Simple Investing

Investing Strategies
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Hi @Investor_No_1

This is a stalemate market. We may probably be at the end of this market where a definitive move may happen in either direction.

I have personally remained strongly entrenched in my current portfolio (5-7 picks) which you know & have completely diverted my attention from stock market.

I believe, the excesses of 2009-2021 bull market is being corrected. The high quality stocks have gone parabolic & are under going time wise & price wise correction. If the business fundamentals remain same, they will pick up steam once this macro situation gets entangled. P/E is price to execution ratio. Those managements who execute (E) will get high P, other will get as long as bull market narratives last or competition catches up.

Specific to consumer names,

Durables is a dog eat dog market with Korean giants LG & Samsung being the foxes in the same market. Cut throat competition, wafer thing margins & mostly a commodity. Difficult to make money. Even the Tatas are finding it difficult. Havells is learning the lesson the hard way (Lloyds acquisition). Every one in the world now knows about “India’s consumer story”, so new competition is entering.

Retail is tough business. Very tough. Extremely tough. Dmart got it right & probably will be a steady compounder but not a 10 bagger in 3 year types. My personal preference is Metro over Bata. I personally feel, Bata is losing its mojo. It is not getting the strategy right at both entry levels & premium. I believe metro here is getting the game better. Sales growth, the management, execution, strategy, the promoters background all seems to be better here.
Even NIKE could not make any dent here in Indian market. Indian are value conscious & less vanity. A celebrity & a high voltage campaign can only take so far. Page never had a celebrity endorse Jockey in India. So did Royal Enfield. Both are fabulous business. Of course there are brands who got it right bit having a celebrity is not a sure thing for success, especially in India.

Restaurant (QSR): I have written on this recently in my thread. Please go through.

My thinking,
If normalised sales growth is less than 10% for 3 years, I think we should re-evaluate. The nominal GDP growth itself is above 10%. A successful company should be able to grow its sales at at least, 50% more than nominal GDP growth. Else, it is growing along with the wind & not doing anything on its own. Management is lazy or market dynamics are bad.
I personally start looking at something if it has grown sales at 15% or more. This takes out 95% of the companies.

Spirits market in India is besotted with so many regulations & is a STATE MATTER!! Management has to deal with all the Indian states individually. On top of this spirits is a taboo in India unlike the west. Still I think there is growth in this market & probably they are at the turning point if government acts right.

Not even 1% deserve a forward PE of 40 times. Differentiating between what deserves & what does not is that elusive chase for market participants!!!

This is the best time to re-balance personally. I would see for price pop & if there is not any fundamental change, I would seek exit on the least competitive positioning stocks & switch to better fundamentals one. The prices of most stocks were hammered a lot, so, there is a possibility of “regret” if stocks pop up a lot after selling. But all this we need to take in our own stride & follow a process consistently for a long period of time for it to show results.

Have conviction on our stocks. How? By studying, comparing with what is available in the market, compare it to stocks in other markets like US, compare with their growth rates, ROE, untapped potential etc. And once we have a strong conviction, we need to hold ground during strong sell offs with patience, time frame, mindset, temperament. OTHERWISE, strictly follow technical analysis with STOP LOSS as GOD.

Despite all this, we may get a COVID crash and cause utter confusion & chaos!! Being a trader/ full time investor is not easy. This is not for 99% of the people.

If we do our best with full integrity, the best is yet to come. Rest are all pit stops.

Disclaimer: I hold some of the stocks mentioned & this is not a financial advise or stock recommendation as I’m not a registered RIA.

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cannot agree more! I gave my tuition fees for this :slight_smile:

Interesting thoughts. Could you pls elaborate why you feel Bata is losing its mojo and strategy at both entry and premium levels is not good? I feel they have evolved their product lines pretty well in all Male, Female & Kids. Entry level is having slowdown currently but of late their sneakers doing well and they have North Star, Hush Puppies etc. at premium end. Power also seems an interesting sports brand they can extend to apparels also later. Would be good to know your thoughts here.

Regarding promoter background or corporate governance, do you feel here is something below top notch in Bata? Is it not like the Indian arm of Bata MNC like Nestle, Lever? Is there a royalty attached or some other arrangements?

After reading your thoughts, I will re-evaluate Metro brands and dig more into it…

Its indeed amazing how Jockey fan following happened in India…maybe a case study…I think 10-15 years back there used to be some advertisements and this was well known by youth even then although very few had been to US back then…How they managed it in India is something to learn.

Thanks will check

I see it this way, if someone wants to have good spirits or beer/wine - we have very few players specially listed ones and that too with good corporate governance and MNC parentage as well…options are limited so when the tide turns in favour, there are very limited options…Also, a Tata or Reliance/Adani is not getting into this part of consumption to disrupt it anytime soon or even over long term as per the segments these groups target…but you never know from where disruption might arise…

Most experienced investors mention this. Probably I have to learn this art of rebalancing without looking at market prices or devise a methodology around it…

Completely agree and thanks for your detailed post. Its helpful. I do have conviction is some core picks. It was this part of potential core candidates of consumer durables/discretionary that I had been building over last 2-3 years is what I am not happy about. Not that I have regrets as they gave me learning I need but losing conviction in some of them because it is now I realize that selecting them in first place was not a best decision I could have done for portfolio…As Hiteshji said they maybe great companies going through bad phase/market sentiments/valuation issues etc. but like how I refrain from NBFC sector for eg. is something I would probably do for a Consumer Durables going forward once I rebalance or buy these sectors only as medium term trades and not as Core/Potential Core picks…

Thanks again

Disc: Same as above

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I was researching Relaxo & Bata over 1.5 years back and ended not investing in both. Relaxo - could not understand extremely high valuations, almost 80 times normalized earnings. Bata - no doubt on promoter integrity at all but the agility is what is missing. Listen to Nissan Joseph of Metro or read about Rafique Malik & his daughter Farah Malik Bhanji. Nissan is achieving targets he is setting out post his appointment. But of course, I’m not sure of valuations as I’m not actively tracking it for entry.

Agree with you on spirits market. I really like United Spirits. Let’s see. I’m following the company. Also, Pernod is under ED scanner for naughty things with money but I think Diageo’s corporate governance is squeaky clean.

I’m sure with such a long investment journey you are very well in the thick of things & will manage this blip successfully.

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Markets are behaving like russian roulette for last 3-4 months. I see this phase as deep pessimism phase where market is even ignoring good numbers and stocks are falling like nine pins. IT, Pharma, Consumer durables, construction anc., Textile, cement, retail, auto all have completed cycles. Interest rate cycle might be topping out, only negative is US inflation is still benign.

My gut feeling is we are nearing interest rate cycle peak which will stabilize stocks, might see a turnaround from Apr 23.

Bata is facing compitition as office demand is still low and casuals Bata has no advantage apart from hush puppies. Just compare with Mirza Bata looks to expensive, small retailers have started some root changes to capture mass market.

Coming to United Spirit, better look for glass companies, whoever sells, they win always.:joy::joy:

I did lot of churn whole last year, whatever was churned, money saved, core portfolio is bleeding​:joy::joy:

Nov 22 till now, never see this kind of dull market in last so many years.

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The Slow Grind Contiues

I mentioned somewhere, instead of around 30-35 stocks in portfolio, I would have been better off having just my own top 10…and would have probably hit the Home run if had just my top 3…

This is not just for the drawdown management because after all for long term investors, drawdown is just on papers…this is more so on portfolio management ease & strategy to re-adjust, if needed, or to add more when opportunities arise.

The FOMO of bull market and also the reminiscence of past sector heroes during momentum (add to it the narratives of various pundits and also self derived convictions) - creates a strong urge to diversify & have some more sectors in the portfolio, some more names…

And this very urge creates the perfect recipe of portfolio mismanagement during an ensuing Mild bear/Stagnant market.…

I can only imagine the mayhem it can create during a cut-throat Bear market.

This brings an immense need to have in place a portfolio management strategy in case current mild bear turns cut-throat.

As mentioned in beginning, drawdown management is not the focus here. Focus is to have a sound portfolio management to ensure ease of holding/management, make use of Bears, come out better from it and also ensure this continuity.

At present, I see myself very ill prepared for any cut-throat Bear and neither do I see this situation improving with the “flab” names/sectors continuing to do worse.

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Nothing changed in last 4 months but HDFC Life fell around 15% from 585 levels in Jan 23 to 491 in March 23 and bounced back around 10% in last 15 days or so…

No action taken so far on Life Insurance firms.

Above was summary of some new names I had “diversified/diworsified” over last 2-3 years.

Interesting to note is that the “Not OK” ones hardly recover during market recovery cycles. They do not give opportunity to rebalance.

Point to ponder - Are they doing this because they are “Not OK” or do they became “Not OK” in my mind because they are doing this :slight_smile:

I am very reluctantly averaging select few of the “Not OK” ones by removing the bias. Have chosen Hitachi AC, Nykaa & Spencer to do some bit of averaging at lower levels.

Have started a tracking position in Max India - Another hope stock and a second stint with Max Group. First one did not go well for me.

Right at top of hope stock watchlist is Nelco. Not sure how the new space policy might impact it and whats going on with its partnership with Telesat. They withdrew their application for Satellite broadband licence recently, so absolutely no clue whats going on.

Disc: Invested in all stocks mentioned hence biased & critical. This is not a buy/sell recommendation. Not eligible for any advice, views only for academic purposes & Learning. I can be completely wrong in all my assessments.

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I think you have posted the query in wrong thread. I have no idea of warrants etc. Maybe you will get better response in correct thread on such trading? Thanks

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I usually think more on areas of improvement hence tend to mention more about stocks, sectors that did not/are not doing well as they occupy more of my mind share from learning perspective…To put things into perspective, below is how portfolio looks like…although not doing great but not as bad as some of my above posts might sound…

Still a lot to learn and make portfolio lot leaner & concentrated.

Core Portfolio: > 75% in top 15 holdings

Company Allocation Percentage Holding Period
Tata Consumer 13 Long
ITC 11 Medium
Pidilite 8 Long
Marico 7 Long
HDFC Life 6 Long
Godrej Consumer 6 Long
Trent 5 Medium
United Spirits 3 Medium
Dabur 3 Long
Avenue Supermarts 2.5 Medium
Asian Paint 2.5 Medium
Nestle 2.5 Medium
SBI Life 2.5 Medium
Britannia 2.5 Long
HDFC Bank 2 Medium

Potential Core - 25% in 5 Baskets

Company Allocation Percentage
Miscellaneous (10 random stocks around 1% each) 9 Medium
IT 7 Medium
Consumer Durables (Appliances) 4 New/Medium
QSR Pack 2.5 New/Medium
Hope Bets (Nykaa & Spencer Retail) 2 New/Medium

Disc: Invested & Biased. Not a buy/sell recommendation. Post only for academic purposes and learning. I can be wrong in all my assessments. Not eligible to give any advice.

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Self Learning continues - Paid significant tuition fees this time

Above was in Oct 22…6 months hence, in between I kept adding Nykaa in very small quantities, so all this while in the fall it maintained an around 1% of my Portfolio as a “Hope” bet…only to finally make a complete exit today at loss of around 50%

It was painful. Booked loss of around 1% of portfolio…largest so far… as I am hardly a quick seller and tend to wait for company/business to recover rather than book losses…

I replaced it mostly with a dull, boring, traditional HDFC AMC (added around 51% to my already existing holding).

Also, took small exposure to new Hope bets in traditional businesses - Max India (Healthcare related) & Nelco (Satellite Communication) & added negligible quantity to Spencer Retail (Traditional Retail). I had been eyeing them since many months and they are also significantly down from their respective peaks, so made the switch.

What I learned about myself here is -

  1. I started my investing journey with One up on wall street by Peter Lynch - Buy what you see etc. I am glad I did that but over last decade, my mistake had been that I did not take time to read Graham’s Intelligent Investor. - Margin of Safety . Although not reading it right at beginning did help me somewhat as otherwise I would not have even looked at some companies which did really well for me - that’s probably because we do not understand complete essence in the book. So, with just few pages into it, I could so very well relate to the “narratives” hype etc. etc.

  2. I made a mistake of paying too high for an ordinary business which looked extra ordinary because of the narrative & timing of the IPO.

  3. Although decent time in Market prior to IPO and even later, I made mistake of getting trapped in the entire ecosystem of New Age businesses and next decade(s) belong to them blah blah.

  4. I sold late and kept adding on falls. Saving’s grace, did not exceed total holding at 2% of portfolio by cost.

Conclusion and Oath:

  1. Never ever again fall for any “Narratives” , “New businesses/New Age companies” or any other hype/ideas/wave of change.

  2. They may do well but it will not be a cakewalk.

  3. Opportunities will be immense for incumbents as well.

  4. No wave of change would go in straight line whatever be the narrative

Precisely that’s why chose to replace it with the most boring company from the best possible Management & sector in extreme distress at the moment - HDFC AMC.

Disclosure: Above is not a buy/sell recommendation in any of the stock names mentioned. I am invested & hence extremely biased. Post is only for academic purposes and learning. I can be wrong in all my assessments. I am not eligible to give any advice.

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Good learnings posted by you…

The most important mistake to avoid mentioned in the Lynch book is to stay away from the hot stock in hot sector. When Nykaa IPO came, platform companies was the buzzword and froth was clearly visible in the narrative. I think some analyst made projections for 2050 ( or sometime nearby) for Paytm or Nykaa. When something like this happens, we have to consider it as an obituary for the company or companies concerned.

And when the pendulum swings, it goes to the other extreme. So on the way down too, these kind of hot stocks in hot sectors can surprise.

Averaging down in a stock which has a clear down trending chart is fraught with risk… Again Lynch mentions about “How low can this go” anecdote and example. These can go much lower than we expect.

If you have read One Up on Wall street once, or maybe twice, I would suggest you to read it a couple of more times… Every time I read the book again, I love it more. Because of the wisdom imparted and the sheer beauty of the written word. I must have read it more than a dozen times and I can find parallels (to his examples) happening in the markets happening all the time .

One thing to remember in markets is never to get disheartened. Keep learning from success and failure stories and be ready to latch on to the next winner. (One way to do this is to read the full thread of big winners Ajanta, Avanti, Laurus etc and big losers e.g DHFL, Yes bank, on VP and try to understand investor psychology at each juncture of the stock’s journey. Benefit here is that its all documented here. ) Markets keep giving loads of chances every year or two, if we know how to take them. Best of luck on your learnings and journey.

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Agreed with views, One up on wall street and Market cycles by howard marks are best books I read regularly, Peter Lynch teaches where to enter and which to avoid, Howard marks has immensely helped on on selling decisions. I still remember my bashing on Naayka board in late 2021 when i or predicted real rate of 340(pre split) where a real assessment could be initiated, forum members blasted by left and right.:joy::joy: But end of day, saying is true, STOCK WILL FIND ITS OWN VALUE SOONER OR LATER, VALUATION CORRECTIONS WILL HAPPEN. Naayka will fight for its existence in coming days. Last IPO i invested was in 2014.

Even current economic conditions are not conducive. We may see this consolidation till June 2024. IT stocks still have a lot of room to correct from here. Somehow i could manage a cut of 8% on portfolio from Dec 2022 peak. Never seen this kind of dull market for 4-5 months in down phase. Still cautiously optimistic on selective stocks only, dont see a runaway markets from here on. Domestic consumption is slowing down as real inflation is much much higher what RBI projects, will reflect in Q4 numbers.

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I will tend to agree with these observations. Sales of mobile phones have reduced in Q4 as mentioned in today’s Economic Times. Some of the mall stores in Mumbai do not have much customers during week-days and also during week-ends, so inflation seems to be having more impact than visible in News.

Also, in such dull markets, individual stock investing can generate better returns, as some pockets might do well. Investing in NIFTY has not generated any returns post Oct 2021, but many individual stocks might have done well. So Direct stock investing sometimes has an edge in dull markets.

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Thanks Hiteshji for kind words and encouragement. Always good to see your post and learn from them.

I agree with every read new perspectives unfold and what is amazing is many many years later we can still relate to what’s happening in markets…

I was unable to take out time for a full re-read but randomly flip pages when get time…I think need to take out more time for books for sure!

While I agree with this that even Lynch read would have warned against Nykaa kind of stocks back then, but guess I would rate Graham a little closer (have not read him full yet but even with starting pages)…

Thats probably because (I maybe wrong in my assessment, its just my way of looking at it and hope I am able to express properly what I think)…“Hot” stock in my opinion is what everyone/most people talk about and want to own or feel where momentum would be…in case of New age companies…everyone did not want these then and neither there was any significant momentum in them.

There were equally big set of people who were very much against such companies and warned of huge drawdowns back then. So it was a 50-50 kind of opinion unlike in Hot stocks where maybe 90-10 or even greater…

This was something else, its like a set of believers and another set of non believers where the believers are optimistic because of their acquired conviction…and I feel even more difficult to protect one from (when one is in belief).

In Hot stock, I would feel that 99% I would get profit in short, medium & long term while in such cases like New age companies, I would be very much aware that I may or may not get profit but believe in an “idea” and acquire a conviction that my chosen company can make that “idea” hugely successful…so even if I am alone in the set of believers, I would pursue that conviction…

Graham mentions that whatever be the case, Valuation & Margin of Safety must never be compromised …and I made mistake of doing that…

I may give benefit of doubt to traditional proven businesses in terms of lesser MoS but to an unproven New age company was a bigger mistake and that too at astronomical valuations…

Feel need to be an optimistic in traditional well run business (otherwise very difficult to invest anywhere) but a skeptical when it comes to new ideas in investing :slight_smile:

Need to read the mentioned threads in full. Will do that for sure.

I get amazed by how quickly you grasped so many aspects of investing. Many people must have started at same time or even years earlier but the way you have matured as an investor is a dream/inspiration :slight_smile: :pray:

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Some Updates

As it can be seen I have been more focused on learnings…so here you go with my latest learning from last couple years new experiences….

Couple of years before, I had been putting incremental capital into markets which I needed in around 2 years or so timeframe….this would have been approx 10 - 15% of my portfolio over few months…

I had to recently take that out for personal needs….I had put these mostly in new companies to diversify like consumer durables, QSR, new age, IT….

Overall recently portfolio touched new highs, like everyone else, nothing to talk about that as it’s but obvious when all indexes touching new highs……what’s been a learning is that had it not been for these newer companies, I would have fared much better…

Also 2 years time is too less to put incremental capital into markets….I had put these mostly around the peak of stagnant market….After booking some profits in core companies I managed to come out at almost no profit no loss for 15% of portfolio capital…I must mention some part of it which I invested in core companies on dips did really well and I chose not to sell those completely rather took some loss in “potential core” ones…. .However, It would have been much better had I kept the entire capital that I needed in 2 years in pure debt considering the ease of transaction, peace of mind and most importantly “Simplicity” which I strive for……

I was of opinion that 2 years is good enough time to make profits in incremental capital but made mistake of investing in “potential core” type of companies rather than “momentum” if at all one must plunge into equity for such short duration….

Rest no complains from core companies, with markets all doing well, most of them increasing dividends, their businesses becoming stronger, market leadership intact….valuations have always been a concern though….

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Great sharing! @Investor_No_1
I have few points to add to the above learning. In my opinion, all depends upon your strategy and framework of investing. For example lets say on time frame part: according to your framework “Is 2 years in equity enough time to calculate and conclude on the gain or loss part?”. To me, in equity we should give longer time horizon to prosper the investment say at least 7 years and above. The real gains are visible in long term.
Secondly, are you measuring the PF performance against any benchmark? If the PF is delivering better than chosen benchmark or even nearly trailing it relatively then there is not much to worry on short term blip and marginal losses (say less than 2-3%).
Above are my thought process developed over period of time with actual data and analysis. Hope this is of any help to you in the long run.
Thanks.

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Thanks, completely agree with you that it all depends on the framework. For example, I chose to invest some sum that I needed in 2 years but used same framework for them as I had been doing for longer term core picks.
I am sure if I had held on to them and followed same framework like core, eventually would have made decent returns…
I got carried away from the bull market but used same strategy thinking 2 years later I can sell something else but when time comes to sell you dont want to end up selling winners…at least thats what last few years taught me…

Overall as I said I am fine with portfolio returns as rest 85% did fairly well…

Crux is 2 years is not long enough for a framework with no clear sell strategy…

Thanks for sharing your experience as well!

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Good to hear that!
I am tempted to share few additional points from my notes.
Case1: Considering AUM size is small (say 10-50 lakh), If overall PF construct is aligned (more superior than inferior in terms of return over period) to the benchmark say Sensex, then the behavior, the fall, the risk, the dip may seem acute initially but is of no major concern in long run. Because the recovery in all probability will be better, superior and beating the benchmark. In a major fall like 20% of Index the PF may fall 2-4% more in the range of 22%-24%. But statistically the standard deviation of Index and PF will not differ much. Secondly if the PF has beaten the benchmark in previous consecutive period say 5 years then there will be loss of1-2 year gain effectively reducing it to gain of 3 years.
The Risk adjusted return of PF which can measured in terms of Sharpe Ratio will give better picture as how to handle losses in mental framework.

Case2: Considering AUM size is large (say 20-30 times of yearly expense), then in case of major fall of Index the PF draw down in terms of standard deviation will be roughly 7-8 times of yearly expense. Will be mostly in the range of 1.25 to 1.5 times of standard deviation. The Index behavior too synchronize in the same way which is basically a normal behavior statistically.

I hope didn’t added any confusion. May be I will explain with more graphs and chart next time during my next update.
Thank you.

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Sharing original case study for illustrative purpose only.

FY (Apr-Mar)

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Price movements with no significant changes in fundamentals/business seem to always surprise and show inefficiencies in Markets over short term….even for well known names….HDFC Life is up by 44% in around 3 months from its March 2023 lows of 461….what an opportunity for both momentum as well as long term investors this has been in a dull, boring and highly valued most known Index firm!

Disc: Invested & biased. Not a buy/sell recommendation. Post only for academic purposes. I can be wrong in all my assessments. Not eligible for any advice.

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While there have and will always be many discussions on FMCG vs Retail, Tata Vs Reliance Vs Dmart etc. but as I have always maintained that the market is huge to accomodate all sincere players.

With Reliance coming into FMCG as well and still partnering with a leading and one of fastest growing rival only speaks about the excellent ecosystem present for growth for all sincere players and brands with vision.

Disc: Invested in Tata Consumer & biased. Not a buy/sell recommendation. Post only for academic purposes. I can be wrong in all my assessments. Not eligible for any advice

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