Support for fresh portfolio building - Thanks

Dear All,

Great hats-off to Donald, Hitesh, Ayush and many others who supports amateurs in guiding in the equity investing process in the Indian stock market.

I am person who was siting in the fence with cash as I was having little conviction in the bull rally. I feel really bad for what has happened as i lacked the most important aspect “the guts” to invest in the market at that time. In the last 15 months, i saw many stocks that i was tracking going many times / notches in the price (the examples would include Ambika / Kitex / Eros International, so many) and my inaction resulted in great disappointment. My bad…!

Now, i intend to build portfolio for long term and wanted to leave what has happened behind of me. As i am novice in interpreting the different ratios in selecting the value / good picks, i really appreciate all your supports and guidance. As i intend to make investment in the next two - four weeks time, i would appreciate all your thought on the below stock selections that i am considering on a preliminary basis. I assure that my final decision would only be made based on your thoughts / suggestions to the below:

The few stocks that i am considering at the moment includes:

Asian Paints (Evergreen Multi-bagger)
Ambika Cotton / Kitex (Are they still good at the current levels?)
SKF India (Expensive PE)
PI Industries (Domestic market leader in agrochemicals)
UPL (is the top pick of one of the best performing funds)
Karur Vysha Bank (great value considering the gross NPAs)
Siemens (one of the best pick in capital goods but expensive)
ABB (Very expensive)
Hindustan Unilver (Expensive PE but rural and urban demand pick-up)
P & G (expensive PE) Which is better Unilver or P& G?
DCB bank / SIB / Lakshmi Vilas Bank (small banks with potentials)
Capital First (growing NBCC or should i prefer L & T Finance?)
Somany / HSIL (value picks and could repeat a next CERA)
NBCC (Strong growth prospects but has done a good rally. Still attractive?)
Berger paints / Kansai Nerolac (Kansai has lower PE)
Sintex (Many macro factors supports its growth in the years to come)
Jain Irrigation (De-merger in cards)
GVK (potential of listing airports. better than GMR taking into account management quality)
Mold teck (market leader)
Claris life science (global presence)
Pennar Industries (Demerger news but not confirmed)
SREI Infra / PTC Finance (attractive price compared to the historic highs)
Crompton Greaves (Demerger)
RSWM (Market leader)
Ashok Leyland (Revival of demand in Cvs)
Future consumer (Creation of a brand in the making)
Nandan Denim (largest producer in India)
CIL Nova (rallied at the moment and at yearly highs)
Praj Industries (made a great rally, great order books)
Saint Gobin (there still remains potential? do you agree?)
Jyothi structures (potential growth based on order books)
INOX wind (heavy order books and easy to break even when compared to Suzlon)
VRL logistics (should TCI be a better pick?)
Tata Chemical (largest producer of Soda Ash + selling of agro chemical business)
Jay Bharat (corresponding growth with Maruthi Suzuki)
Biocon (attractive valuation + potential listing of subsidiary)

This my initial list and i wanted to pick 10 -15 stocks as my core portfolio and another 5 -10 stocks where i can go and take a little more aggressive risk. In relation to the core stocks, i intend to do monthly SIP going forward.

As you would note, the list lacks pharma names, and I would appreciate your suggestions on good pharma names as well.

I look forward to all your comments / suggestion on the above list. I really appreciate all your time taken to go through my thread and making suggestion.


Hi Matt. I have also had bad experiences on ‘watching’ my watchlist produce more multi baggers than I wish to count. In both 2008-11 & 2014-15. But all the ‘watching’ is not a waste, the pain is a good education :smile:

As a fellow amateur investor here are few things I have learnt in building a portfolio

  1. Earnings story - Pay for visible earnings ex Asian paints. Don’t pay for future earnings which may or may not happen(ex debt ridden turnarounds- leave it to seasoned investors)

  2. Debt - zero debt or D/E <0.2. First criteria for us amateurs. Wont destroy the stock even if the story doesn’t play out. ( low NPA can be taken as the equivalent in finance stocks)

  3. Growth - Pay for consistent growth which will continue(visibility) for atleast 5-10 years. Ex HDFC, Page,Pidilite

  4. ROCE - Combined with zero or low debt its easily the most important ratio. A high ROCE >20 should be mandatory. Lots of money is made when we accurately predict a ROE expansion . But this prediction involves lots of educated assumptions ,best left to senior investors.

  5. Low P/E stocks with great numbers - There is always a reason why some stocks have a low price tag. Governance issues, debt, unrelated diversifications etc. Inefficiencies are always present in the market but rarely does it leave a gold mine to be found by the amateur investor. Though we may have a certain degree of self confidence in identifying good companies, there are lots of value traps,operators/manipulators to feed on amateurs.

6)Long term investing : Probably the toughest thing to do. Patience, inertia, laziness, passiveness makes more money than trying , breaking your head to find the next big thing.

  1. Borrow & Own - Its wrong to borrow or copy ideas elsewhere, but borrowing good stock ideas from good investors is a good profitable way to start investing. The ‘own’ part means developing ‘own’ conviction before owning the stock.
    Making a list of borrowed ideas and owning stocks where I can find good conviction is the way I go about it. You have already made the list :smile:,hope you can find your high conviction stocks.

Avoid borrowed conviction at all times, no matter how big the investor or fund is.

Hope my learnings are of some help to you.

Suggestions for your list - Repco, gruh.
Avoid speculative stocks.
No idea on pharma stocks.
Good luck.


Excellent way of guiding and selecting stocks based on logics.

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which stocks did you pick finally?

@Lynchfan Really useful guidance!

But on point 2 - I thought the same as well. However, markets have a mind of their own.

Just look at Kaveri Seeds - the stock has reduced wealth as it has more than halved from its highs.

I’m treating it as an exception to the rule. But this is where diversification saves you as most other companies with 0 Debt and 15-20 P/E and same yoy profitability won’t half in value.

I agree. When earnings visibility becomes hazy de-rating happens. Makes sense to stick to ones own circle of competence, where future earnings can be predicted to a extent.

I would like to add one other important point to the list. To check if cash flow from operations matches that of PAT. Lots of micro cap companies have realised our love for earnings & return ratios, they pump up the earnings on the PL account. Only way to verify them is by checking the cash flow statement. There are many which do not match.
They run up in good time but will bite back later.

Ex : Tree house education.
Cash flows did not match PAT. Later ,the issue raised by an NGO on high accounts receivable , crashed tree house’s price to a 52 week low inspite of good growth and return ratios . Though the company came up with a clarification , the issue is still not clear.

Dr Vijay malik’s blog provides a simple tool for analysing the same. Thanks to him.

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Regarding the cash flows matching profits, I completely agree with you. Even I give high importance to the same. Yes, how the markets are today, there seems to be no importance to cash flows, however, times change, and things become clear in the long term.

Its a pretty bad statement that Kaveri seeds have destroyed the wealth of investors. Firstly one bad quarter/year does not make a company bad. Secondly it depends upon where you have bought stock in terms of its price - there are many great companies which loses 50% from recent high but it does not make them bad companies anyway. It seems now a days investors of today does not have patience long enough to ride through a company cycle over yrs neither have wisdom to buy stocks when fear is there.

Please be responsible in making statements.

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  1. I would certainly advise you to read the entire thread and understand the ‘context’ in which the statement was made before passing your judgement about other peoples’ statements.

  2. The comment was made with regards to investing in 0 debt companies which doesn’t lead to wealth destruction. Also - I never said Kaveri Seeds is a bad company. As for wealth destruction, great businesses can destroy wealth as well. (If you invested in Infosys at its peak in 2001 - you needed to hold it till 2008 peak to just get your capital back. In my book that’s wealth destruction, not sure what your definition is)

  3. Since you’re talking about price levels of buying. Let’s take the case of an investor buying Kaveri Seeds on 1st June, 2015 at Rs. 950 after it declared it’s FY15 results. At that point the company has a
    4 year revenue and profit CAGR of 48% and 63% respectively. 0 Debt and ROE > 30% with a P/E of 22.
    In any sensible investor’s mind this company is not expensive with such great growth and profitability unless you have insider information about the company’s future growth. At best, you’d think if the growth stops, I shouldn’t expect any great upsides. So as the Q1 FY16 results roll in with a PAT of negative 2-3% YOY, that certainly shouldn’t be the end of the world as it was never trading at an exorbitant P/E of 70-80+ !
    But you know what - markets think differently and slash this 0 debt company’s Market Cap by half!

  4. Losing 50% of your capital within 4 months of investment may not make a company bad but it would take several years of great results before it matches any other good investments (17-20% CAGR) apart from the emotional stress that the person would go through. And the point is 0 debt doesn’t save the company from huge downsides!



Jain Irrigation (De-merger in cards) – I did not see any news about this and please anyone explain what is the impact of demerger.


Thankyou for this detailed explanation but I know this all
before making statement. I have bought kaveri at 100 as well as 800. My
resentment is only in using very strong words like wealth destruction.
It should be used in context of only those companies which in long term
destroys wealth like jaypee etc. Its just a quarter and being a low
liquidity stock and a big investor wanting to get out the stock has
dived in.

Remember wockhardt , it didn’t take years to come back
from 400 levels to 1500 even though resolution had not been dine on
USFDA. still if u feel my statement is wrong or has hurted you than I am
very sorry. But I sincerely wish lets not create panic and fear in
minds of investors by using strong words.

Awaiting positive feedback

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Hi Varun,

Agree that Kaveri should bounce back sooner than we possibly imagine. Definitely shouldn’t turn out like the Infosys example I gave.

Regarding ‘wealth destruction’ - Again agree that it’s probably too soon (one quarter only) to classify it using that term.
But as I said it’s most likely going to take a long time before it comes into the wealth creation bucket. Anyway, edited my 1st post above :smile:

Take your points and preferred your words of communication in the 2nd message. :smile:

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