Restructuring of long term core portfolio - feedback requested

Hi guys,

I’m Nirmal George, an aspiring equity investor who decided to challenge himself during this lockdown and get started on a core portfolio of high-quality stocks to preserve the invested capital as well as provide benchmark beating returns in the long term.

Goals:

  • Constructing a diversified equity portfolio for the long term.

  • I had been investing in companies in small dribbles for the last 3-4 years.

  • Investing to pay for predictable future financial expenses coming 20-30 years down the road.

Risk Profile:

Time horizon more than 20 years so high-risk high return bets acceptable.
The objective is to build a high-quality portfolio of stocks and buy more in dips for rupee cost averaging.

Current Portfolio:

I have a modest Portfolio of ~20 stocks and wish to divest the bad apples and invest the proceeds to better quality stocks with a bright future.

Absolute % Gain
-9.84
Symbol %Gain/Loss %Weightage Business Details Rationale for investment
ALLCARGO -25.24 7.43 Logistics MNC Attractive P/B Ratio & Good Dividend Yield
CESCVENT -62.16 0.54 IT and Allied Services Attractive P/B Ratio and repeated profits
CRISIL -4.31 7.92 India’s Foremost Rating provider Good ROE >30% and very low Debt/Equity ratios
FEDERALBNK -35.49 4.16 Banking and financial services Attractive P/B Ratio & Good Dividend Yield
GALLISPAT -7.36 0.06 Agro, Steel, Power and Real Estate. Great Value and Consistent Profit Growth
GDL 1.01 0.27 Container related Logistics Attractive P/B Ratio & Good Dividend Yield
GODREJAGRO 0.58 10.51 Diversified agribusiness High ROCE & Good Dividend Yield
HDFCBANK 12.25 1.88 Banking and financial services Consistent Profit Growth >20% and healthy dividend Payout
HSIL -28.29 0.53 Building products, Packaging products, Consumer products Attractive P/B Ratio & Good Dividend Yield
ICICIPRULI -8.56 14.61 Life insurance, pensions, and health insurance Consistent ROE & Good healthy dividend Payout
ITC 22.60 11.29 FMCG, Hotels, Packaging, Paperboards & Specialty Papers and Agri-Business Virtually debt-free and providing a good dividend yield.
JKIL -48.09 0.08 Infrastructure projects Attractive P/B Ratio & strong growth prospects
KAYA -8.30 7.73 Skin and Haircare Clinics Virtually Debt-free and much-ignored stock.
NATCOPHARM 6.86 0.59 Pharmaceutical sale, R&D, Manufacturing Virtually debt-free, consistent profit growth & Good ROE track record
OMMETALS -9.60 5.60 Infrastructural facilities Virtually debt-free and attractive P/B ratio
PARAGMILK -40.06 0.80 Manufacturing and processing of milk and milk products Attractive P/B Ratio, Consistent profit growth & healthy dividend payout.
SHALPAINTS -44.96 0.39 Manufacturing paints, varnishes, enamels or lacquers Attractive P/B Ratio and scope for increasing market share.
JTEKTINDIA -45.60 0.46 Automobile Components Consistent profit growth & healthy dividend payout.
SOUTHBANK 14.56 1.20 Banking and financial services Attractive P/B Ratio, Consistent profit growth & healthy dividend payout.
TATAELXSI -9.15 14.92 Misc. design and engineering services Virtually debt-free, consistent profit growth & Good ROE track record & healthy dividend payout.
VGUARD -6.15 8.33 Stabilizers, Digital UPS, UPS, and Solar Inverters Virtually debt-free & healthy dividend payout.
YESBANK -63.36 0.63 Banking and financial services Attractive P/B Ratio & healthy dividend payout.
ZEEMEDIA -60.27 0.05 Broadcasting of satellite TV Attractive P/B Ratio and Brand Capital.

Watchlist with prospective allocations:

I have been reading the Value picker forums as per recommendations from my brother, who is an active member here.
I have zeroed in on a High PE COVID-19 Blue Chip Bellwether Watchlist based on the Pay premium for Quality mantra as given below.

OPTION 1:

All the OPTION 1 stocks are highly discussed and familiar to the community hence the investment rationale in one sentence:

Consistent Wealth Compounding Blue Chips

Name %Weightage
Berger Paints Limited 5.00
Asian Paints Limited 5.00
Bajaj Finance Limited 7.00
Dr. Lal Pathlabs Limited 7.00
Abbott India Limited 12.00
Page Industries Ltd 17.00
Kotak Mahindra Bank 8.00
HDFC Bank 8.00
Pidilite Industries 10.00
Relaxo Footwears 10.00
Divi’s Laboratories Ltd 5.00

I was unable to buy the above stocks during the slump in March 2020 and is now considering a value investment portfolio with 10k invested to each company as given below:

OPTION 2

*Investment rationale behind option 2 stocks:

Companies with value P/E Ratio, High Return on invested capital, low Debt and Consistent 5Yr Profit growth/Return on equity.

|Name|Weitage%|
| — | — | — |
|Eris Lifesciences|10.00|
|HCL Technologies|10.00|
|HEG Ltd.|10.00|
|IOL Chemicals and Ph|10.00|
|L&T Technology Serv|10.00|
|Natco Pharma|10.00|
|PetronetLNG|10.00|
|Polycab India|10.00|
|Tata Elxsi Ltd.|10.00|

Action plan:

Portfolio restructuring based on new insights on the stocks being held.

Considering the bearish phase in the market with many stocks at mouth-watering valuations, I wish to add quality stocks to my portfolio.

Kindly give feedback on the bad stocks to divest and also on the stocks to be added from the above lists.

Most of my existing positions have been based on hearsay and FOMO except for my darling stocks with high Conviction like HDFC, VGuard, Tata Elxsi, Godrej Agrovet, etc.

I’m willing to book loss so as to exit companies with bad management/corporate governance issues with little prospect to recover OR irrelevant weightage in my portfolio.

“Traditionally, the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling. If the investor is now to hold back until the market itself encourages him, how will he distinguish himself from the speculator, and wherein will he deserve any better than ordinary speculator’s fate?” – Benjamin Graham

1 Like

Hi @Nirmal_George,

From your current holding, i would only keep CRISIL, Godrej Agro, HDFC bank, ICICI Pru, ITC, Natco, Tataelxi, Vguard…and rest i would exit and get into some of the OPTION 1 stocks such as Asian Paints, Bajaj Finance, Dr.lal pathlabs, Abbott, Page, Kotak, Pidilite, Relaxo/Bata, Divis. These stocks are simply great buys anytime during dips.

Honestly no need of Option 2.
All the best !!

2 Likes

I feel you have too many stocks. 10-15 stocks should be a good place to be for increasing focus while staying diversified. It would be very difficult to fully understand and track 23 companies.

I would start off by chopping off companies with poor corporate governance or in trouble(Yes, Parag), then either increase weightage in low %age holdings or sell them off.

1 Like

Thank you @sameernics for valuable feedback.

With your suggested reshuffle, the Portfolio shrinks from 23 to 17 stocks and will be sufficiently diversified across Market Cap and Sectors.

Exiting the positions of the 15 low-quality stocks would mean booking a loss of ~9400 and releasing liquidity of ~30k which I plan to redeploy as follows.

Name %Weightage
Asian Paints Limited 4.80
Bajaj Finance Limited 4.40
Dr. Lal Pathlabs Limited 4.05
Kotak Mahindra Bank 4.40
Pidilite Industries 4.80
Relaxo Footwears 3.60
Divi’s Laboratories Ltd 3.80

The high share price of the following 2 stocks would mean that I would have to infuse additional liquidity of ~30k to open fresh positions.

Name Weightage%
Page Industries Ltd 12.00
Abbott India Limited 10.00

Pharma has been a new love for me and the current negative sentiment towards financial sector stocks would play in favor of attractive valuations for the likes of Bajaj Finance, HDFC Bank,.Kotak, etc.

All my entry prices for the OPTION 1 stocks were shattered in the last Rally and that’s what made me look at option 2. Live prices are 10-20% above my reasonable valuations as of right now.

But with the lockdown being extended and a dull economic outlook may cause some corrections to these stocks.

Thankyou @RedEPS for your honest opinions and sensible suggestions.

Yes. I have too many stocks to keep track of. At my current portfolio size, I would keep it below 20 and ideally below 15 scrips. But Alas! I too have been prey to the hold and weight strategy even when strong indicators of nill recovery and bad news for my stocks were to be found aplenty.

Both Yes Bank and Parag were bitter lessons for me. Thanks to you, I realize that to keep hoping that good days would come again would be futile. I had already set up a biweekly Equity SIP for HDFC Bank in March and wish to accumulate and average the prices of quality scrips in my portfolio rather than chase after the current trending stocks.

I am a ardent follower of no frill simple investing. Don’t really pay much heed to things like sectors in flavour or stocks in flavour. I’m into bottom up stock picking. I don’t invest in a stock because the sector will grow only or the government ha big plans only. I’d have ended up buying infra, aviation and telecom stocks if I didn’t follo a strict filter.
I am into buying secular growth companies aka consistent compounders. I’d rather buy a consistent compounder which will give me a 15-25% cagr over 20 years than a company with will become 10x in 2years and then become a blip or underperform.
I am also into buying companies which work in all forms of market cycle be it booms or busts. But not always very restricted to that principle.
I avoid companies in business which need very high capital outlay, has long gestation period, are cyclical, into commodity type product business, high debt, questionable management, doesn’t have a competitive advantage that is also sustainable. After having a strict filter it’s only natural to be left with a handful of choices. Because capital protection is of utmost impoy for me. Even more than returns. I believe if I can protect my downside, upside will just follow.

“It’s only when the tides are low that we realise who are the ones swimming naked” - Bear markets.

I’ll pick up each of the companies here write what I would have done and why. Might not be applicable for everyone:
Allcargo: logistics. Hard business. No product differentiation. Bad roe, roce. Low margins. Ditch.

Cescvent: too less track record to invest.

Crisil: good metrics. But given the current reputation of rating agencies post ilfs fiasco, it’s hard to trust the business model. Customers have lost trust.

Fed bank: good bank but small. Can’t comment.

Gallispat: I’ll avoid cyclical and business which need high capital

Gdl: very less roe, roce

Godrej agro: looks good

HDFC bank: looks good

Hsil: very low roe, roce

Ipruli: good

ITC: good

Jkil: low roe

Kaya: negative roe. Run

Natco: good

Ommetals: low roe, no sales growth. Ditch

Paragmilk: good products. But management issue?

Shalpaints: negative roe. Run

Jetkt: low roe, poor sales growth

Southbank: better banks are available. I would rather buy gold at gold’s price than buy iron at cheap price thinking it’s gold.

Tataelxsi: good company. But has auto giving it major revenue. As auto sector is in chaos, it’s revenue has been impacted.

Vguard: good

Yesbank: run

Zeemedia: promoter issue. Won’t invest

Option 1 has very good stocks. These can be held across market cycles.
One can add: Britannia, GSK consumer, ttk prestige, HDFC amc, Nippon amc, sbi cards, Abbott, tasty bite,
Nestlé, dabur, Asian paints, marico, bata , whirlpool, Titan, zydus wellness, TCS, techM, lti, icici Lombard, polycab, havells, Supreme industries, icici sec, kotak mahindra bank.

3 Likes

Thankyou @Sahiriaralam for your sage advice.
It’s heartening to see such an enthusiastic response from you to my very first post.

You seem to be sharing the same philosophy behind the OPTION 1 watchlist stock selection rationale.

Looks like Autos, Aviation, Infra, etc are out of the question here.

I have used the recent stock market rally to exit my positions in the bad companies as suggested by the community.

Here’s my updated portfolio:

Stockname % Gain Sector Name Capitalization Weightage
CRISIL 4.82 Credit Rating Agencies Mid Cap 10.28
Godrej Agrovet 4.41 Miscellaneous Mid Cap 12.92
HDFC Bank 2.52 Banks Large Cap 6.46
ICICI Pru Life -5.32 Insurance Large Cap 17.91
ITC 26.54 Tobacco Products Large Cap 13.79
Natco Pharma 15.01 Pharmaceuticals Mid Cap 0.76
Tata Elxsi -5.46 IT - Software Small Cap 18.38
V-Guard Inds. -5.84 Capital Goods - Electrical Equipment Mid Cap 9.89

I’m following a wait and watch strategy to see how the lockdown and it’s economic impact gets reflected on the q1,q2 numbers of these stocks. The market is driven by sentiment at all times and right now the volatility is unsettling to me.

As of right now, I have 8 Scrips in my portfolio and have added Dabur, Polycab, TCS, SBI Cards and TTK Prestige to my watchlist from your recommended list.

It will take some time for me to research on the others like Zydus, Supreme, ICICI Lombard, etc before I can come up with fair valuations for them, but I’m looking into them as well.

2 Likes

Good to see the updated portfolio!

Yes, following the same principles as in stocks of option 1. It is the portfolio of consistent compounders of Marcellus pms if I am not wrong.

Do keep us updated on further significant developments :slight_smile:

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Yes. I have been tracking their PMS performance since inception, and the value of Coffee Can Investing strategy is not lost on me. But Consistent Compounders Portfolio stocks (10-20) are not available in the public domain to my knowledge.

I’m now 40% cash and plan to enter the market in tranches of 2-5% as and when the bear market rally subsides.

They have revealed quite some of their stocks, but I’m sure they haven’t revealed all. Little Champs portfolio has been talked of a lot on some forums I’ve seen.
Well, once we know the exact style of investing it’s not har to find them out or find your own similar stocks.

Where all do you plan to enter?