Portfolio Re-Structuring/25% CAGR quality-growth for next 2-3 years

Hi, is it Donald’s portfolio or VP’s public portfolio ? Can some one answer.

Its neither.

The example Portfolio (of a friend) was cited for having many common entities and being modelled after Long-Term and Opportunistic bets categories of the erstwhile VP Portfolio.

The purpose is to have a meaningful discussion going on Portfolio Restructuring on a continual basis - which we think is relevant for every (aspiring) practitioner. Some seniors would say - structuring is more important - than individual picks - as long as you get most of the basics right.

Proof of the pudding will be in the performance. It should not matter if it is xyz portfolio or mirrors abc portfolio.

2 Likes

@Donald

What I am trying to follow are few concurrent trends based on my interaction with several companies for last few months …

a) There is a compulsion to convert to “cleaner” business practises due to GST and other measures which are being implemented for last 4 - 5 years and getting momentum now.

b) Many promoters have seen how their competing businesses who are relatively clean (not necessarily professionally managed) have increased their market market capitalization and market perception … It is obvious to many that getting enriched by higher MCAP is a respectable way to get enriched than by not so respectable and dubious ways. ANd since the chances of the later is getting constricted, they would be willing or forced or adopt to the former.

c) In many companies second generation younger “overseas educated” folks are gradually taking over their family businesses. In many cases these guys have seen cleaner business practises and associated social respectability and hence trying to transform their own practises.

d) In few cases, promoters who look for outside market capital to grow are realizing, in order to survive and grow, they need a cleaner way of doing things … Else the tap of QIP, Preferential placement or even bank loan would be difficult in future.

Now some changes are permanent and some changes are transient … It’s too early to say and we need to wait and watch their performances. But the clear shift in intent is apparent to me. Problem in India is there are sectors where even your intent is good, you can’t be sure of success as external factors sometime overwhelms the intent.

Coming to specifics, I am seeing a few opportunities in areas of building materials, oil and gas exploration, industrial & automotive lubricants, real estate which can be studied for further understanding and insight like Asian Granito, Ion Exchange, Sri Kalahasti Pipes, GP Petroleum, Kolte Patil developers, Deep Industries and few others. All these needs further review for understanding their business priorities and real abilities to transform.

Disclosure: Author is a SEBI Registered Investment Advisor. The stocks named here are only for discussion and not a buy, sell, hold recommendation. We are having vested interest in few of the stocks discussed. Do your own due diligence before investing or seek help of your investment advisor.

19 Likes

It is unfair to recommend such small cap stocks without any basis and analysis. Some of them are also low on corporate governance. We should restrict ourselves in naming stocks without proper analysis.

Guys/@Vulture

Its good to be a little patient/tolerant of posts that you may not agree with (not saying that you are right in the specific case :))

Else we run the risk of making VP a very boring place that impedes spontaneous free-flowing discussions with too much accent on deep-dive value-addition. Think about that. That is not everyone’s cup of tea

Also please think twice whether the context in which something is being quoted makes sense, or doesn’t? What about the INTENT? And then feel free to take/post a considered view.

Ideation - that can be actionable (for further analysis) - is one of the main planks that folks come to places like VP for. We are hopeful of releasing the VP TopContributor evaluation/selection criteria this week for public consumption. That will give everyone much better feel for what is valued by the community and what is not, and in what priority. There will be a place to discuss that again free-flowing basis.

Request everyone to please hold your horses. Will be good if we do not respond to this message and clutter-up this thread. Thanks

17 Likes

2 posts were split to a new topic: Candidates for 25% quality-growth for next 2-3 years

Segregated the Candidates Ideation part to a sub-thread :slight_smile:

Let’s hope to see Portfolio structuring discussion categories or Opportunity-Sets, and/or a fully categorised all-weather portfolio (could be completely fresh categorisations) submission here. Caadidates/reasoning can shift to the sub-thread

3 Likes

Re:opening this crucial discussion piece, with help from another friend generous enough to share his Portfolio Reconstruction strategies/learnings over last 6 years - from Jan 2011 onwards - heavily influenced by VP Model Portfolios/forum discussions


20 Likes

While this may seem impressive, the ICICI Portfolio tracker readjusts sell transactions automatically to re:adjust unit cost prices (over-estimates). Also Value at Cost (actual as derived from sell-buy transactions) is different from actual funds flow.

Funds flow shared by him looks something like this

Can also be corroborated by the Tradebook shared by him from Jan1, 2011 till date attached 85000XXXX_TradeBook_1Jan2011-14Apr2017.xlsx (64.8 KB)

The tradebook buy/sell transactions will show portfolio reconstruction strategy/philosophy followed diligently over the last 6 years - e.g. lot of businesses shed in 2011, while buying into more sustainable growth businesses progressively. Should be illustrative for all practitioners of the craft.

10 Likes

There are many lessons that can be drawn from here, by the diligent student of Investing craft.

First and foremost is the Returns picture

This kind of returns are achievable, and being achieved by many friends. Every diligent student can aspire for such returns. There IS a method to the madness. But the Focus should be MORE on Business Performance, and LESS on Market Returns. Ability to be “greedy” when others are fearful, and “fearful” when others are turning greedy, is key.

If we bring the focus back ALWAYS on Business Performance, Competitive Strategy/Position of the Business in question becoming stronger or weaker, we should get better at establishing the dependability and sustainability of Value, and by consequence better at the Skill vs Luck Quotient.

Time now therefore to again discuss how to restructure this Portfolio in these “getting-to-be-frothy” times. Not get lulled into complacence - start selling a little where valuations are rich and shift more to where there is good Value - not an easy task, but hey, that’s what we are here for, take a stand, and learn from the exercise - either way!

Invite comments from VP Practitioners. Invite more scrutiny of the restructuring decisions made - all of us can learn from such a continuing exercise.

26 Likes

@Donald : This is excellent stuff, 54 % XIRR is phenomenal. However from the kind of transactions (attached excel in ur post) it seems he is able to devote enough time and portfolio is churn is quite regular .

There are no transactions during Feb-16 and Dec-16 when mkt fear was at peak. Should such extreme fear periods be avoided till one gets some clear direction where mkt is headed?

And Sir I would also request you to please update the VP Model portfolio (ValuePickr Public Portfolio) as its not been updated for quite a while.

1 Like

One important take away for me is that selling is equally important, and perhaps much more difficult, than buying. I have quite a few stocks from this portfolio, holding them from 2010 time frame but my return is no where close to this.

@zoro99
Yes, this is an active investors portfolio. He had also provided snapshots of the Portfolio on Nov 2013, and Mar 2015, which can give a glimpse into capital allocations - which is probably key to the good performance of the Portfolio.

@zoro99
there is no snapshot provided of the Initial Portfolio, but can be re-constructed by those curious, from the tradebook. Initial churn 2011and 2012 would have been influenced by VP style businesses. Post that there is churn, though limited, and evidence of holding on to performing businesses. There is also good churn in 2016 (unlike you mentioned) - evidence of willingness to let go - what doesn’t seem to be working, while getting on to new businesses.

@manishkdwivedi
Yes. These are all known names. There seems to be evidence of buying with good margin of safety. And as you said - good lessons in selling - which is the much harder ART form - you are absolutely right. Obviously, for every learner there will be misses in these calls. But seems to be many more hits, than misses. And again, high capital allocation based on conviction/undervaluation at buy times, has provided the cushion-capital at sell times, to shift to newer horses.

11 Likes

@Donald
Thank you and your friend for being generous enough to share the portfolio. Thank you for showing us that achieving high returns with VP method is possible.

Now some cautionary points -
Like all mutual fund advertisements, the starting year is chosen when indices were low and not hot. Between 2009-2017, BSE midcap index itself has been 5-bagger.
If someone started following VP in say, 2014 or 2015 - I wonder how his returns would look? Would that portfolio have beaten BSE small cap index?

As per chapter “Adding Value” from HM book, VP method definitely adds value in good times (2x more return than market), I hope we will not lose as much in bad times and always get superior return.

Also getting stuck on a fixed number (like 26% return) might lead to aggressive action in low return environment (like peaks we are seeing today) and one can risk losing some capital.

So all I want to say is - let’s embed ample amount of caution in VP thread so that people do not make mistakes and lose capital (like I lost capital post Modi rally buying into Euphoria in FY16).

I am eternally cautios/skeptical person and just trying to ebb the euphoria a little. Hope that’s fine.

Regards,
Rupesh

5 Likes

@rupeshtatiya
Absolutely. The purpose of this thread - restructuring Portfolio on a continuous basis - not to bask in glory. The friend is sharing for a “ulterior” purpose :slight_smile:

There are areas in this portfolio where froth is developing - and there is high allocation - case in point - Avanti Feeds (approaching 25x trailing). One could make a case for booking some profits there, and shift capital to where there is GAP between Price - Value. Not an easy Task! But that’s the nature of the game - one has to remain eternally vigilant!, and work hard at establishing Value :). One could make the same case of booking some profits in Shilpa Medicare, and Canfin Homes too.

You make a good point - how would returns look for someone who started in 2014 and 2015 - modelling largely on VP-style investing? Obviously the timeframes involved are too short to make generalisations - but the exercise would nevertheless be instructive!

Let me try and motivate some friends to share 2 such Portfolios and Trade Book, so authenticity can be established, and learning from buy/sell dissection is more meaningful.

9 Likes

Donald: Thanks for sharing this, a few thoughts on portfolio:

No doubt a great performance, valuepickr has no doubt beaten returns delivered by professionals… a few observations:

  • Portfolio has a lot of great stocks but somehow I don’t see a strategy of maintaining a portfolio specifically:Why are there so many less than 5% allocation stocks in here, its better combine these and allocate to one of already performing stock
  • A strategy quite often used is to add to performing stocks, where if earnings are inline with expectations and even if stock goes up then load it up (and not average by churning to other stocks)… there could be many examples of this, one eg here: can fin despite an early allocation couldn’t be a part of portfolio success story
  • Last: Some fascination with buying stocks in 00’s again, this should be driven by portfolio balance

Overall I see low priority given to churning non performers and high preference to buying stocks than to portfolio allocation.

4 Likes

@RamanTiwari
Valid observations. At the same time one has to be cognisant - that no one becomes perfect at everything from day one:). Key aspect to note - is the person becoming better at the game - allocating more to “his” high conviction ideas (not what has performed best in market - easy to deliver a verdict on hindsight), and becoming more adept at moving out of non-performers, in the same vein.

There is visible improvement in allocation ratios progressively - from wild 30% allocations in 2013 Portfolio, to progressive moderations, to weeding out marginal allocations towards a much more balanced allocation, probably in 2017. From what I can see CanFin Homes has been progressively sold to half the quantity (between 2015 and 2017, else that would have been a 10% allocation at this stage). That may be a reflection on his conviction/overvaluation call.

Considering that allocations-shift are done in a dynamic environment, it may be too much of an ask (even for practised fund managers) to achieve picture-perfect allocations - where conviction and undervaluation both demands are met equally - in market conditions prevalent since mid 2014, say.

For a learning practitioner of the game, key aspect to observe/dissect - quality of progressive choices being made/allocation strategy refinement. Personally, I am happy to note progress on both these aspects.

6 Likes

Thanks for sharing. What about bajaj finance? does it qualify for some profit booking also as its very expensive even on future earning. Thanks again for raising the forth issue.

Dear Donald,

Thanks for sharing the portfolio. It has been an eye opener about the potential of VP picks. Could you also share how the net-worth of the person is allocated? Eg. Cash holding? MF? Gold? Property etc… also background of the person and risk appetite would be very helpful.


Understand that Donald, I do not track all the stocks listed here, but the above framework needs to be applied here with specific effort to reduce all less than 5% allocations

@Alphin: Even if this person has allocated 30% of the portfolio to stocks, at CMP all other portfolios would be minuscule and combined contribution of other assets would be less than 20% now.
Though theoretically many newspaper articles/wealth advisors would suggest 30% each to stocks, real-estate and gold/FD… practically if stocks do good, everything else automatically becomes negligible.over the long term - provided one doesn’t to transfer gains from stocks to other assets. All big investors have almost everything in stocks and are averse to other assets

3 Likes