ValuePickr Forum

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

T[quote=“diffsoft, post:236, topic:4286”]
Which is to ignore that there may have been many losers who had the same characteristics as the winners, which you could not study because they are not around. So just by having those characteristics, you do not maximise your winning chances. The best explanation, which is not palatable to the deterministic nature of our mind, is that these things are random to an extent. In some cases to a small extent and in some cases to a very large extent. So do not get swayed by terrific returns because there will be randomness embedded in them.
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Thanks for the elaboration on randomness. This is where I differ with “purists” like you :slight_smile:
I had warned right at the start - this thread is not for the Purists. HM says reduction of Risk and Superior Returns come from Stability and Dependability of Value. Stability of Value comes from stability and dependability of future cash flows - I am a practical guy, so we don’t talk about next 10 or 20 years / but the immediate 2-3-5 year cash flows. And stability of next 2-3-5 years cash flows come from only one thing - there are no 2 debates - it comes from the stability of the Industry and stability/dependability of the competitive position of that business in that industry.

If we work very hard st ground level and do the kind of 36o degree work in industry competition, work with domain insiders, to a large extent we are able to establish the Competitive Strategy/Position of the business - as we get familiar over 2-3 years - we can make a pretty good call on whether that Competitive Position is getting stronger or weaker - there is no randomness in there !!

Reversal to the Mean of a once superior business - is a rule of nature, yes. But to attribute all of that to randomness is neither here nor there. It happens largely due to competitive position weakening/strengthening - as a result of conscious choices made by management, in the light of industry/competitive forces. And still there are businesses that continue to defy this rule. The attempt of this thread is both to acknowledge the role of reversal to the Mean - accordingly adjust the portfolio, as well as to keep looking for those that seem to be able to defy that rule e.g. PI industries, or Bajaj Finance currently (not in '2000)

So any other result happening out of randomness - I am willing to take it on as as an equity investor - because I can’t know or prepare for it. It is best I concentrate on what can be established. Do my hard work, have great patience, and act with great decisiveness - because every year opportunities do present themselves!

Let’s focus back on the topic of this thread - restructuring a current portfolio in the light of our dynamic markets - let randomness take its course - but instead focus hard on the knowable, doable practical acts.

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Hi Newbie,

That account was full of PSU banks. The most inferior quality businesses existing in India. What do you say @Donald about whether they are inferior or superior quality? Given the fact that my account got 105% returns in last 1 year (bought 1 year back only, I can share trade book if you want)

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The opposing viewpoints have been made - effectively. But now this is turning personal. Why is this beautiful thread getting cluttered unnecessarily. Why is it getting personal?

There are many ways to skin a cat. As is to construct a successfully working Portfolio. I don’t think Donald or anyone on this forum is saying there is only one way.

If we want to help illustrate the effectiveness of a particular style/portfolio - just go ahead and publish the actual screenshot of the Portfolio and the tradebook. What’s stopping us?

A humble request - please don’t clutter up with unnecessary jibes/pokes. Lets get back to discussing Portfolio Restructuring - and the effective ways of doing that.

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Sir please publish the Portfolio and Tradebook and explain the style/assumptions made while investing. I am sure there are things to learn from every success.

WOW Brilliant . Hats off to him

Donald sir, Hitesh sir and other seniors. I read this thread from the beginning.
I also found this Momentum based ETF rotation - Amazing backtested results - Need Reviews

Please share your viewa on this, as technically it is a very good idea, but I am not sure, why no one is follwing that thread and also I want to know if any senior is following such strategy long term…

H[quote=“vinoths, post:227, topic:4286”]
With current market situation, most of the stocks listed in your portfolio are expensive. Two common approach is,

a) Wait for good amount of market correction or black swan event to build such portfolio. Sitting with “Cash” when market is extremely valued is also important practice / behavior. I have failed to follow this multiple time :slight_smile:b) Use SIP method by weekly/monthly basis to build the portfolio over next 6 months to one year

Can you share your thoughts based on current market situation and timing to build the portfolio?

Regards,Vinoth
[/quote]

As you rightly mentioned there are 2 key attributes - Patience and the Firepower (to Strike)

  1. Firepower
    In continuously rising markets like now, I have found this becomes an easy job. Every few months some businesses become richly valued or keep getting valued higher -
    Allocations jump from 15% to 25%+. There is only one option in such cases - continuously trim - I do these in tranches of 10%-20% at a time. Canfin, Avanti Feeds are examples. Core Portfolio Holdings like Bajaj Finance, Shilpa, PI I will give a longer rope, trim that much more slowly.

Once we understand the importance of having Cash, this becomes second nature. Mr D’s dictum to me was - in any stage of the Market you should have 20% Cash (near Cash). I took it as a Gospel. So I am always underinvested. I always have my Consulting income cashflows buttressing my fire-power all the time. Each one of us can work out how to maintain firepower at all times (based on individual circumstances), once one appreciates the importance of Cash - being King!

2.Patience
Has more to do with individual Temperament, and also understanding the Work Ethic required to remain Contented - with what you have :). When one has spent 4-5 years, I think Patience is also an Outcome of understanding oneself better, knowing what works for you and why. KNOWING what you are looking for and remaining true to PROCESS will help in developing patience.

Role of Contentment in developing the right Work Ethic - If temperamentally we are always jumping around/salivating at the next opportunity, we cant remain unaffected. No one is a super-human, so it pays to avoid too many temptations. Not getting easily excited - being very CLEAR about what excites you the most. Working hard only on that excitement - helps keep out lot of temptations (NOISE).

Also the real appreciation of the miracle of compounding helps. Appreciating that Compounding results are back-ended. 20% compounding over 10 years is 6x but in 20 years in 36x, and in 30 years?? Even a 15% compounding is 64x in 30 years. provided you can do it consistently. Patience is key to Consistency, Sustainability, and Longevity.

SIP in good businesses is workable - provided one is clear about Value/Margin of Safety. Else, it can be hazardous in a continuously rising market. Only one Secret to Outperformance - consistently UNDERPAYING. Michael Maubussin - I like his very practical thoughts - says Value and Competitive Position are joined at the Hip. If I take HM’s Reducing Risk through understanding Stability and Dependability of Value as a Gospel- I take Maubiussin’s this statement dead seriously too.

I can get better at understanding Value - only if I get better and work harder at understanding Stability of the Industry and Competitive Position/Strategy of the business in the Industry.

Became a big sermon :wink:. Didn’t mean it to. Hope something in above resonates with you and help in formulating your own responses to a simple but difficult job.

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I looked at the trade book (only from Nov’16 - Current). My reason for this was (1) to take a small subsection to see if I could gain some insight, and (2) I am intimately familiar with this timeperiod as I was waiting with my “dry gun powder” for the US election results. That demon happened was icing on the cake. :slight_smile:

Now, as noted by various people obviously there is always a possibility of hindsight bias, creating a reason where none may exist. That said, one thing I found missing to get a 360 view of understanding was - what is the overall rationale of the person building this portfolio i.e. returns apart, what is the timeframe, what sort of businesses this person wants to invest in, what is the understanding etc… Without some context around that it will be difficult to say if these moves are opportunistic/ speculatory or truly driven by VP type “separating wheat from chaff” hard work, analysis, and insight (i.e. patience + decisiveness after understanding the underlying business economics)

I did this exercise for my portfolio and it was eye opening. It clearly brings out some learnings, biases, and decision making patterns and gradual (hopefully increasing) maturity ;). Highly recommend this analysis to everyone for their personal portfolios.

Thanks @Donald for persisting and driving this despite naysayers…

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Just a phenomenal combination and very potent. 500x is totally believable from 2000 to 2017. I am also holding many stocks from th 1980’s and 1990’s that have given some great returns, but not the entire portfolio is up more than 400% which is 4X in the same timeframe.

Have received many cautionary notes from well-meaning senior friends - on newbie folks taking this Portfolio sharing exercise too literally, and getting swept away …

My intention was just to drive home the point on - realisable performance aspirations.

While its good to see such 54%+ XIRRs record over 6-7 years, let us also see this in the context of a continuously rising bull market. The same Portfolio a year earlier or two earlier may have looked like a 35%+ XIRR. And in all probability this Portfolio/Style of active investing with consistent adherence to Process, is probably likely to moderate down to 30-35% XIRR, in most cases. For gifted-outstanding individuals though, there is no bar!

I think every hard-working active investor should at least aspire for 30-35% CAGR in Indian Market context. Let’s not dumb-down aspiration levels with “randomness”, or “reversal-to-the-mean” kind of quotes.

I see many of my good friends - stuck with an aspiration level/contentment level of 15-20% compounding. The whole attempt was to drive home a single point - that if 15-20% compounding is the aspiration level at this stage of India’s economy - one should just invest in HDFC Bank, Nestle, Asian Paints, Bajaj Finance …and the like, and be content! That would serve the purpose beautifully. There would be no need to work so hard at finding newer horses that can also run stronger, faster perhaps.

15-20% Compounding in Indian Market is under-performance in my book. Any logical investor using common-sense with good dose of patience can achieve that. It’s just my view - and I cant help being upfront about it. Those who do not agree - let’s agree to disagree.

A request to everyone - this post is just for the record. Please DO NOT RESPOND to this post - and clutter up this thread. There are more important things to focus on.

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Let’s bring attention back on the object of this exercise, again - Restructuring for risk-adjusted, all-weather performance.

If we take this statement of HM seriously,

In my opinion, the key to dealing with the future lies in knowing where you are, even if you can’t know precisely where you’re going. Knowing where you are in a cycle and what that implies for the future is very different from predicting the timing, extent and shape of the next cyclical move. And so we’d better understand all we can aboutcycles and their behaviour - as different from predicting the timing!

How do we take it forward? How do we take advantage of understanding what is going on now in our economy, while aligning our core expertise of bottoms-up stock picking? Can we prioritise our search for the new stronger horses in a few areas?

One way I see is to acknowledge what is going in now is this trail of thought. Inflation is low or kept under control, interest rates will be low for some more time, currency is appreciating or stable, not in depreciating trend. What sectors will do well now is what we need to evaluate and zero in. (a la Prashant Jain, or most discerning senior friends, who give credence to market/business cycles).

We at VP are traditionally weak at this.
A good way to become more acquainted with this way of thinking is to study lessions from History - in Indian Market, and Global context.

When was the last time we had inflation low or under control, interest rates low and stable, and currency stable or appreciating, not depreciating? 2004-2008?? Can we not gain valuable lessons from that hind-sight study.

I think we can, and am excited to learn in this area, where I am a complete novice. Again it’s important to be aware of the differences. 2003-4 valuations were completely different. World situation was very bullish, not grim like now.

As they say history may rhyme, it may not exactly repeat. If we have a decent size crash by end 2017 or mid 2018, there may be good parallels.

Whatever be the case - one cannot but agree with HM if you are a discerning investor - we’d better understand all we can about what is going on around us - about cycles and their behaviour.

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Thanks @Donald for the categorization approach in planning for restructuring pf. I tried to do that for my stocks. Please correct me if I am wrong in any stock assumption. Looking forward to your suggestions and comments Saji's portfolio

Thanks @Donald for taking efforts as always and helping investors scale the learning curve!

I am not very clear when you mention “Secular crash Pre/post next peak”. Also, what should be the rationale to exit “Steady Compounders” during a crash ? Why should we not continue holding them ?

Request to admins: Please mask identifiers like dp client id next time while sharing, even if the person is willing to share. I’m concerned about the privacy of the party but more importantly security aspects of it. Imagine some hacker scanning these forums for such information to break in or some unscrupulous user misusing it. I’ve been trained to look for these vulnerabilities, so please take it in that sense. Also, please spread the awareness, so next time nobody shares such identifiable information with this forum or anywhere else.

I haven’t tested how hackable nsdl e-services are, I assume they are very secure considering the nature of the data and the multi factor authentication mechanisms such as OTP.

But identity theft is a huge issue in US where hackers assume the identity of real people and claim their tax refunds. Tax refund is the largest amount anyone gets in US as a paycheck, since all taxes are paid and refund claimed unlike in India, where all taxes are adjusted and only extras are paid while filing.

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@Donald, I am very much newbie and following this Advice for past many months. Just want to confirm if my understanding on this is correct. Should this amount be in Saving’s bank where amount can be immediately transferred to Brokerage amount or should it be in Debt Funds? Asking as Amount is 50% of portfolio but as I am newbie would like to take it slowly.

Read other post in another thread where its suggested to invest in Large Bluechip companies like HDFC bank etc so that money can be immedailtely deployed. Kindly suggest. Thanks.

Thanks. :thumbsup: That was a slip-up. Noted and Complied.

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Its only a matter for time before identity theft becomes as common as in the US. There seems to be a casual attitude to these things at this time. e.g. the NSDL guys send out a paper statement of holdings to their customers where they print the customer name, PAN no(wtf!), DP no etc. Identity thieves must be salivating…

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Sir, going by your formula is it EPS(per share) or PAT that you are taking. If it is EPS than do DDT should be calculated on per share basis? What is P in D/P of last term?

@Donald, @hitesh2710, @basumallick & other seniors - I have a basic question. Now the stock markets seems to be getting heated and valuation of some midcaps like Avanti, Vinati, GRUH etc are going into unrealtic territory. Given this context, what should a long term investor do ? Should he/seh book profits and exit the positions (based on assumption that market may correct) or should they continue holding their positions ? Are there any tips, rules of thumb that you used for such scenarios ? Any tips will be helpful and greatly appreciated.

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i found this very interesting spreadsheet on deepak shenoys capitalmind site. Its called magic portfolio. it randomly picks 10 stocks from the nifty 500 and compares it with nifty. The randomly chosen magic portfolio beats the nifty handsdown in almost all iterations!

Essentially literally anyone could have beaten the nifty by a wide margin in the last 1 yr.

Lesson learnt.

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