For a provider the overall premium collected for term plans is much less, leading to lots lower collections and cash in hand for them to deploy elsewhere. Hence volumes need to be significantly higher to match equivalent non term plans. Seems to me that growth will likely be lesser if a large majority start shifting to term plans instead of the currently popular ulips or more traditional endowment/money-back ones.
I think youâre missing a very critical point about credit cards.
Credit cards are useful in 3 important ways:
- For the financially conservative who donât want a lot of credit, theyâre a wonderful way to get reward points which is effectively a discount on everything. I get around 15% discount with my HDFC infinia card on Amazon purchases. Why would I ever want to give up on this & go to upi? It doesnât make sense. Upi is for financial inclusion. Itâs for the not so fortunate ones. Credit cards are for people who earn 5-10 L at least and intend to spend some % of that every year.
- Credit cards are a wonderful way for banks to crosssell other products. When thinking about banking we need to pay a lot of attention to customer relationships. These become much more important when clients net worth increases because they are more to lose. And cognitive overload of dealing with K banks prevents us from doing the logical thing : putting our deposits into K banks offering same rate of interest.
- Just the data on credit worthy customers is golden. So many insights can be drawn from these in order to cross sell
- Credit cards enable us to spend beyond our means which is the point of credit isnât it? I can spend Xx L in a month if I want to, if the need arises without actually needing to have that kind of money in my bank account. Itâs a line of credit. And modern banks like IDFC first have started to price it like a credit line by enabling differential pricing taking credit risks into account instead of charging 40% to each and every customer.
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Thank you. I will revisit my theses based on points you have raised.
But banks/NBFCs are offering other products which offer the same credit lines at significantly less cost. Right now I am in talks for a home loan top up overdraft capability which is talking about home loan rates + 0.5 basis point (approx 7.4 pa), all linked to my debit card. No interest if not used. So spending beyond my means is quite possible without a credit card.
Yes, the discount on purchases is great, and I do keep one credit card - a lifetime free one - especially for these uses cases, and as emergency backup for national and international usage. However, that doesnât mean I am raring to go and use it. If I donât use it, that means no returns on that card for the company.
And while data is great, given the rate at which financial literacy is growing (as examples think Valuepickr, SOIC, UnseenValue), while there will be some duration in which cross selling will grow, sooner or later we will end up with a target market where more customers are aware, instead of ignorant, and in those situations, cross sell would probably work less. Customers will know what they want and go straight to it. For example my updated term plan which I got issued in Jan 21.Nobody cross sold - I went for it, and chose the institution, the feature set, and the payment term and so forth.
Will these businesses grow? - no doubt about it.
Will these businesses end up being the top compounders in a multi decadal coffee can portfolio? - not looking like it to me.
And since this entire context is about choosing firms/sectors to put into a coffee can portfolio - Cards are Insurances are not looking like the right options. Note that I may do some hedging - for example HDFC bank and HDFC (the latter gives me optionality and investment without direct exposure), but straight on cards and insurance firms probably wont make the cut.
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More the people gain Financial literacy, More the usage of Credit card and Term life insurance will be, but lesser the Fees and Charges they will incur.
With lesser charges and Fees , the chances of Profit growth in those businesses might diminish.
I think this is what youâre trying to imply.
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One of the greatest learnings - over a short 10 months invested - is, if you are looking to buy a stock, and its going up dramatically, just wait. Occasionally there will be 1 or 2 that get away, but 90 percent of the time, it will come to your buying range in the short term. Even if you are averaging up, just wait for those red days.
And over short terms, market gives you buying opportunities - inevitably.
Patience is so damn underrated, and by god, is it difficult to practice !! Almost all my wrong calls have been because I jumped in too fast, at the wrong time, at too high a price etc.
And for exactly the same reasons, jumping out fast, however, is almost never a mistake. Same reason as above. There will always be a time to get back in.
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Portfolio at end of year (or beginning of year) - however you look at it. Portfolio now has a large no of companies - I am ok with that. Thanks to @gurjota and @Aniesh7 . More may be added. What will not change however, is the top heavy nature. Weightage will be primarily driven by length of runway, management excellence, tailwinds, and valuation. One other factor - the less I need to monitor the better, or in other words, more I can trust the management to do their work well, the better. Have a lot of other interests, and limited time. Apart from this, the occasional special situation case will apply. There are two I am holding right now (Mirza and IB Real Estate).
One more thing, I will always be in cash. Even if it as low as 2-5%. The Panic/Bear fund. I can count the number of times I have chewed up my fingernails because I didnât have some cash.
Its been a interesting year - learning, experience, wtfs, markets-are-idiotic, i-am-idiotic. what not? However, the start has been made. This is probably always the most difficult first step. I shall always be grateful to @Tar for his comment - âthe best day to start was yesterday, the next best day is todayâ. I now hand it around to others who ask the same question.
Portfolio as of date
| Instrument | Net chg. | Percentage | Sector |
|---|---|---|---|
| RACLGEAR | 27.41 | 6.07 | Auto |
| PRICOLLTD | 32.94 | 5.6 | Auto |
| SONACOMS | 6.72 | 1.18 | Auto |
| DEEPAKNTR | 10.5 | 7.86 | Chem |
| JUBLINGREA | 6.46 | 3.68 | Chem |
| DEEPAKFERT | 9.32 | 1.91 | Chem |
| TATVA | 15.14 | 1.64 | Chem |
| CLEAN | 9.75 | 1.61 | Chem |
| FLUOROCHEM | 15.86 | 1.56 | Chem |
| TATAPOWER | 17.13 | 6.94 | Energy |
| IEX | 80.74 | 5.35 | Energy |
| BORORENEW | 60.21 | 4.14 | Energy |
| UGROCAP | 4.89 | 3.71 | Fin |
| IDFCFIRSTB | 12.5 | 3.53 | Fin |
| IDFC | 24.81 | 3.12 | Fin |
| CDSL | 66.11 | 2.39 | Fin |
| ITC | 5.68 | 3.41 | FMCG |
| MIRZAINT | 19.71 | 2.28 | FMCG |
| RPPL | 25.61 | 1.59 | FMCG |
| IBREALEST | 1.19 | 2.98 | Infra |
| PIXTRANS | 5.32 | 1.66 | Infra |
| APOLLOTRI | -4.98 | 1.53 | Infra |
| SATIA | -0.53 | 1.37 | Infra |
| GPIL | -2.39 | 0.85 | Infra |
| LAURUSLABS | 3.69 | 8.09 | Pharma |
| SYNGENE | 2.28 | 1.89 | Pharma |
| KILPEST | 19.04 | 1.12 | Pharma |
| SUPRIYA | -3.34 | 0.78 | Pharma |
| MASTEK | 10.59 | 7.08 | Tech |
| TEJASNET | 8.47 | 2.65 | Tech |
| SAREGAMA-BE | 14.15 | 1.33 | Tech |
| TANLA | 18.01 | 1.12 | Tech |
Sector wise weightages in existing invested portfolio :
Auto-13%,
Chem-18%,
Energy-16%,
Fin-13%,
FMCG-7%,
Infra-8%,
Pharma-12% and
Tech-12%.
Please do note that Tech is not the same as IT. IT/SAAS/etc centric technology will be played through MFs. And It will be a good percentage. Tech will eat the world in the next decades, I just donât know enough about markets to be able to decide which firm, what valuation, what future etc. Ironically, I am a techie in this world.
In terms of allocation weights, top 6 (counting IDFCF/IDFC as 1), account for 42%. Top 15 account for 75%. And then comes the long tail of about 20 stocks with another 25%.
Cash in hand is about 8% of portfolio worth. Will keep adding to this and wait for the dips that come along.
Since I have been continuously infusing capital, and there has been churn, its hard to make sense of the effective gains. But as of today portfolio is up 15%. Capital has been infused from Jan 21 till today, So averaging it out, and thus assuming all capital was added roughly 6 months ago, portfolio return is 30%. Which is pretty much inside of my goal of double every 3 years. Maybe a touch better. Hopefully churn will be a lot less going ahead. Lets see.
Watchlist - Am watching RajRatan, high possibility of getting added. Cant make up my mind about Sequent. Also looking for a way to play textiles but cant build enough conviction on any.
On a separate note, been looking at the Tata group as a whole. I think thereâs stuff going on in there that we are all missing. My gut feel is that we are watching the starting reels of a movie named - âtaking the elephant to the Olympic sprintsâ. First step there would be to get the elephant fit. It is looking more and more like N Chandra is doing just that. It doesnât take a lot of imagination for me to imagine a consolidation of TCS, Tata Elxsi, Tata Comms and Tejas for example, only obstacle being complexity. Similar for the Tata financial and lending firms. However, analyzing a single Tata firm is a hell hole, let alone analyzing the entire group. I am plugging through though. If anyone wants to pair up on this, for a long time, do ping. My intuition here though, is saying that the Tata conglomerate is reinventing itself thoroughly. If it succeeds, it will be a wealth creator like nothing seen before in Indian industry.
On that note, everyone have a great 2022, and may the lords of heaven look kindly on you and your portfolios throughout the coming year.
Cheers.
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I think you may need to revisit the way you consider these companies as either FMCG or Tech. They might have hint of the sector but the moats & risks for each may not match with the sector mentionedâŠ
Agree. I was just doing a broad bucket thing. For classification purposes. Otherwise it becomes just too many sectors.
Not sure about your assessment on insurance:
- If you are bullish on term plans, by definition you have to be bullish on life insurance providers. There is massive under-penetration of term protection + it is the highest margin product. For most life insurers, term insurance is almost 50% of the new business they underwrite in terms of profitability.
- If customers become more financially literate and start going directly to insurance companies (which could be a 25-30 year journey rather than a 5 year journey), then insurance companies will be one of the biggest beneficiaries since no commissions to agents and bank partners.
- You are assuming that the end goal for everyone is maximizing returns. In that scenario I agree that term + MFs works best. However, people in different stages of their life may have different priorities/financial needs. For eg, just look at the response that HDFC Lifeâs Sanchay Plus product (guaranteed returns) got which was offering a yield of just 6-6.5%. 100% allocation to MFs may not be right for someone who is for eg 70 years of age but might be right for someone who is 30.
- Traditional insurance products (ex of ULIPs) still offer a tax arbitrage vs other products with similar riskiness. For eg the HDFC guaranteed return product mentioned above with yield of 6-6.5% would have been tax free. For someone in the highest tax bracket, that would mean a comparable FD yield of 9+% with low risk levels.
In addition, probability of disruption in life insurance is pretty low. There are massive entry barriers in terms of distribution, brand, trust, etc. Even 10-12 years down the line the same 1 PSU + 4-5 private players are likely to dominate the market. Sounds like a recipe for compounding!
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To be honest, I have not really delved deeply into this sector. It was a period when I was contemplating an additional coffee can portfolio and which large cap consistent compounders would fit the bill.
I did not really know that term protection is the highest margin product for insurance firms. Have to verify this independently, If that is the case, then yes, I agree, insurance providers may be a good bet. term protection is massively under penetrated.
Demographically speaking, and considering the next couple of decadal trends, I think its the relatively younger generation set which will drive this entire financialization theme.
However, this entire discussion is rather moot as I am not looking at any insurance firms, or a coffee can portfolio. At my stage, Iâm in a somewhat more aggressive growth oriented mode and hopefully will be able to successfully navigate this phase.
However, thanks for the inputs. I will keep in mind when looking at possibilities here in future. This is one of the reasons why VP is so very useful. Fallacies in ones thought process is called out and brought to notice immediately.
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Short portfolio update.
Took a long hard look at the portfolio and trimmed/exited some positions. Basically, anything in there with the slightest whiff of fomo, greed, inadequate business understanding, corp gov issues, indeterminable growth, not long term enough (Excepting special sits or extreme undervaluation), or have alternatives in existing portfolio which provide better sleep have all been junked.
Supriya - exit - have not studied in enough depth. Too small an allocation.
Hikal - exit - CG problem, not enough understanding of business.
IIFL - Fomo/greed. Exited.
Tanla - Great business, good prospects, but really no significant moat. Too small an allocation. No point.
Sona - exit - Donât know when growth will happen. Will monitor for triggers. But as of now, racl/pricol look better.
Apollo tricoat - Was holding for the merger arbitrage. Really doesnât fit. More of a consistent compounder type, slower growth rate expected, No point.
Tata Power - Trimmed. Very complex business, But long runway. Can keep adding as and when the story begins to crystallize. No point in being one of the highest allocations.
Significant Add - Added Praj. 2.5%. Hoping to scale up.
Lots of other pressures coming up over the next year. Tickets which offer the greatest chances of peaceful sleep, lower monitoring costs(time/effort), and no issues in holding through drawdowns have been preferred. Unnecessary diversification or overexposure did not seem the path to get there.
Watching - Rajratan, Privi, Fairchem.
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I do not think that this particular slide is being read and understood correctly. The essence is that, over very long term, earning growth of 25% adds 25% CGAR while PE can add ±7% depending rerating/derating. But if the earning growth is 25% over long run, then stock CGAR cannot be less than 18%. I do not find any mistake here. But of course the key is 25% earning/cash-flow growth over 10+ years.
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So I do not follow Saurabh Mukherjee but the formula written is correct as it depicts the change in PE and not absolute PE.
The basic mathematical formula for
change in PE = change in P + change in E
or
change in PE = change in P - change in E
and it is the standard Fractional Uncertainty formula which is used here.
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Its been a while. 2022 has been interesting.
Key learnings for me -
i. Talking about holding through a 25-40% downfall vs actually doing it are two very very different things. Without conviction of your own, you wont sustain.
ii. I donât like how EU/West is panning out. So trying to reposition portfolio such that exposure is mostly domestic. Am not there yet.
iii. Cutting losses in a downturn and holding cash to get back seems to be a good strategy. Remained at breakeven bcos of this through the Apr/May/Jun period.
iv. Timing the bottom is not possible. If you have cash and conviction, every solid red day is a good day to add.
v. Lean how to wait,. Biggest biggest issue still.
Current portfolio and weights are as follows -
| Scrip | Avg. cost | Allocation |
|---|---|---|
| Lauruslabs | 492.48 | 8.19 |
| Itc | 241.97 | 8.05 |
| Mirzaint | 201.76 | 6.04 |
| Idfc | 46.45 | 4.95 |
| Jublingrea | 457 | 4.56 |
| Intellect | 637.69 | 4.24 |
| Sgbmarch30 | 5009.2 | 4.17 |
| Pel | 1651.39 | 3.85 |
| Iex | 184.63 | 3.69 |
| Luxind | 1795.8 | 3.59 |
| Deepakntr | 1779.83 | 3.55 |
| Gujalkali | 692.04 | 3.45 |
| Rajglowir | 625.7 | 3.33 |
| Prajind | 329.99 | 3.29 |
| Gravita | 273.29 | 3.18 |
| Agarind | 459.05 | 3.06 |
| Tejasnet | 442.64 | 2.95 |
| Balamines | 2872.13 | 2.87 |
| Krsnaa | 532.35 | 2.66 |
| Gpil | 257.59 | 2.57 |
| Bororenew | 665.28 | 2.21 |
| Polycab | 2144.79 | 2.14 |
| Sbcl | 401 | 2 |
| Pixtrans | 788.51 | 1.97 |
| Saregama | 363.27 | 1.81 |
| Fiemind | 1243.45 | 1.66 |
| Lti | 3980.4 | 1.59 |
| Satia | 114.11 | 1.52 |
| ControlPr | 451 | 1.5 |
| Ugrocap | 143.6 | 1.19 |
| HeroMotoCo | 2814.45 | 0.09 |
| Tiindia | 1919.75 | 0.06 |
There has been a lot of selling off and buying back over the last three months. Some old conviction plays are gone. Some are back. Some have much increased weightage. However, there is a core which is staying constant. If I had to trim it to a list of 10/11, that would Itc, laurus, dn, idfc, pel, jubilant ingrevia, intellect, lux, praj, gravita, tejas.
Am an agile software design practitioner - there is a term there called âemergent designâ. What I am finding out, is that there seems to be a term called âEmergent Convictionâ as well.
On the watching and reading side, are the following (in random order) -
Aptus, IIFL, TCS, SonaComs, TataPower, AngLifesciences, YashPakka, Morganite, ABB, Siemens, Heromoto, Borosil, UshaMartin, Titan, HAL, BEL, SwissMilitary, ShardaCrop, Inflame, InsecticidesIndia and Syngene.
Not much more to say. Been an interesting time in the markets and the world. Hope everyone is keeping safe. Cheers.
Edit - Tii and Hero moto are tracking quantities.
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@blue whatâs the reasoning for selling RACL GeartechâŠ
And your views on IEX regarding its prone to disruptionsâŠgovt policies etc âŠ
sorry to interrupt here you were asking opinion of others about IEX in three four threads .it is better to sell and reenter once you have more conviction .this kind of confirmation bias will not help you to hold on to IEX for long term
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I studied swiss military consumer goods and this boy can become a man in affordable luxury goods segment but I need to know more about management. Help is requested.
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Sorry but I do not have a great deal of information on the management of Swiss Military. It looked interesting, and I still hold a very small tracking position, but information in scarce.
One of the names who invested in this early is Safir Anand. He is active on twitter. You could try reaching out.
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Thankyou Sir. I studied itâs annual report. It looks fine on paper. Product is good. But itâs a very small fish in large pond.
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@babuchit
When the PE becomes half the CAGR difference will be -7%
Whereas when the PE doubles the CAGR difference is not +7% but more than that ~+9%.
If you invest in any Index fund you can expect 12 to 15 % CAGR year on year. The Question is how much more you can generate beyond those 12 to 15% CAGR, for that Valuation matters and entering and exiting at the optimum PE matters
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