Thanks @vinoths - for reminding me of my duty to share more and add value to this thread in my own way and others can add to it, please
The picture above is a good place to start - as it is illustrative. Thanks Vinoth for drawing attention to it again. (I will locate the excel and do structural update when I find the time - will need some time as I have moved systems in between). For now a quick and dirty update is certainly possible.
Portfolio Structure - An additional component has come in since 2017/18 in my process - that one could consciously maintain/carry a couple of contrarian bets in the Portfolio. This has come in as I realised form 2016 onwards - that Reversal to the Mean - is a LAW. Sooner or later most portfolio contenders need to go out of Portfolio after 4-5-6-7 years of heady growth. My personal examples of prominent top-of-mind exits Astral - 4 years (was proven wrong, its still going strong), Mayur (5), Ajanta Pharma (5) Alembic (5) - were proven right. PI Industries is the only one that has consistently found a place and survived a decade plus; A Bajaj Finance may get there - we have to see.
Similarly this is true the other way round trip. An essentially good business (we need to be careful to check on Industry tailwinds, competitive position stable or growing) will also follow the reversal to the mean law and come back into reckoning. So we need to keep tracking our past winners. So Ajanta Pharma and Alembic are back in reckoning as possible consistent growers/performers going forwards. As a vehicle one could be more comfortable with Alembic over Ajanta - and the reasons could be evident from the results first of past many quarters, Concalls that provided glimpses into the promising differentiated future, latest Alembic Pharma Management Q&A Feb 2020 providing further insights. One should be clearer about the Alembic picture, how well differentiated a business it is today, and how the ODDS might be stacked in its favour of doing well in the medium term; Ajanta Pharma could too - but perhaps one doesn’t have that strong insights onto Ajanta business as of today and medium term; time for another Ajanta Pharma Management Q&A?. We should actually explore possibilities of doing it online - if Ajanta Management agrees to it. Will explore that option!
So where do contrarian bets fit in?
I realised that for any portfolio to be structured well for an all-weather performance, it should be designed in such a way that at least 2-3 out of 4 parts must always be ON and performing. Think I had started a thread on all-weather portfolio, somewhere - may be these two could be merged - if it makes sense - will have a look, again.
It’s like nothing was happening on the PI counter for close to 2 years? Hovering between 800-1000 when growth was flat. But one could be sanguine and holding through with high allocations all through that period - knowing a few important things about the business - most importantly - starting 2 new factories dedicated to independent single molecules at an investment of 300 Cr. With asset turns of 2.5 and above this easily meant 600-750 Cr additional revenue stream coming on a year to max 1.5 years down the line. Besides structural changes in the industry indicated that PI CRAMs business would get more and more traction in the next 2-3-5 years.
At any point of time - its good to include one or two Contra bets that have high visibility of kicking in higher trajectory of earnings a year or two down the line. One should be careful to define Contra bets in a way that these are NOT Value traps. Industry tailwinds are stable or getting better, Competitive Position is stable or getting better; just that earnings are going through a consolidation. There are always candidates for these in most market conditions (if you have a decent investible universe pre-identified) (except extreme uncertain conditions like now, better to wait for more clarity to emerge here to define ones Contra bets in these conditions). The good thing about Contra bets (in normal times) is that Market attention completely shifts away form them, Valuations become extremely reasonable (or extremely attractive like now in bear markets) with high-margin of safety, and the best part - one can allocate as much as one wants (read Capital Allocation Framework high conviction x high undervaluation) - without impacting prices.
Rest of the Portfolio structure remains same as before:
Core bets examples - Bajaj Finance and PI industries still belong in that category. Shilpa probably no more qualifies to be there there; Corporate Actions and Performance Record on Quality/US FDA front main reasons - despite recent performance uptick.
I define Core bets - as ONLY those - where we have significant insights and confidence - that the business is a) most likely to survive - has the financial strength and the leadership to steer it past industry/business challenges b) through/past the cyclical phase will only get stronger as it gains more market share from space vacated by others c) we will have the CONVICTION and the guts to average down - even if the price halves from current levels. (also as shared in the Market Meltdown Actionables thread)
2nd Rung growth - Absolutely we should be out of these - as conviction might not be strong, and we might NOT be able to average down if prices become 30-40% cheaper
Opportunistic Bets - This is NOT the time to be adventurous; This is the time to ensure Survival first, as shared more in Market Meltdown thread by multiple senior investors; time to pay heed to that; Acknowledge we dont know - as exemplified and re-enforced by Charlie Mungers latest interview advising just that.
Steady Compounders - These are structurally important to ALWAYS have in the Portfolio. HDFC Bank continues to remain a possible strong contender there; GRUH post the Bandhan Merger is OUT for obvious reasons; Bandhan bank I would categorise as a high-growth high-risk model; RIsks might be managed well so-far, but doesn’t mean it isn’t inherently more risky and is not more vulnerable during these very tough times, and tougher times ahead?; Scaling up will not be that easy either on Corporate Banking side (more risks a la RBL, compounded more by geographic presence limitations) or Retail Banking (too many similar sized players). Hoping to see more value-additive posts on Bandhan Bank soon from ex-bankers and others in the Financials industry in Team VP (please).
Cash Plus - These times indicate CASH is king; so CASH plus all moved to Cash
Value Plays - NOT the time for these now; As clarity emerges post gradual lift of lock-ups, and we are more aware of the labour disruption mitigations possible, and supply chain mitigations, and all other business-specific micro issues and Management responses to the Opportunities and Challenges before them - This will certainly come into contention. Probably within 6-9 months timeframes - as we have more CLARITY on lockdown impact.
Cash is now around 40% levels in Portfolio; so there is enough ammunition to take advantage of better and better bargains if they become available. Still Invested around 60% in Core Bets (incl. Compounders) only. Alembic Pharma is probably a good addition to Core bets.
Edit1: As mentioned in market meltdown thread, once we had more clarity on the seriousness of what was before us, had no hesitation in booking losses (slightly north of 25% from Dec/Jan peaks) to survive this phase with complete peace of mind, and energy to devote to working hard - at improving processes, get deep domain experts to contribute on VP to solve unsolved puzzles and throw more light on survivability of prospects, engage everyone again in business/industry scuttlebutts, in a bid to identify and position ourselves better for the next set of winners - 2-3 years out from now)
Disc: This Portfolio structure is for educative purposes only. This is NOT a buy/sell recommendation. I may or may not be invested in the stocks mentioned/discussed. My views on the Portfolio structure/components can change suddenly with more insights on a business/industry. I may not be prompt in updating the Portfolio Structure and/or Components