Simple Investing

Investing Strategies
165

Thanks, these are very recent ones with lesser allocations, had some share of good returns from few higher allocation companies as well. They are the ones which resulted in overall better returns. IT has just been a fillip. It is only now that I am taking allocation to more meaningful levels.

I somehow do not like to talk more about my winners but rather about the mistakes done, as there the learning is more…

Not really maintained this. Also my XIRR would not give accurate picture. For most of my core holdings, I have bought them at 3, 4, 5, 7X of my initial buy price knowing that this will reduce my MoS and XIRR as well. That’s because I have been a novice all along and only realized true potential of businesses (and investing in general) much later than my initial entry & tracking.

But still to give you a rough perspective, and I can be completely wrong in this calculations -

Winners

  • For stocks that I might have purchased at almost same levels and booked profits - CAGR could be 25-30%
  • For stocks purchased in crashes, CAGR would be much higher than 25%
  • For stocks purchased at various levels, CAGR would vary - But purchase at higher levels is not for judging today

Losers

  • Significant losses in at least 3-4 decent allocation bets (around 3-5% allocation each)
  • Significant time correction in few picks, some of which sold at same levels resulting in opportunity costs

Overall - I think including all of above, over 10 years CAGR would be in range of 12-15% (Again can be wrong as no actual detailed calculations done). I have consciously chosen shares that would eventually range in this bracket. Do not want to take higher risk just to improve CAGR. If my chosen stocks face fundamental positive changes, then that’s a welcome surprise (Most of them are chosen keeping in mind a gap present to be eventually filled)…

Pls do not follow anyone. This thread is just to discuss thoughts of self & others and myself learn from them. (If in process others benefit to refine their own thoughts, its great). Develop your own strategy and you would do much much better by being your own self ALWAYS. Why I say always here is that we tend to be ourself in say one cycle (Bull or Bear) and become someone else the moment tide turns other way by virtue of either FOMO (I would not call it greed as a greedy person IMO does not invest) or Fear/Panic…

So just be yourself always…XIRR would follow if you chose the right businesses as per your own strategy…

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166

Thanks for the advice . I will surely follow it. My main reason for asking of XIRR is…when I see the Returns of some good mutual funds, just want to know, where I stand against them. Just for example, in your time frame of last 10 years, from 2012 to 2022, SBI Small cap fund has given 24.87 CAGR…This gives us an idea whether we are putting so much effort, and if those efforts are rewarded sufficiently. I dont know what lies in future , next decade or next 2 decades…but since excluding my residence , all my networth is in equities and my Retirement and major life goals depend on it, I dont want to take too many chances on a *budding Fund Manager=Me
Offcourse i want to enhance my skills but dont want my future to depend on my stock picking skills and temparament entirely.
As we generally see, a renowned surgeon also dont do operations himself on his near and dear ones. But again we see, recent Kotak AMC fined by Sebi, then Axis Amc front running, Franklin, misguiding and falsely assuring retail invetsors that all was well. So trusting these guys is also a big question mark? There are so many moving levers that, I am.not able to come to some definte conclusion and then my life is sorted.

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167

MF is no doubt an excellent instrument if one has the discipline & temperament for it.
Also, if I calculate the XIRR of my winners/highest allocation picks (highest conviction) and consider initial buy prices - the XIRR for most of them maybe even better than any MF…however, these are just metrics which anyone can twist & turn in their own favor if they wish…but that would not be right way to compare…
Also, I think we have discussed on this very topic in another thread where I had mentioned my thoughts on currently choosing direct equity over MF ((I may change my thought later). Pls check them and my answer lies there…

Another thing is dividend XIRR, if at all someone wishes to track depending on their strategy.

Lastly the XIRR of the fund you cited looks excellent to look at it but practically would anyone get that XIRR if they invested substantial percentage at 5-7-8X their initial buy prices in same fund? Is it right to look at XIRR of invested capital in such funds and rate them (either good or not so good)?

Precisely because of all above issues, I concentrate mostly on real things which matter - portfolio highs at CMV, Dividends growth by underlying companies (If they are growing, they should pay more dividends YoY - Again I do not micro manage this) & business improvements presenting me future surprise elements in invested companies (gaps to be eventually filled)

IMO if someone has too many doubts about direct equity & faces stress then MFs are much better options. If devised a strategy around them, they may very well beat most investors (including me)…

Disc: Above views only for academic purposes & I can be completely wrong in my assessments. Not eligible for any advice

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168

Actually more than busyness my focus became disoriented a bit :neutral_face:. Since the last bull run there has been a proliferation of contents in YT, Twitter threads, Telegram groups etc. It took a while to recognise the useful ones amongst the clutter. Anyway, I feel much sorted out now, so hopefully will follow the contents at VP forum more regularly now.

I entered the market during late 2016. Made some money by randomly throwing darts in a diverse set of small-mid cap stocks. Fortunately, during Aug 2017 SEBI suspended trading in some shell companies. It included one of my investee company and that came as a rude shock to me, although the allocation was little. I realised that I am not doing proper study before investing and shouldn’t play with hard earned money. Within a few days I liquidated the entire portfolio and put the money in an ETF. In this way I came out of the subsequent bear market of 2018 largely unscathed. The funny part is that the stock whose suspension gave me that realisation was unsuspended. It was SQS BFSI, now known as Expleo Systems. I still own the stock which has now become one of my largest holding owing to the run up last year.

I reentered the market more seriously in early 2019 with a quality-first approach, after some essential preparation.

Coming to the 2021 bull run I made good money due to high allocation in Pharma, Chemicals and Tech, but FMCG, Financials, Consumer Durables, Autos didn’t perfom well which affected some portfolio performance. However, I wasn’t worrying much as sector rotation happens all the time, and I was having a portfolio diversified across sectors all the time just because I can’t take the pain of identifying sector rotation and accordingly adjust.

I always had higher allocation to chemicals, but I raised allocation to Tech and Pharma post COVID seeing quicker recovery of those sectors and owing to some assumptions I made.

Some of my assumptions worked pretty well. My assumptions regarding resilience of Pharma during pandemic worked very well. Also, I assumed that Tech will perform well due to digitization led cost-cutting after COVID disruption. This also worked quite well. I assumed the pain in Financials and accordingly kept allocation lower.

But, I also assumed that FMCG will be resilient, but that sector remained stagnant. More WFH didn’t result in more FMCG consumption as I thought. Also, I assumed that WFH will increase buying of consumer durables, which didn’t happen. I assumed that people will buy more personal vehicles to avoid getting infected. That also didn’t materialize. I assumed rapid pickup of Industry Automation and hence built decent allocation to Honeywell but that also didn’t happen upto my expectation. I assumed that I will get to buy retailers like DMart and Trent at throwaway prices but those scripts didn’t correct much.

Still all was going alright until I bought the narrative that this is going to be a super multi-year bull run like 2003-07, and I started averaging up in many scripts which were trading at high valuations but was also growing well. This increased my average price which affected my portfolio performance when market eventually start correction post Oct 2021. I was right in averaging up while there was still scepticism about the bull run till late 2020. I was carefully watching peer psychology until that time. However, I should have noticed the euphoria in Twitter and Telegram threads post that period and shouldn’t have averaged up after that, and should have actually reduced allocations in that euphoria stages where telegram groups were being flooded everyday with rocket emojies…!! I believe that the bull market hypnotized me. I aspire to correct that in the next bull run.

My belief in the ‘multi-year bull run’ was even strengthened when market didn’t correct at all during devastating COVID 2nd wave and first few announcements of lifting of FED stimulus. My experience with 2018 crash which started after LTCG tax announcement in the budget gave me the false belief that bull run should taper off immediately after any unsupportive developments, but this experience taught me that bull run can even overextend beyond limit.

Finally, one shouldn’t ingrain any overarching narrative like the one I believed about multi-year bull run. Rationalize every narrative. Find its fine prints. Multi-year bull runs also have interim corrections, and so one shouldn’t be impatient and wait for those phases for the valuations to cool off and then only add into existing postions or build new positions.

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169

@Mudit.Kushalvardhan
I am tempted to answer this dilemma because somewhere in my investing journey I too faced these mental challenges. I hope @Investor_No_1 won’t mind.

Look, investing the capital is very dicey affair because it is highly probabilistic in nature. For every given out-performance of an item there are more than 100 items atleast of under-performance be it stocks or MF. Although it look quite easy and fascinating looking into the past but the decision making ability in the present context always gets blurred due to the uncertainty of future. In the layman language you will hesistate today putting your significant networth (say >70%) in SBI small cap fund just seeing its past 10 years of performance because it is past and It performed on the levers of past scenarios of economy, govt. policies, opportunities, inflation, investor ignorance of sectors and specific companies and many more factors. Most of these factors will not come into action to deliver these performances in future. IMO, A new set of challenges including reversion to mean will more likely come into play which will hurt the future CAGR. You can take the example of some past blue eyed boy of MF schemes such as Reliance Vision, growth, HDFC equity, DSP small cap and many more such schemes of past are struggling to beat index or its own peak performance!

Coming to direct equity investing, the rewards and risks are incomparable. If you put serious study, devoted and focussed analysis the CAGR of equity investing is incomparable. It can give you lifetime of earning in just couple of bull run. But it require serious time investment. In next 10 years your equity investing CAGR will surely outsmart MF CAGR based on your time, temperament and dilligent research and analysis.

Happy investing.

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170

I again feel you should have your own thread to discuss and share your insights. There would be many such stories like this one to learn from!

I think with focus on quality, war may already be won, now one just have to win some battles in between…

Thats again very insightful and precisely why you should start your thread as very soon you have learnt a lot in markets and you chose the best performing sectors that too with high allocation in very first major bull run you saw…

Thats very common and will always be there, its good to have leaders in such sectors which don’t perform as incremental SIP capital may go there while they go down and/or consolidate. Momentum investors follow other strategy but we need to know what we are…

All of these will eventually perform. In FMCG, some Indian MNCs have done reasonably well though. In Consumer durables also, some smaller/mid names, smaller appliances related and/or Kitchen related players seem to have done better…but in end…all that doesn’t matter…every good company will eventually perform…and till then…its our opportunity!

I think you are not alone. Many investors including me have averaged up. However, I feel if while adding up also we followed the basic simple strategy of buying dips and corrections in our individual target stocks - baring IT (which fell dramatically), we should be doing fine as long as we did not add majority of them when up…Agree short term performance would be deterred but as long as the initial war of choosing quality is won, rest would follow with time…

Also, just an example, averaging up is not always bad even in cases of euphoria and subsequent crash…say for example of stock like ITC or even Tata Elxsi (at least so far)…so depends…and precisely no one can say for sure about anything here…

Just for example, When I was almost in grip of fear of bear and was thinking whether it would be prudent to liquidate some of my portfolio, the first stock which came to mind was a non performer ITC. I would have been so wrong to liquidate it at precisely wrong time. All this because at that moment, I had stopped being myself.

Completely agree!

Do keep writing and start your own portfolio thread if possible!

Disc: As above. Thoughts only for academic purposes. Not eligible for any advice

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171

Try doing the basic maths to compare the final corpus after few years in the two cases. Paying taxes every year means you are letting go of gains which could have compounded in the market.

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If you are again investing the very next day, in same portfolio, then where you are losing out on compounding? You are still in the market. Its just that whenever you will liquidate your portfolio, you will not have huge capital gains , so tax payment will be lower. Other capia compounding remains the same

173

Tax loss harvesting is done by selling a short term loss position to reduce the short term profit and long term loss position to reduce the long term profit two to three days before the end of financial year. The profit size is reduced which reduces the tax amount.

Zerodha provides a tool for this purpose. It displays which position to sell for reducing tax. You can buy back the stock if you like it after two days when they have been taken out of the depository account.

Selling a position every year will lead to loss due to brokerage charges, stt, bid ask spread and income tax. Long term position will only have to give income tax.

The growth of account with time will lead to a higher profits every year. So the amount of tax you pay will increase with time if you sell every year making it almost same as the buy and hold investor.

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174

Well this is interesting. Actually you will gain more if you pay taxes after few years instead of paying tax every year. Lets do the basic math as Mr. Elbis suggested, to compare the final corpus after 7 years in the two cases:

Case 1: Pay Tax every year end- Lets assume long term capital gain 10% and rate of return 20% and invested amount at the start of the year is Rs. 100

image

Case 2: Paying tax at the end of 7th year-
image

so we can see if we pay tax after few years the gain is more, even if we pay less (total) taxes in the first case. Also as Mr. Akash mentioned, one would pay other charges every year if the taxes was paid every year, making the actual capital gain even lower.
But then again the rate of return has to be more than the tax rate to make the statement true. If your long term capital gain tax is 30% and rate of return is 20% or less than 30% then it make sense to pay tax every year.

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175

@satyajitpatra2005 @akash_das @Elbis - i may be wrong but guess @Mudit.Kushalvardhan was mentioning about selling only that much to utilise the tax free limit of LTCG every year i e. Till whatever level within that limit is the LTCG. @Mudit.Kushalvardhan - pls correct me if wrong…

@satyajitpatra2005 - you mentioned different rates for LTCG but it’s exempt till 1 lakh and 10% after indexation post that. So it’s not as per slabs…

Personally I am not good at such activity or timing so never tried this…some doubts which come in this activity

If say we have 100 shares of a company out of which only 50 have become Long term and we decide to sell, then does all brokers automatically chose first in first out or we need to be double sure while selling that we chose those shares which have become Long term and sell only those ones? How to ensure this and not leave it to the brokers programming?

Also what if after rebuying, we needed to sell/complete exit before they become Long term for either need of money or change in fundamentals/thesis, then the exit would attract STCG which is higher, with no excemption limit and also without indexation.

Lastly, STT & broker charges would always come in picture and that will be variable as for same gains one can buy/sell any variable amounts…

Disc: Post only for academic purposes. Not eligible for any advice.

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Dear Investor_No_1,

Probably I was not able to articulate it correctly. What I meant was your LTCG tax rate is 10% currently, but in future, it could be 30% (if it increases then it make sense to sell every year if LTCG tax rate is greater than your rate of return (market return) **This is wrong statement**). Even if initial 1 lac LTCG is exempt of any tax. Coz those investment houses has very large investment amount.
Yes all brokers would follow FIFO rule. This has to be same for all, right? But yes, I dont know this for a fact. Still logically it should be same for all. Maybe seniors could confirm on this.
And yes, if we sell (within 364 days)after buying, it will attracts STCG, which is higher.
And you are doing more number of transaction for the same number of shares if you sell every year. For example- Say you have one hundred shares. Now if you sell every year for 7 years, you are paying other charges 7 times for the same number of shares.
Basically you are charged for selling and buying 700 shares in this case, instead of 100 shares (for selling only) if you sell after 7 years.

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I was hearing in the news that government is contemplating to increase the LTCG to 30% . If you calculate for this rate, still the capital gain will be higher in your second case, as the tax which is not paid every year is compounding at 20% rate. I think these two things will break even when both tax rate and Return rate is same. 1 lakh no taxable limit is just transitionary in nature. It will soon go away. It was made in 2018 for soft landing of LTCG tax from 0 to 10% currently. Also, brokers like zerodha, delivery based transactions doesnot attact brokerages. STT is also insginificant. Can you calculate increased tax scenarios even incorporating these small costs?

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178

Broker just sells the number of shares you requested. There is no shares divided in the demat account for long term or short term. You will have to calculate the tax for the long term holding using FIFO rule while doing tax. Zerodha provides the shares which have become long term in holdings.

Yes, another reason to avoid this exercise.

You can try tax harvesting very easily. Calculate the short term profit you gained this year. All brokers provide it. Sell equivalent amount of loss (Nykaa maybe). Buyback after it has been removed from demat account.
Your buy average will reduce and you will save the tax on other short term profit. ( I did the same).

Yes you can save tax on 100000 every year for long term position.

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179

You are right. If the tax rate is more than rate of return then your gain is even lower.
And maybe the other charge is very low but it still counts if you do the transaction multiple times. As in the above example you pay other charges for 700 shares for buying and selling instead selling 100 shares.
So, 7 times of any seemingly insignificant number could be significant enough… basically dont need to do calculation on this front :slight_smile:

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180

Thanks, @satyajitpatra2005 for putting together the numbers. This is exactly what I was referring to.

As long as the LTCG tax rate is non zero, it never makes sense to sell every year as the money invested after selling will be less than what could have actually compounded in the market.

As far as Govt. increasing the LTCG is concerned, they usually introduce a grandfather clause. For e.g. when the LTCG tax was introduced in 2018 on 31st January, all the gains upto 31st January were exempt and the cost of acquisition was taken from that day onwards. Hopefully, this will be followed in future everytime the rate will be increased.

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181

The Long-term capital gains (LTCG) over Rs 1 lakh on listed equity shares per financial year is taxable at the rate of 10% without the benefit of indexation.

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I was checking my thoughts and glad to see above realization right at the bottom of recent crash. It proves to me yet again that my instincts of fear, panic and urge to act and/or think/write becomes most active when the bottom is near…something I have observed over the last 2-3 significant crashes I have seen so far…

Going ahead, I think I need to trust my instincts more than any other noise around…

Recovery in IT has been swift, although most are still long way down their previous highs…however, incremental capital allocated has been rewarded decently over last few months…that is yet…

IT now forms around 7.5% of my portfolio. If I consider it as a single stock, then it would be my 5th largest holding. I think I have reached a decent allocation level now in IT. However, any new crash/wave what experts keep talking about would be welcome to increase allocation at opportune time - unless I see fundamentals deteriorating…

Apart from IT, another part of portfolio I was building but stopped midway was QSR - I had consolidated it to 3 holdings from 5 and it has least allocation as a basket - 3%. I think I am fine with this going ahead. No more action needed on QSR unless I see fundamentals deteriorating in any individual pick.

Lastly, the Consumer durables piece is what’s been hurting the medium term performance the most - This is 5% of my portfolio and I am making losses in overall basket ever since I started building it since 2020 crash. I see this as a gap in my portfolio to be eventually filled. In hindsight, I might have rushed to build allocation way early anticipating pent up demand buying when things open up (not because I wanted to play the trade but thought I might not get them at lower prices later). However, I completely missed the possible Inflation piece, but who would have anticipated that back in 2020 or early 2021…

As I see now, Inflation hurt Consumer Durables the most as they are not able to manage the huge surge in costs as well as say an FMCG or any other consumer facing business…In hindsight, few years from now, this maybe one of best times to buy such businesses…however with 5% allocation I seem appetite full at the moment and also not able to identify clear leaders in segments I like to expand allocation…Sometimes, I think it would have been better to chose more Discretionary names rather than durables - but as far as my history goes, I get such thoughts near bottom…so refraining from acting much here…

Overall recovery in portfolio has been decent. It is now 2.5% below its all time high.
Sensex is down around 4.7% and BSE Midcap Index down by 8.8% from its all time high, so I have nothing to complain here…

Although, I am aware that my stocks are always the first to recover and then I have to play a long waiting/consolidating game…but thats fine…its something I am well aware of so would wait for the Indexes to catch up…unless any top holdings give a positive surprise in performance…

Disc: Above thoughts only for academic purposes. I can be wrong in all my assessments. Not eligible for any advice or recommendations.

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183

That proves that you picked the stocks of companies which are solid. When market falls your stocks will be the last ones to fall, so you will have a good indicator of when to start buying the dips. It will be helpful if you could share you portfolio.

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184

you mentioned that IT forms 7.5% and Consumer durables 5% and these are your top sector allocations. So can it be assumes that you are investing in 15 to 20 sectors with average allocations of 5 to 7% per sector. And since you are adopting basket strategy, it means even if 3 stocks per sector so 45 to 60 stocks in the portfolio …Is this understanding correct?