No change in the portfolio.
However I would like to share some mistakes I have made during my investing journey. Hopefully it will be helpful to anyone interested.
I’ll start with the one which lost me most money
-PTC india Financial services-
| 1st buying date | selling date | loss% | size in portfolio when sold | average holding price | average selling price |
|---|---|---|---|---|---|
| Jul-18 | Mar-20 | 45% | 44% | 15.5 | 8.5 |
Investment thesis-Let me start with a little background. I had seen PFS trade in 40s .so when it had fallen to around 15 and dividend of Rs 1.2 per share I was interested. The thinking was that the dividend will keep the share price from falling too low a classic case of low downside and substantially higher upside and so I thought.
When I was analyzing the company in 2018 it had a lot of legacy bad loans which pertaining to 2012-2015 era, due to which the provisions were very high . The PBT was 529 Cr of which 150 Cr was provisions and the market cap was around 1000 Cr.
I was hoping with resolution of bad loans the provisions will come down and in turn PAT will increase and with it the dividend, even with low AUM growth. Already dividend yield was 10% any further increase in dividend yield will surely increase the share price.
However what I didn’t know that bad loans don’t resolve so easily, every other quarter there was an unexpected spike in provision , the resolution dates for bad loans kept going further to the future, new bad loans appeared .
I could never predict how the quarter results will turn out .
Every concall the management gave new dates for future resolution of bad loans , AUM growth didn’t translate to net profit due to high provisions and management had new reasons for why it was so(I don’t fault the management , maybe the business was tough but I have no capability to judge) .Finally during covid crash I sold my position at almost 45% loss. This was my largest position and my largest loss till date.
Learnings-
- If you can’t roughly predict how the company will do 1-2 year down the line , that means you don’t understand the business, stay away from the company. You should have a rough idea how the company will perform 1, 2 quarters into the future, so that and deviation is accounted for.
- I bought PFS when it had a PE of 3 and a dividend yield of 10% , today net profit is a seventh of what it was in 2017 and PE of 19. Learn to identify a difficult business and stay away from them.
-Turnarounds normally never turnaround . if a company is in bad shape make sure that the reason is not the company itself, maybe the company go lucky like PFS (it rode the infra boom of 2010-2015) and if it has seen bad days before.
I’ll add more of my mistakes in coming days
Thanks for reading