Prasad,
Great wisdom. I don’t know your age but looks like an experienced person’s thoughts.
I would put your point 6 ahead of point 5, the reason being in your absence the point 6 should provide enough that point 5 is taken care of. As no one is immortal, need to get insured sufficient enough to take care of basic needs of family.
I am no expert. My views.
1). Dont buy a house just for the sake of buying. Buy only if you like it from all aspects. No compromise on anything. Dont become a victim of family/society pressure. And dont buy any other real estate from an investment point of view.
2). Divide your investment into debt and direct equity. (no mutual funds, no ULIP based products, no conventional insurance products ). I understand there is a forced debt investment in PF ( employer and yours contribution). But remember this is not liquid. So have a substantial allocation to FD or debt fund.
3). I dont believe in strict stop loss based on price movement. Sell it only if the the long term prospectus changes or on any company specific issue.
4). Diverified vs Concentrated : You can allocate a little more to the strong conviction ideas. But never hold very less number of stocks no matter what. I would say 10 to 20 is a reasonable number of stocks.
5). Apart from past numbers, balance sheet, management, moat etc, ask yourself why you think the company will become big in the future, the drivers for growth etc.
Awesome funda Vivekji. I use an expanded version for the same
1> Easy to explain business: I should have understood the business decent enough to explain the why I have invested in the above stock to my wife/nephew/fater/… in a simple manner so as they can understand. I see absolutely no point investing in companies whose business I cant understand, on a borrowed conviction.
2> Quality Promoter/Management: Ethical/Capable Promoter, High promoter share-holding, , 1st generation self-made entrepreneur is a big big plus.
3> Good growth/Fundamentals: Good ROCE/ROE, Good growth in sales/ebit/np quarter-by-quarter, Good size of growth.
4> Low risk : Low debt, zero pledging, Decent liquidity, No corp gov issue, around 6-7% minimum expected return in next 12 month talking care of worst case growth rate and worst case pe de-rating.
Growth and reasonable price: PEG should be less than 1 (Exception: If the company is having a very high Dividend payout ratio, than ignore PEG)
High scope of PE expansion: Mcap in and around 500-1000cr mark, at a point where Big guys can come in and you get the benefit of pe expansion!
Regards
-Subash
Hi Gyan,
It was interesting to read your thoughts on risk…thank you.
Have some doubts on market risk. If this is the risk of the whole market going down why do you feel it will happen almost every alternate year that too 30-95%? Isn’t that a bit too drastic even for the mid-small cap space?
In hindsight many of us who were not around during the 2008 period will feel that Nifty P/E can be a good tool to gauge the overall market valuations and we would have been on cash then. With that metric in mind current levels are not expensive. But what a big fall from P/E of 25+ levels and P/E of 16-20 levels? I am unable to answer that convincingly. Most of us might be prepared to be on adequate levels of cash once the P/E levels go upwards of 22 …but can anyone have a strategy to escape a big fall from P/E of 16-22?
Stop loss…can you explain a bit more on how you decide levels. For individual stocks most of the time one is able to decide on the exit (when overall markets are doing OK). Most often the realization of the mistake in your analysis and conclusion is evident and you can tame your mind to take the exit call. But for the overall portfolio how do you do it?
Or do we just ignore the possibility of a huge crash from P/E levels of 16-20 assigning a very low probability to it and assuming we would come out of that crash in a year or so anyways?
I have heard interesting views from many in valuepckr on how they believe in being invested always as they can’t think of timing the market. The risk on losing out on a big turnaround is bigger.
Cheers
Vinod
croresas economy(high pequadrant worthin
Great!!Especially point 2 .
Prasad ji,
Very well said…agree on all points except Point-3. I would say invest in real estate after all the research and due-diligence on what will give you best appreciation and stay in a rented premise of your choice rather than binding yourself up inside the same walls for ever. Most often your residential choice is not the best investment especially in a world of changing jobs and cities. Would add that taking a home loan is also a good decision provided the EMI is surely affordable. The effective interest rate for a home loan will be around 5-7% only with all the tax benefits and you get to keep your money safely in your FD or other investments providing you adequate liquidity for emergencies.
On point 2 I would add that if someone is really passionate about stocks and has the attitude and competence for that, why not build a career in equity itself - research, fund management, P/E…
Cheers
Vinod
The below points are purely a personal opinion.
Basically cash flow is more important than assets. This rule is applicable not only to companies but also investors. We need to invest in assets which generate consistent cash flows year or year beating inflation. Rental income is one such cash flow and dividend yield income (YOC) is the another. I feel it is better to invest in cash flow generating assets rather than holding assets which increase in value on paper with practically no cash flows. This is quite dangerous if we don’t have proper exit plan and constant monitoring of such investments.
A stock with good dividend yield and with dividends increasing at say 12% year or year and capital appreciation at say 12% annualized over the longer run is always a better option along with PPF for retirement planning with reduced risk and peace of mind instead of investing in lands (inflated prices with nil cash flow) and high growth momentum stocks with practically no dividend. Power of compounding with time will take us to our goal point.
Personally I have set a target of 10% YOC for my portfolio with 10% growth. If I achieve that I would done my job. This would be similar to my FD/MIS offering tax free yield of 10% year or year with opportunity to grow that yield in the longer term.
Debt reduces cash flow. So we need to be prudent while opting for debts.
Everyone needs to manage his personal finance like corporates. We need to have low Debt to Net worth, lots of Free Cash flows should be generated (Surplus funds) etc 
If I were a company, would I buy myself considering my balance sheet? This question lingers me every time whenever I make an important financial decision in my life.
It is better to analyse our investments based on risk adjusted returns and return per unit stress (quantum of my effort spent in that investment) to avoid too much risks or efforts spent in particular investments.
Hi everyone
Bit confused about Sensex and Nifty valuations and P/E.
1). Top 30 stocks constitute Sensex and have different weights. ( TCS with 9 odd % has the highest weight in Sensex. Hindalco comes last at 0.60 % weight )
2). Nifty is basically 50 stocks with different weights. ( ITC with 9.47 % has the highest weight in nifty and ONGC with 3.12 % is at 10th position. )
The weights of individual stocks are dynamic and every rise/drop in prices alter the weights. Based on floating market cap the weights are calculated.
The stocks which we at valuepickr find rarely represent Sensex/Nifty.
When the stocks which we own doesn’t represent/impact the p/e of index, how can we decide when to exit/enter the markets based on index pe…
Correct me…
Hi Vinod,
If you really look at Markets from 2000 onwards, every other year there is a big dip in the market. In 2000-02, it was big software meltdown, in 2004 it was BJP loosing elections that prompted a major sell off, in 2006 there was a major crash in May which lasted for 2 months, in 2008 there was global financial crisis which lasted till march 2009, and 2011 was a complete wash out year because of India’s internal issues. Impact of these events can be forgotten, if the portfolio recovers subsequently as was the case in 2004 and 2006, but cuts in individual, not so smart portfolios were 30+% on most of these occasions.
If Nifty level reaches 25+, it is very wise to move in cash as the markets will inevitably move back to average levels. I think Howard Mark in one of his letters says that “market movements exactly replicate the movement of a pendulum and they do it with such accuracy that one can’t miss them” or something of that effect.
You don’t have to prepare for a fall from 16-20 levels, as smart stock picking almost inevitably will save you. Remember, from a level of 16-20, if market falls by 30%, midcaps will fall by 50%, but smart portfolio will be 20-25%, which is an acceptable outcome for fundamental investors. On top of that, you are already in a nice bargain scenario (you have hit the bottom quadrant of pe, where you should be ready to bet aggressively). It is when you are falling from a pe of 26 to 13, selling becomes indiscriminate and literally everyone gets impacted.
You never decide a stop loss for a portfolio. It is the individual stocks for whom you decide a stop loss. In bad times of extreme fall, all the stocks will automatically hit the stop loss. Once, you exit a stock, give a break to yourself, think about what went wrong, swallow a little bit of pride and wait for next quarterly results to see if your stock is still doing good and there are no skeletons in the cupboard. If your stock has run away, ride another one as there are 6000 stocks to choose from and you need only 5-6 out of these. But most likely, your stock will be doing a U- shaped recovery rather than a V-shaped recovery and you will find it in 10% range of your sale. Remember, you may not have 10- baggers to boast of, but you can have quite a few 2,3,4,5 baggers.
Finally, people like Warren Buffet and other great investors make a lot of money timing the market. If you really look at their behavior, they quite a big amount in cash when markets were overheated and go out with shopping bags when markets crash. Have you ever wondered from where do they get the money to buy shares in bad times aggressively? They understand the market risk better than all of us and use it in their favor.
Hi Gyan,
Hi Mallikarjun,
Index pe is one of the most important indicators to tell you about the status of the market. Generally, when index pe is high, it is very difficult to find good quality stocks at reasonable valuation. As Index pe will keep rising, you will find your own good stocks also becoming costly. I would not be surprised if Cera trades at 25+ pe, when the markets are at 25 pe. Conversely, when market pe is low, it is very easy to find many good bets at reasonably low pe. Will you believe me if I tell you that TTK Prestige was available at a single digit TTM pe, Lupin at the TTM pe of 15 and Page at a TTM pe of 18 in 2009 August after 4-5 months of start of one of the major bull runs?
There are other indicators like interest rate etc., which can also suggest you about impending fall/recovery in the market.
Hi Vinod,
Your answer tells me that you are not married and have not taken a home loan either :). I think it will be difficult for you to understand Prasad’s POV. Probably, you should have read his comments three years after the marriage.
Don’t take this post seriously. Just a thought.
Like your POV Govind.
Thanks Gyan
Hi Gyan,
You have fallen pray to “representative bias” 
I am married have a 3 yr old daughter and have always had a home loan for last 11 yrs. Infact at one point of time I had around 3 home loans for 3 different properties, but have just one home loan now.
I really believe home loan is the cheapest source of finance and one should capitalize on it…anyway lets not digress from the topic. Let the discussion get back to concentration vs diversification and risk mitigation strategies.
Another risk mitigation strategy that could work at high valuation times is special situations.
Cheers
Vinod
Hi Vinod,
Your answer tells me that you are not married and have not taken a home loan either 
. I think it will be difficult for you to understand Prasad’s POV. Probably, you should have read his comments three years after the marriage.
Don’t take this post seriously. Just a thought.
Prasad ji,
Added to existing positions in CanFin, Repco, Gruh, Astral, HDFC Bank, Kaveri
Raj Lupin’s CEO Vinita Gupta on young turks
Thanks Mallik,
Very impressive. By the way, did she say, the Mcap has multiplied 50 times in last 10 years ? !!
I am still waiting to make a decent purchase on this one hopefully at 25 time last year earnings, it come to about 830 but again another FDA approval pushed the prices up. Let’s see if the current bad condition provide an opportunity.
2 interesting bit of news on ITC.
First bad news (hopefully only from a investing perspective), govt is planning for endgame strategy on tobacco consumption.
Ban on sale to people born after 2000, introduction of non-addictive cigarettes among strategies on anvil.
Second one is from the ITC AGM,
“It is within the realm of possibility that by 2025/30 we can clock a turnover of over Rs.1 lakh crore from our brands in the new FMCG businesses,” company chairman Y.C. Deveshwar told shareholders at its 102nd annual general meeting.
which is about ~20% growth CAGR from the current revenue of 7k cr.
Ibelievethey have rightly positioned themselves in the 2 most significant strands of FMCG, packaged food and personal care.
Let’s see how the story evolves. Am invested.
This article on Prof Sanjay Bakshi’s life is always a great read, so let me just have the link here.
http://arvindt.blogspot.in/2005/09/prof-called-sanjay-bakshi.html
and this line from the story is dedicated to my friends here, who share knowledge without any selfishness
“Bakshi, always remember, that knowledge grows through sharing.”
Hmmm Raj Lupin has been a 50 bagger… Same here waiting to make an entry…
Nice piece on Sanjay Bakshi’s life
