somehow make it down; Bajaj finance also went down 30% to 1900 during sept 2018.In short, we need defense and patience like Dravid(easier said than done though :slight_smile:
Wish you all the best.

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@navan1983

I think you have selected a very good bunch of companies especially in the large cap space. There is very good balance between various sectors and subsegments. I think this is very close to a good Coffee Can Portfolio. With the kind of markets we are in, this should be a very stable portfolio which should provide decent compounding and peaceful sleep. In my view it doesnt need tinkering. Only patience to keep adding and holding and maintaining portfolio balance.

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Thanks Navneeth for thread and @abhijain and @hitesh2710 for feedback which helps build confidence, co- incidentally my core portfolio( mostly built over last 1+ yr) resembles 80% by allocation in above names ( barring Asian paints, Marico, kotak) and sectors…some others being HUL, HDFC AMC, Symphony, Havells, Icici bank and pru life, Biocon, PI ind…focus being capital preservation and modest growth of 18-20% CAGR in medium term from mostly large and large midcaps. Quality mgmt, fundamentals, growth runway, innovation and sector leadership as a common qualifier. Some are lucky yo have tailwinds. Banking, consumption, AMC and insurance, pharma and agro-chemicals.

20% allocation in small cap like Mangalam organics, Dishman, Mahindra logistics, Saregama, . Hoping some re-rating triggers supported by fundamentals qualifiers. Rational being low risk and high reward - macro will demand patience and close watch on results. Think there is some serious money to be made currently in small caps, again depends on one’s style of investing.

Think about parking some money in quality small caps @navan1983. That’s my only suggestion, VP has some solid starting points here.

Btw - have burnt fingers too with some low quality stocks initially in late 17 to early 2018 - when equity was everybody’s game, but was lucky to exit with guru dakshina paid and lessons learnt.

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Thanks Abhishek, Hitesh & Dev for the valuable feedback.

I have the following stocks in the watch list & would slowly add to the portfolio depending upon the value it creates. Also, waiting for the market to settle down.

• DMART (waiting for right levels to enter)
• DABUR
• VIP INDUSTRIES
• FINOLEX PIPES
• GRUH FINANCE
• CHOLAMANDLAM FINANCE
• JUBLIANT FOODS
• RELAXO FOOTWEAR
• BALKRISHNA INDUSTRIES
• UNITED SPIRITS

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Just 10 days back, I looked at few stocks with decent growth over 10 year period, their returns & valuations. More of a screening process than actual research. This was out of curiosity, given the increased mind space of investors on Coffee Can philosophy. There is premium that you pay for moat, but not sure if the market is pricing it higher.

Also it is better to be cautious while investing through smallcase’s offering of coffee can portfolio, since it includes stocks like PC Jewellers (check this out https://www.smallcase.com/smallcase/SCMO_0017)

090919_Growth stocks with high PE.pdf (44.7 KB) All data sourced from ratestar.in

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Hi there,

Clearly the portfolio consists of market dominant players and all the businesses are well discussed and also well discovered. While avoiding cyclicals is a good plan my two bits are that cyclicals have been also creating wealth and one should be on the lookout for good cos that are a cyclical low and available at rock bottom valuations. Cos like Ambika, Avanti etc which have corrected sharply from tops could offer a good bargain and they too are helmed by mgt with good business acumen. There are also several liquor players whose market caps are at a fraction of the excise duty they pay to the govt so some of these can offer a good upside. Lately we have seen cos like page , 3m , jubilant food, VIP, gcpl etc all going south so one needs to be careful about business strength and not have a blind spot to other types of businesses. That said, it’s a good portfolio as the forum has pointed out but I would be be wary about buying into the narrative of quality at any price

Best
Bheeshma

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Hi Navaneeth ,
Excellent set of stocks. Only thing is to buy in staggered manner over different spans. There may be time correction in these stocks. ITC has not given any returns in last 5 year. Reliance was flat from 2009 to 2016. Much possible that few of these may undergo time or price correction. Your expectation of 15-20% returns looks stretched to me. Expecting a 8% returns + Inflation would be better.

The markets have been under correction from last 1.5 Years. Fancies of 2017 (Midcaps & SmallCaps) have seen heavy falls while Large Caps have stood tall in these corrections and people are now finding safe heavens in these large caps proven businesses. Have seen many people migrating to these high quality richly valued businesses leaving the Midcap and Smallcap space after seeing the tough times.
In my personal opinion ,Large caps can disappoint in short to medium term but if acquired in disciplined manner , can be a great investment over long term with little maintenance.
All the best

Regards
Bharat

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As rightly pointed by above members, we all agree that anything shouldn’t be bought blindly at any price. As the first step of identifying the best stocks is done, can we add a column with SAFE prices (or PE) to enter? It would help in ensuring that expected returns can be achieved.

I know that purchase price may vary with each individual but let us give an attempt to get the consensus which can be a range as well… I start with an example… I am comfortable in buying Asian Paints once its available at 48 - 54 PE. I can wait and ready to miss if it doesn’t come in that range. If I can’t get it… better I will fill the space with one of the best from watch list.

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Thanks Mukesh, Bheeshma & Bharat for your valuable feedback.

In order to generate alpha returns, the portfolio should have appropriate allocation in growth stocks. With the bear phase & economic slowdown across the globe, I am cautiously waiting for the right time. The watch list that I have captures some of them.

At the current time, is it prudent to invest in any mid cap/small cap mutual funds that I could invest in. (rather than looking for specific stocks in mid cap/small cap space).

Blockquote
ITC has not given any returns in last 5 year. Reliance was flat from 2009 to 2016. Much possible that few of these may undergo time or price correction.

This is very true for ITC & Reliance. There has not been much appreciation in terms of price although it has potential for growth.

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Thanks for the feedback. Working on an entry price for each of the stocks is definitely a good idea. Let me work on the possible entry prices and share the details.

But in reality, for some of the stocks that have a MOAT, it is very hard to get in a price range that we expect to buy. I had been trying to do it for kotak, asian paints, pidilite, dmart. But it did not work for me at all. Has this worked for you?

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I have few points:

  1. As you mentioned that you did not make any money during last decade, I would seriously recommend you to introspect about what went wrong and list down everything. This helps your brain to ingrain what not do again in future.
  2. Every plan on paper looks very easy to implement.But real world is different.As you already did all types trades in markets, you will be tempted to go back. To prevent this not to happen again, I would recommend you to read and learn more about Human Psychology and Mental Models.
    3.I would also suggest you to tone down your return expectations. You can have return expectations matching nominal GDP values (GDP+Inflation).
    4.Investment Philosophy/Process is evolutionary in it’s true nature. So be ready to change your process and philosophy as and when you receive right signals.
  3. Last but not he least, know the power of “Regression to the Mean”. You are leaning towards very high quality large caps may be because all other mid/small caps did not do well. But over period of time other mids/small caps will catch up due to “Regression to the Mean” and Large Caps may not perform well when compared with quality Mid caps. So you can have one or two good mutual fund in this space.
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yes, it works well … and requires PATIENCE

We shouldn’t force ourselves to buy. There are chances that we miss 35-40% from the hit list. Its always tough to achieve 100% of your plans but I am happy if I get anything above 50%. If it goes down below that then we need to revisit our numbers / targets.

Another benefit from this strategy is that it saves us from recent shocks in market as I could buy only two scrips in last 14 months or so. But yet I am happy that I didn’t loose much and was able to maintain positive returns in above period.

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Thanks for the information.

Once you decide on the right price for each of the stocks, what you do with the cash until it reaches the right price? (As I am planning to do monthly SIP). Usually when I have the cash, I try to deploy it. I am trying to understand your thoughts around this.

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You could refer to @Yogesh_s post on portfolio construction in which he outlines a low maintenance plan to invest in large cap blue chips. He doesnt post as often as before but it is a good thread to understand how to invest in blue chips in a contrarian way. In a vp conf that I had attended two yrs ago , Mr Vinay Parikh had talked about his investment in Nestle which I think he had held for 30 yrs+ and had given him 18-20% cagr and was still going strong so there is merit certainly in investing in these cos. But 30 yrs ago I am sure Nestle type cos were still being discovered so not sure whether the next 30 yrs would yield the same result but who knows how the future will unfold. In the same conf we had Kenneth Andrade who has had tremendous success investing in cyclical setups. Just after his talk we saw what happened to Graphite stocks which went up vertically. So much wealth was created in that brief period that it wasn’t funny. Ofc a lot of it was given up as well subsequently However after that experience I was much more open minded about cos other than the classic coffee can mindset.

All the best!

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Hi @navan1983, i don’t see a reason to add GRUH FINANCE again as you already are investing in Bandhan Bank, both of which are going to merge.

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Excellent selection of stocks, on line of my thinking of choosing Financials and Consumer focus plays. Just a caution - 40% allocation is to Financials - Although 21% is to safest (so far) HDFC group and 5% is to Life Insurance. Personally, I have become cautious on Financials to be a part of Coffee Can. I have not yet able to implement change in my portfolio but at appropriate time I am looking to trim Financials, even if it means opportunity cost. I would chose to remain only with HDFC group in long term - Bandhan, Bajaj, Kotak are good names but I would ask - have you invested in them as you wanted to have total around 40% allocation to Financials and wanted to lower your risk by diversifying withing financials? I understand the growth profile of Bandhan in good times may be different than HDFC and same for Bajaj NBFC but wanted to understand core reason for these 3 names in addition to 3 HDFC companies.

Rest, LTTS - Any particular reason of chosing LTTS in midcap IT services? Do you see its growth ahead of peers like LTI or Mphasis etc.

Good to see decent allocation to Marico. Do not find it in many consumer facing portfolios. Also, I see you have chosen Indian FMCG firms over HUL/Nestle. Is valuation the only reason or you see better growth profile for Indian FMCGs. Also from corporate governance and coffee can purpose what do you think of Indian FMCG VS Nestle/HUL considering how Indian promoters have fared in say a - Bajaj Corp or Emami with pledging and their other businesses issues etc.

Sorry for being critical or picking up each company. Each of them are good ones and as disclosure I own many common ones. Above are the same questions I am asking myself these days, hence would be good to know your views also. Thanks

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Hi Navaneeth. Interesting thread. I’m curious to understand your thought process on few of the companies you’re holding like Asian Paints and Pidilite. In a prolonged slowdown scenario, do you not see a contraction in the PE happening?

Also, given the rich valuations doesn’t it leave very little room for PE expansion and leave the returns to come only from revenue growth which by itself is limited by the high base. I’m quite interested in most of the companies you had mentioned, but find the risk reward ratio unfavourable in case of a prolonged slowdown and recovery.

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PE Contradiction does bound to happen in prolonged slowdown. As long as the growth story holds good & MOAT remains, these will be the first set of stocks that will bounce back.

Does anyone have a different take on this?

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Very good point. It is a matter of diversification. (Not all eggs in one basket).

From what I have read, LTTS have an edge in upcoming technologies. But, will be watchful.