Permanent Buy and Hold Portfolio

Q&A: Questions & Answers Portfolio Q&A
85

I agree with your views. As long as stocks have 10% ish growth in EPS, then ethical management is enough for the long term investor to keep the faith. Especially, when the going gets bad, this is when the ethics start tearing up at the seams.

These companies are all good, in the sense of a good management. But, LnT and Tata Steel have shown very poor growth in the last decade, which probably signals the lack of (good) vision from the side of the management.

Poor growth is also indicated by, in case of tata steel, its bottoms of 2004,2009,2013,2016 are about the same. 12 years is a long time for an investor to keep the faith.

Other than LT and TataSteel, holding the other companies you mentioned, for long years, is wise.

Could you further explain this Maggie Effect.

1 Like
86

No stock in any portfolio for a Permanent Buy and Hold portfolio will continue growing.

Imagine going to an All You Can Eat Restaurant in the USA or at BBQ Nation in India. That is the “growth” phase of a stock like Reliance or HUL or any of the Tata’s. Then comes the ‘digestion’ phase, where it is not doing anything but just resting like a Bear or Bull that has eaten a lot and move side-ways, downwards or up and down. This ‘digestion’ phase is a test for long term investors. We just have to be patient.

HUL is a perfect poster child. It traded between 190 to 281. Boring. No performance. Over-valued. I even sold a few hundred shares getting tired. What happens after that to this over-valued stock? On Aug 2nd,2010, the digestion phase was over, and the giant inside HUL woke up. From 234 to 1873 high most recently. I was told about the under 1% performance, dead investment, no where to go, over-valued so so so many times, and I even got unseated in my position and sold approx 1000 shares from a very large holding. Now, this was not the Maggie Effect. But, an effect of losing the conviction in Ponds and 100 other brands that it owns.

Maggie Effect: Think back to Nestle in 2015-16. They took crores of packages out of the stores, and the phenomenal stock of Nestle dropped from their highs to 5500 (approx - going by memory). I started buying at 6200 and down to 5500. Sold off at 8000+ cause this was just a Maggie Effect stock for me. I should have made it part of my Permanent Buy and Hold portfolio, but that was a different thought process and different strategy.

I use the Boeing Max effect as the Maggie Effects of many large wonderful corporations, causing the temporary bearish view by institutions, investors, HNIs and start buying at the worst point of the investment. Did this in J.Kumar (Mumbai Contrac), ICICI Bank (MD), Welspun (Egyptian counts), INFY (MD), Pharma (FDA inspections), Vedanta (bear in Commodities), Edel (NBFC), Vehicles (poor sales) and many others.

100% of these Maggie Effects do not work out immediately, but Fallen Angels need to be evaluated carefully but quickly and then watched from a TA angle to buy in SIP mode. Just another style of investing that might not suit everyone…

In the LT Buy and Hold, you will take hits with Cyclical Companies like TaMo, Tata Steel, MnM etc from time to time. It will shake your confidence. Or you might want to take 50% of your position and get out at the bull highs and get back in at the bear lows (no perfection here either).

KKP

4 Likes
87

After 25 years, Maruti could have AI built inside for a cheap price and can still be a leader. There is no guarantee that they will fail. Market focusses on the next 10 years at most and even if we are ahead by 5 years, we must be okay.

88

Sir,

CAGR of HUL in the last 17 years (200 in 2002 to 1800 in 2019) is around 13%.
CAGR of NIFTY in the last 17 years (1000 in 2002 to 11600 in 2019) is around 15%.

(Taking 2002 as that is the oldest data I got for HUL on Google Finance)

I understand that every individual has their own investment philosophy but if a stock under performs a diversified 50 stock index by 2% over a period of 17 years then it cannot be considered a good investment.

Please do correct me if I am missing something as I am a novice.

89

In my opinion, we also need to consider the volatility of price and draw downs. HUL did not correct in 2008, while NIFTY was down by more than 50%. Such price characteristics of a stock may be desirable to some investors and/or some portfolios.

image
image943×608 38.3 KB

1 Like
90

What matters is not the absolute returns but risk adjusted return. HUL might have been less risky for someone who understands the value of its brands and distribution strength, as that person will have the conviction to hold position/average down in market downturn. It may also be less volatile and more consistent performer (doubtful, an index is usually less volatile, and volatility and drawdowns is how some people quantify risk).

2 Likes
91

All hindsight arguments makes a lot of sense since logic prevails here, cause you can use logic-of-perfection-with-hindsight. Now, try to apply this for a future situation, and tell yourself what investment will work out better between Nifty 50 and Stock ABC, or a collection of stocks.

If you can predict this well, and can also get a Risk Adjusted, Lower Beta Investment with good sleep at night, then we are all going to follow that path and investment. But, that path exists for very few and they do not share their perfection of timing the movement in and out of stocks.

In this case (of future forecasting over many decades) logic will work for sometime, but when it does not work like 2008, it will create a havoc in your mind, and you will change the strategy.

My HUL has been purchased in 1954, and there is a proven track record in my heart, and my heart gives a stronger signal than my mind. And, this is not the only stock in the portfolio since I have almost 50% of the Nifty stocks of that caliber and none of them perform equally in any given year.

But, ultimately, the collection has helped create wealth from previous generation to mine, and it will be passed on to the next generation. If HUL drops to Rs1000, I will still be holding it, and I expect it to give a good size correction also, like it has done in many years over many decades.

Just a style of investment that beats most methods, not in % terms, but in overall Beta, overall Sleepfulness, and overall Wealth generation factors. What else matters for a Wealth Generator that is a 2nd horse to my primary source of income?

Read this twice since it has been an idea passed on from previous generation of patient-highly-disciplined investor-of-a-business. Just my 2 cents, and no onus on any particular stock or idea since I am not an advisor.

KKP

25 Likes
92

I see what you are saying and it makes sense! Thank you!

93

If one is wanting his investment to give security and returns akin to Fixed Deposit in State Bank, then the above approach is fantastic.

Earning 13% is as good as beating FDs by a factor of 2, post tax. Really good, and doing that over decades is even more powerful.

I completely agree with you when you say that people are forced to change strategy (read: booking loss and shutting shop) in the face of sharp drawdowns.

This brings us to an important point. One must calibrate his tolerance for drawdown, and chose companies accordingly. And the returns will be commensurate with the risk-level they have chosen.

For ex. a 30 year old would be fine with 30% drawdown, so he could invest in say HDFC, Reliance or TCS. Whereas, if a 55 year old, whos threshold is 10% will have to be far more defensive and invest in HuL.

Point is, one must understand his own threshold for bearing a drawdown.

5 Likes
94

Pls consider dividends also…the yield for someone who bought at 200 RS would be unimaginable…plus the runway of growth ahead…

1 Like
95

This is the information I got comparing Nifty and HUL returns. If you consider year 2000 as the base then HUL has underperformed. Still considering dividends (HUL ~ 2% yield and NIFTY less than 1%) HUL comes close.

Stock 3-Apr-2019 3-Apr-2018 1 Year Gain 3-Apr-2014 5 Year Gains 3-Apr-2009 10 Year Gains 3-Apr-2004 15 year gains 3-Apr-2000 19 year Gains
NIFTY 50 11643.95 10245 13.65% 6736.1 72.86% 3211.05 262.62% 1841.1 532.45% 1534.75 658.69%
HUL 1671.85 1348.45 23.98% 606.9 175.47% 230.9 624.06% 156.55 967.93% 263.52 534.43%
96

The share price of HUL during early 2000 is an aberration because HUL share prices had gone up from 61 in early 1996 to 240 in early 2000, a gain of 4 times (CAGR of 40+) which I do not think should be considered normal. Otherwise HUL has beaten NIFTY by a fair margin in the last 20+ years.

Please let me know if I made any mistake in the calculations.

4 Likes
97

One point, hul shares dividends with shareholders, does nifty ETF or index fund also?

98

Yes. NIFTY BEES holders do get dividends.

99

Nifty bees investors do not get dividends.Only NAV gets adjusted based on the dividends…pls correct me if I an wrong…

1 Like
100

A very nice article on buy and hold strategy.

2 Likes
101

Nice article but that buy and hold suggestion is true in the context of index funds and bonds index (which we don’t have except medium to long-term gilts), but not necessarily applicable to individual stocks. At times we have to sell early, jumping in fast and getting out quick.

Buying Indices could be considered as legacy, one that could be transferred to next generation.

3 Likes
102

Certain stocks that are in the blue chip category, can and will weather less rain, increasing rates, Trump tweets, and other storms are just worth holding for:

  1. Lowering the Beta on the portfolio
  2. Sleeping well
  3. Rebounding when the economy comes back
  4. Somewhat Blunt to Trump’s sharp tweets
  5. Consistency of Dividends
  6. Constant Reorganization and somewhat immune to disruption, since self-disrupting
  7. Bury the LT Capital Gains and just keep it multiplying (compounding)

Not a lot of the younger generation ever agree with me cause everyone wants to compare to Nifty or Sensex or Reliance Growth MF or soon it will be various ETFs.

I don’t compare since there is so much value to me for the above 7 points that gave me no pain in 2007-08 or 2001-02 or Harshad times. It has immense value.

Since I wrote on HUL holding as the Lucky Family Stock that started this original portfolio 1 generation ago, I want to keep a few names like RIL, Siemens, Infy, TataSteel, MnM, ABB, LnT and a few others that continue to disrupt themselves and reinvent themselves for the Consumerization and B2B needs of India between 2019 and 2025.

Good luck…Good investing.

KKP

3 Likes
103

https://www.business-standard.com/article/pti-stories/majority-of-millennials-in-india-questioning-need-to-own-vehicle-deloitte-119062500799_1.html

1 Like
104

Hi all

It has been close to 3.5 years since this thread started. Was wondering if the participants on this thread did maintain a constant portfolio since then and want to share their experience now. We had this pandemic which none of us expected.

I looked at the first post and the portfolio returns are almost exactly the same as the Nifty! Roughly 68% (ex div). Out of the 13 stocks - 5 did better than the index (best Baj fin, followed by Asian paints, Pidilite, TCS and Sun. Talk about coffee can :slight_smile: ). 3 ended in red and rest were positive but behind Nifty.

I then looked at my own personal portfolio. I classified those stocks which I held all through in this period - HDFC bk, Pidilite, Baj Fin, Kotak, Nestle, Dmart, Divis, Reliance, NGL finechem. Unfortunately I went in and out of a few stocks and in all my timing actually lowered the returns.

One thing which I think is very difficult and a real test for long term holding is to be able to not sell when the whole world is convincing you to sell. Somehow I am most comfortable selling on price action (while buying primarily on fundamentals).

Regards
Deepak

11 Likes