This is very interesting. A year-back things were not so rosy when looking at near-term performance but have changed drastically now.
But as you rightly pointed out there is not much difference in long-term performance. It is time to stay clam and we should never extrapolate short-term performance. 
Yeah, agree with you. I want to learn that trick. Itās a shame that I could not buy bajaj finance at 1800, 5000 and now 6000
From the latest PPFAS Factsheet -
When we invest in a company, we are typically looking to stay invested for a minimum of 5 years. Investors in our fund should have a similar approach to investing. We also do not force ourselves to be fully invested at all points in time and may have cash equivalents and / or arbitrage positions in our fund.
We do not expect our stocks to outperform the indices on a weekly, monthly or yearly basis and the comparison comes into picture only over a longer time horizon. There have been numerous occasions in the past where our fund has lagged the indices and there will surely be such occasions in the future.
To the extent that we are not in the hottest sectors of the moment and that we may see some build up of cash in the portfolio, the fund could see some underperformance in the near term.
Selecting small and mid cap based on past and future outlook
| Has management delivered on the previous strategies (ROCE and Growth) | Pervious strategiesā growth maturity | New strategies for future growth | Is new strategy delivering ROCE and growth | Sector tailwind | Action |
|---|---|---|---|---|---|
| No | - | No | - | - | Ignore |
| No | - | Yes | No | - | Ignore |
| No | - | Yes | Yes | Yes | Wait till sector tailwind is over and check performance in sector headwind |
| No | - | Yes | Yes | No | To be decided |
| Yes | Matured | No | - | - | Ignore |
| Yes | Matured | Yes | No / WIP | No | Add to watch list provided overall ROCE is intact |
| Yes | Matured | Yes | No / WIP | Yes | Add to watch list provided overall ROCE is intact |
| Yes | Matured | Yes | Yes | - | Third best Portfolio candidate - Suprajit |
| Yes | Long runway ahead | No | - | - | Best portfolio candidate even with lower growth rate because less chances of future capital allocation mistakes - Abbott |
| Yes | Long runway ahead | Yes | No/WIP | No | Portfolio candidate. Willing to give longer time for a management to deliver provided overall ROCE is intact |
| Yes | Long runway ahead | Yes | No/WIP | Yes | Portfolio candidate. Willing to give some time to management to deliver provided overall ROCE is intact |
| Yes | Long runway ahead | Yes | Yes | - | Second best Portfolio candidate even with higher growth rate because of more chances of capital allocation mistakes ā Ajanta pharma |
Approach is to try to be ready for next cycle with incremental capital than enjoying returns of this cycle
Quality underperformance can be really long this time same as what prashan jainās elongated underperformance in last cycle
Long quality underperformance window can be exploited to be ready for the next turn of quality outperformance
Most likely, my small cap allocation with incremental capital will start in next cycle than this cycle. Hoping current small cap allocation which was built over last entire cycle will give some rewards now.
Adding - kotak bank and abbott
Any thoughts about ABB?
Hi Praveen, sorry I am not tracking ABB
Great interview by SOIC with Rohit Chauhan
https://soic.in/blog-description/rohitchauhaninterview
Highlight for me -
I like this definition of riskāāRisk is what is left after you have thought through everything that can go wrong.ā
The usual risks such as raw material fluctuations, customer or supplier concentration are not as big a risk. If a risk is understood by the management, you can evaluate whether they are aware of it and actively working on reducing it. For example, FDA audit risk is now a known risk and investors can evaluate how the management is addressing it. This was not the case in 2015, when the challenge first appeared.
More the number of down cycles business has undergone, the gap between number of known risk and unknown risk reduces
Usually largecaps are the once which have undergone multiple down cycles and thats why have lesser number of unkown risks
My effort will remain to wait patiently and find a small cap which has undergone multiple down cycles
Continuation from previous posts - Current Investment framework in detail
Winning categories ā Consolidated / underpenetrated / scalable/ created shareholder value in the past. There can be more winning categories in future
| Winning Categories | Category winners |
|---|---|
| Banks | HDFC Bank, Kotak Bank |
| Insurance | HDFC Life, ICIC Lombard, Bajaj Finserv |
| NBFC | HDFC, Bajaj Finance |
| IT Services | TCS, HCL Tech |
| Retail | Avenue Supermart, Titan |
| Staples | Nestle, Britannia |
| Home improvement | Asian paints, Pidilite |
| API/Contract research | Divis, PI Industries |
Return expectations
Assuming one has not paid evidently high prices for portfolio companies, long term portfolio returns will gravitate towards the collective earnings growth of portfolio companies
The return for the investor of the portfolio depends on the collective earnings of the portfolio companies and investorās behavior. Depending on how investor ābehavesā behavior can provide premium over earnings growth or it can drag returns below earnings growth
Earning growth profile and behavior equation for my portfolio companies
| Category | Earnings Profile | Behavior Premium Possibility | |
|---|---|---|---|
| Category winner of winning category | Mid to high teens | Can be high because of lower volatility and established business | Buying kotak bank at 1100 |
| Bottom up | 20+ | Low to nil because of high volatility and not so established business | Not able to buy Suprajit at 100 |
Combining both, my aspiring return expectations are ā portfolio returns of mid to high teens + behavior premium. But letās be conservative and assume my behavior will have no impact on the returns or even with good behavior portfolio earnings growth is low teens. Therefore mid to high teens return expectations are fair to assume
Opportunity cost
The reason I am a big fan of Mutual Funds because they have best possible framework to boost behavior premium. All one has to do is know the fundās strategy, understand when it underperforms, buy more units with few clicks when strategy is underperforming and stay discipline with SIPs for rest of the time. Last week before market corrected on Thursday and Friday, my mutual fund portfolio XIRR since Jul 2015 touched 20% and settled at 19.5% by end week. My behavior premium is around 300 ā 350 bps in the mutual fund XIRR achieved.
My effort is to build a framework/approach which will enable behavior premium as good as if not better than mutual fund framework
Very interesting portfolio stocks.
Very inspired by your story sir . I am also investing in MFs my current mf portfolio is Parag parikh flexi cap, Nasdaq 100+ Edelweiss china off shore fund , SBI index 50 ETF, Axis small cap for next 15 years.
Can you please review my portfolio and any suggestions for me ?
Hi Dhiraj
Please dont call me Sir.
I usually refrain from giving portfolio advice because first of all i am also amateur and second there are many ways to make money in the market.
Therefore i wont comment on your portfolio. You must have thought something different than me which is more suitable to you. I will just tell you my thought process
I like to make fewer decisions and that reflects in my MF portfolio as well as direct portfolio
For MF portfolio, as per my thinking, 2 multicap funds with complementary strategies are good enough.
For mutual fund selection- you can refer to the post i have shared earlier
Yes I got it your point,
Thank you so much
Omkarji, would be thankful if you advice which are the best MF SIPsā¦ considering my risk appetite is high and I will remain invested for long term.
Bhala Uski Kameez Meri Kameez Se Safed kaise
As a 90ās kid, this was the famous RIN ad I grew up with. The advertisement exploited the behavioral flaw of human nature ā āThe tendency to compareā. The bull market is manipulating me on the exact same lines, making me think āāBhala uski earnings mere earnings se jyada kaiseāā
What I earlier thought about second bull market FOMO
Earlier I thought the second bull market FOMO will impact me lesser than the first bull market FOMO because - now my portfolio size is bigger than first bull market and thatās why, I can settle with lower but steady returns
What is actually happening
Reason
āāBhala uski earnings mere earnings se jyada kaiseāā and also āāMud-Mud ke dekhe sansar, stock price ki chamkarā
Reminds me one quote of famous Peter Lynch book I am reading nth timeā¦āyou donāt lose anything by not owning a successful stock, even if itās a ten baggerā
In adverse situations like melt down or up, I tend to read such books which make me cut the noise even after being right in middle of noise by listening to one of most sensible personā¦itās kind of he reinforces things I already know in the most positive mannerā¦itās strange that we keep needing such reinforcementsā¦only says I am just a beginner!!
@Shakti_Srivastava - please read post no 56 on the thread
@Amritasen22 - please read post 85 and 91 on the thread
Thanks
