Ya that’s true Raj. Apart from spending time on research, I will have to be patient and give time for the investments to grow. That’s what I have learnt from my investing experience as well as from other senior ValuePickrs. And yes, long term return of 20% is decent kind of return that one can expect over long term with the kind of portfolio we have in ValuePickr.
Hi Ankit,
Why the urge to leave your job at such a young age? Learn to enjoy the job…
Full time investing doesnt need too much time… In fact around 5-6 hours a week including visits to valuepickr should be enough…Then what will you do in your spare time? 
Completely with agree with Hitesh. When I said “I am in the same boat”, I was referring to my pf size being small, and not about job, hope I didn’t confuse ankit with that :).
Although in a capitalistic world, capital has great value and one can use it to get material things, there is no substitute to being productive and contributing to society to the best of ones ability.
I feel, having financial independence somewhat helps in improving ones risk taking ability be it new job roles or new ventures.
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Ya agree with you Hitesh Bhai… 
What I am more inclined to is working in an equity research company(like Vinod) or starting my portfolio management firm (thats a very very long term plan after I have enough experience and as Donald says after seeing two - three market cycles). The problem is I have limited options (or hardly any options) as I don’t want to leave Ahmedabad (working in Mumbai doesn’t excite me much).
Even my current job as credit analyst is pretty good in a sector (I have lot of stories to tell you when we meet next time about how ‘jhol jhal’ happens even in big companies in this sector) which I would hardly invest my personal savings in.
Thanks
Ankit
Why
** job…Full **
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Hi Ankit,
Can you share these Jhol Jhal’s :)happenings in companies,here Corporate Fraud/Misdemeanor@ Value Pickr.
Hi Hemant,
This relates to the infrastructure sector and how companies do double leveraging, bidding aggressively for projects to boost their order book etc. I cannot share the particular names of the companies and wouldn’t call it fraud as well as that is how these companies work. As an analyst, we can definitely figure out that something is wrong here but that is how their business model works. That is why you have lot of CDRs happening in infrastructure sector like Gammon, HCC etc
happenings in companies,here Corporate Fraud/Misdemeanor Link: …/…/lessons-from-corporate-fraud-misdemeanor-in-public-domain/308781136 @ Value Pickr.
Sorry to screw up this thread with something off-topic, but in relation to the immediately previous question-answer, it seems relevant.
Most of these infrastructure companies, especially those in the roads sector(for example IRB Infra or ITNL), have two sources of income in their consolidated balance sheet-construction income, and toll/annuity income. Usually the construction income arises in the standalone entity, and the toll/annuity income arises in SPV’s created for each project. Almost the entire income in the standalone entity is construction income, while the entire income in the SPV’s is toll/annuity income. The companies do double leveraging, as stated by Ankit-they have a 1:1 debt equity ratio in the standalone entity, and 3:1 (or therabouts) in the SPV’s, with a consolidated debt equity ratio of around 3.5:1 or so.
The only profits of the standalone entities are from construction activity done for the SPV’s. There is no outside contract. Yet the standalone entities show handsome profits. But the profits are derived from their own SPV’s. So how is the transfer pricing done between the SPV and the standalone entity? What is the test to figure out whether or not the profits of the standalone entity are inflated by raising the project cost of the SPV, (and therefore also raising more debt in the SPV)? How do auditors certify these transactions between the SPV and standalone entity as based on “fair” pricing? And what happens if for some reason new projects dry up? How should we as investors value such companies?
Hi Samir,
As you have rightly mentioned about the source of income for consolidated profit and loss of an infrastructure player, the standalone entity also derives income from dividend/further leveraging of toll receivables in the future (if their is a tail period in a project) of SPV.
Coming to transfer pricing question. All of these project are bidded and company with lowest bids (the bid can be in various forms like lowest negative grant from NHAI/highest positive grant from company to NHAI/lowest annuity in case of annuity projects etc depending on the project and traffic study report) wins the contract. What has happened with Infra companies is that during the past 3 - 4 years, NHAI has not been able to come up with its enough road projets (it has not even able to achieve 50% of its target road development over the past 3 - 4 years), the companies in a bid to show growth in their standalone entities bid for these road projects aggressively. They tamper with the traffic studies and show hunky dory type of projections of toll in future years. The standlone entity recovers its construction cost along with profits but the SPVs keep on reeling coz of high interest and repayments as the project once operational is not able to show the growth in toll revenues as projected by the company. There are lot of consultants involved here for banks like traffic consultants, lead engineer of banks etc. However, less than 20 - 30% of the projects are able to achieve the kind of traffic projected by the companies. Most of the SPVs rely on the parent company to infuse money into them so that they can repay their debt obligations. In my opinion, its sort of securing your presnt by denting your future for the standalone entity.
I am not aware about the valuation of projects from an equity point of view but usually they follow ‘sum of parts’ method where they assign some value to the standalone entity and add value of particual SPVs into it.
Link to a superb post on Dhwanil’s blog, posting the link here as i can relate to most of what he has written and have thought about at different point in time.
raj,
i found your allocation very interesting. i also would like to model my portfolio on similar lines, but the number of stocks in ach category would be max 4-5.
Category A
I aim 10x in 10 years, this is the bench mark and i try to find companies that can fit into and allocate max 40%. so far i could find gruh, page. it doesnt mean we buy and forget for 10 years, these are buisnesses that have long visibility.
Category B
fast growers. max 50%, and 4-5 stocks. comapnies that are in growth path and visibility for next 3 years atleast. like astral, kaveri, accelya, repco, hawkins, mayur …
Category C
max 10%, basket of few stocks. like sugar cyclicals, industrials…
Hi Bala,
I too have been thinking about reversing my allocation between Cat A & B. i.e., 40% to Cat A and 50% to Cat B.
But then i think, I am biased due to how well the stocks in Cat B have done recently, they seem to do well in market recovery phase.
Idea behind having 50% in strong Cat A names, is to get growth along with protection in case of market crash. So, from time to time the allocation levels can be toggled between the 2 categories i guess. Aug-13 seemed to be time to get 50% in Cat B while right now it looks like time to be 50% in Cat A.
On, no. of stocks, if one know’s, what he is doing very well, then 10 is good number.
Hi Raj,
When it comes to visibility in earnings for me a company like tcs belongs to the A category .Somehow the IT sector has been overlooked in most of the portfolio construction in Valuepickr community .IT along with pharma occupies almost 50 pc of my portfolio followed by FMCG .As I am relatively new to valuePickr and ted I missed opportunities in Astral,mayur,kaveri and I have only recently started doing sip in these companies .In any case they will not prove to be a multibagger but provide decent compounded returns so they belong to B category for me .
How do you resist the temptation of not selling a stock when it doubles from your buy price(if it resides in your B or C category) .Pi being a recent eg .Though I had intended to hold it for a long term ,I sold it out around 210.This is something I need to learn to avoid letting a multibagger slip from my hands
raj,
i found your allocation very interesting. i also would like to model my portfolio on similar lines, but the number of stocks in ach category would be max 4-5.
Category A
I aim 10x in 10 years, this is the bench mark and i try to find companies that can fit into and allocate max 40%. so far i could find gruh, page. it doesnt mean we buy and forget for 10 years, these are buisnesses that have long visibility.
Category B
fast growers. max 50%, and 4-5 stocks. comapnies that are in growth path and visibility for next 3 years atleast. like astral, kaveri, accelya, repco, hawkins, mayur …
Category C
max 10%, basket of few stocks. like sugar cyclicals, industrials…
Hi Sourabh,
Congrats on having 50% in IT & Pharma, am sure the portfolio must be doing well in this environment.
Mea Culpa on missing the Pharma & IT gravy train.
Sometimes i feel very dumb about myself for having missed the IT bandwagon because i work in IT sector. But then, some 3 years back, when i started investing, the situation was different for IT. Rupee was in 40’s and lot of experts were writing off the IT sector as another commodity business, incapable of pricing power and unlikely to sustain business growth from thereon etc etc… and i didn’t had any opposite view either. But then, as we all know, rupee went to 50’s and then 60’s and many a thing changes for the IT sector. Still, I hold Accelya in Cat B, as it’s business model is not very people intensive and based on products and revenue is based on a transactional model. No entries in Cat A in my pf from IT, TCS can be considered a worthy candidate, from what i understand.
I believe, Pharma is a more complicated business for a beginner to understand. So, i am holding sun & Lupin in Cat A, as they are considered to be market leaders. Do hold Ajanta & Auro and overall trying to improve my understanding of the sector.
About your Q, how do we hold to a company once it’s already a multi-bagger. Personally i am not very inclined to sell a company where i already have multi-bagger returns. The reason is simple, most of the time, it means, i have held them for long time and I have a relatively better understanding of those businesses. Once we understand some businesses better than others and find that all the levers for growth are still intact then where is questing of selling ? The case for adding on declines becomes even stronger.
Finally, in investing, what we missed, can’t hurt us much. It’s what we hold, which potentially can.
In the context of the discussion in thread “the ART of Valuation”, the 18th Wealth creation study done by Motilal Oswal is an excellent read.
You can find the link to the report in this article.
Looks like they exclude small cap stocks from the study. Otherwise, Ajanta might have given more than 100% CAGR in last 5 years and should be at the top of the list.
Got the answer after reading the methodology. The study is about wealth creation in absolute numbers. Thus, it is highly biased in favor of large caps. A 10% addition to a 1 lakh crore Mcap company will be 10k crore and it will be added to the list, but a 100% addition to a small cap with 500 crore Mcap will add only 500 crore at the Mcap level and it will not be added to the list.
I am missing our dear friend Mr. Deepak Swamy on the forum. Wish him well. An equity investment forum without quarterly result updates and the following discussion looks very dull. Wish we could automate the update task some way or some other kind soul took up this work on himself.
Hemant is doing a great job in terms of providing the conf. call updates
Ya Raj,
Even I am missing Deepak… Hope he is fine. I think we all will have to collectively take the responsibility of updating the quarterly numbers in his absence.
Hemant, thanks a lot for the con call update
Regards,
Anki
Few of us are planning for a meeting/get together at Singapore during next week. If anyone from here would like to join, please drop me a PM.
