Tar's Portfolio and Information Attic

Q&A: Questions & Answers Portfolio Q&A
64

That’s true, that’s why I advise that 99% people are better off investing in an index fund + maybe holding one or two stocks that they have research very well on. Investing is hard work and is not meant to be done by everyone. Most people lose their money in direct investing as they do not realize the amount of work required to put in first before one can see returns. This gets amplified during a bear cycle, where most book losses.

To give you an idea, I only started direct investing after completing two levels of my CFA charter and gaining 5+ years of work experience working in an investment bank. Because I had considerable experience and spent years learning and pursuing an education in finance, terms like cash flows etc. were not new to me. I knew how to evaluate a business, I knew when to apply a Gordon Growth Model vs a Capital Asset Pricing Model, I knew that real growth of a company and right way to value a company comes from its free cash flows and its return on invested capital.

Because I had this knowledge I knew where to look and how to look, which create an advantage.

Most new investors do not realize this. They just see the tip of the iceberg when it comes to investing. The lure of easy returns drag them in during bull markets and trap them during bear markets.

Until I knew how to invest, even I stuck to mutual and index funds for 5+ years, and even today I invest in funds which cover sectors that I am interested in but do not have the time to research deep into (The REMX rare earth metal index mentioned above is an example).

So essentially my portfolio is a mix of these 13 stocks mentioned above along with some funds that I have active SIPs in.

Nobody can be good at / find time to study and research into every sector.

Conviction can only come from researching a stock well.

If an investment keeps you awake at night, do not invest in it until you’re comfortable. There is no price in the world to lose sleep over. Stick to what you know and understand well. There are 1000s of opportunities in the market and they keep coming and going like buses at a station. Board the ones you know the route off and skip the ones you don’t. Half of investing is watching others make money on things you passed on.

Remember the goal is not to buy everything that is going up, the goal is to create an investment portfolio that can compound at 25% every year for next 20 years. That’s all it takes to create massive wealth and attain financial freedom.

Thank you, I am glad I was able to help. Just keep studying and researching, the more you learn the better investor you will become.

Thank you, I shall look into it.
You should start a thread, will help you research as well. Look at the ones already started by senior people here, model after them and their granularity of research. If Prakash Pipes is the company that interests you, just keep researching it till you know more about the company than its promoter. Ignore rest of the noise and companies that are moving up or down.

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65

No Doubt, the business is very diversified with supreme management. But business has 55% of their products as commodities, which makes margins very volatile.

Eagerly waiting for your one pager note. :wink:

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Look at their CAPEX though, the bulk of business is commodities with volatile margins right now, it may not be in 3-4 years from now.

Most of their CAPEX is going towards high margin businesses like Speciality Chemicals. Always invest for where the puck is going to be, not where it is today.

Also, it was available for less than 1x sales when I bought it. Even for a commodity business with volatile margins it was cheap. Going forward they should be able to sustain 18% margins and 3 years down the line when new product lines and speciality chemicals Capex kick it, the growth and re rating for the company will be phenomenal. (D: please do not treat this as investment advice)

Deepak was a bulk commodity chemical business a few years back and look at it now.

I will try to get it out this week.

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68

Thank you for your feedback. Everyone has a different style of investing and one formula doesn’t work for all.

My buying was done before these sectors and companies became hot.

What looks like concentration is actually not.

The three main sectors in my portfolio are:

  1. Pharma
  2. Speciality Chemicals
  3. Green Energy

Within each of these sectors, the companies are diversified as well. For example, in Pharma, I have a pure play API, an API company on its way to become a full scale pharma company, a CRO and CDMO research company, a biosimilars company, an Animal pharma company and a Biologics CDMO business. All these companies have very little correlation with each other.

Similar in speciality chemicals, I have a high barrier CDMO player, A diversified chemical company, a large commodity chemicals business that is undergoing transformation and an established blue chip pure speciality chemicals company that has 30%+ margins. None of these companies have similar product profile with each other as well.

Similarly in green Energy, I have an exchange business benefitting from tailwinds in the sector, a semi commodity monopoly that has everything going for it to benefit from renewable transformation (this is similar to your idols Peter Lynch’s proxy play).

Then I have just one auto ancillary which earns >80% of its revenues from export market and is isolated from the domestic issues in auto sector.

So what looks like concentration isn’t actually concentrated at all.

The Beta on my portfolio is less than 1.

There is no selling strategy, I sell when valuations run up too much and I need money to invest in other areas, when fundamentals change or when the story I told myself while investing doesn’t play out.

That’s a very vague statement, future is unknown to everyone alike.

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71

Just leaving this here.

Samajhdaar ko ishara kaafi hota hai :slight_smile:

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72

Hey @Tar your portfolio looks very decent with amazing entry prices and I currently have 4-5 stocks which are part of your portfolio. I have one question on Borosil renewables. Why have you not considered interest cost and depreciation in PAT calculation. Depreciation should be around 150cr and interest cost 100 crores. PAT should be 250-300 crores depending on pricing of the final product. Prices are anyway expected to drop given the incremental Chinese capacities in the next couple of years.

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73

As mentioned, these were just rough calculations. I do not invest for 2-3 year view, my investments are made with 10+ years at a minimum. If I get the trend right, invest in fundamentally strong companies run by competent management, my investment should automatically yield results.

I can’t care less about what short term margins will be. I care about if the business will be 4 times its current size in the coming decade or not.

That’s why the entry prices look cheap to you cause when I bought them I could see the business growing. As business grows and it starts showing in results, markets run after the stock then and drive up prices.

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75

I do not own KPIT and have never bought it. Don’t think I will buy it ever either.

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77

I am indifferent towards the company.

I am not an investor cause if you will just take one look at R&D Budgets of Big Tech (Tesla, Google, Amazon and Apple) in this space, you will understand why small companies like KPIT don’t stand a chance. There is a reason why smartphones have only two Operating Systems. Similarly even in Autonomous vehicle space, there will be only a few leaders.

Google’s Waymo is way ahead of its peers and Amazon owns a company called ZooX which already has fully autonomous taxi services.

So KPIT doesn’t stand a chance.

(Also, if you will look at their glassdoor and attrition rates, you will understand the quality of company KPIT is)

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81

@blue @Rj1994 @Investor_No_1
Gentlemen, would be better if you move this discussion on KPIT to the company’s thread or use the private message feature. Thanks

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82

From today, I have stopped adding to any of my existing direct equity investments.

I lucked out and liquidated my entire portfolio in Jan 2020 as I was moving jobs and could finally start investing in direct stocks instead of mutual funds. This meant that entire downswing of Feb and Mar 2020 was avoided by me. I attribute that timing to 100% luck and chance.

My buying started in end of Mar 2020 last year when Nifty RSI was below 30 on a monthly basis. That was my signal to start buying.

Over the last year or so, I personally believe I have built a portfolio that represents the best of companies and aligns with my future outlook. This portfolio along with my ongoing SIPs (into Nasdaq and China Funds - which I wouldn’t stop or interrupt) should yield me considerable compounding from here onwards.

I have thought a lot on the best ways to compound a portfolio over a long term and esp. how to minimize and protect downside risk.

I have tried hedging by buying puts on the index, selling if things run too high and reallocating cash. All these strategies have an inherent flaw in them - they rely on my ability to time the market, which I don’t believe I can successfully repeat over and over.

I have come to the conclusion that the best way to compound and add high returns is to patiently wait and add when markets over reacts and gives you substantial mispricing opportunities. Thats what happened in last Mar of 2020 and same opportunities happen once in every 2 or so years where index corrects by over 20% from its high. Those are buying opportunities that can help add significant % points to compounding in the very short term.

That is the same strategy used by Seth Klarman and Baupaust Group and maybe to a certain degree by Warren Buffett.

Both the legends have few things in common:

  1. They are ready to sit on cash for a very long time
  2. They only invest when others are fearful and there is blood on the streets
  3. They study business during bull markets and buy them for pennies in bear markets

In Mar 2020, had I spent time studying business for a couple of months leading upto that event, I could have bought some very special and amazing businesses at an incredible price.

I got lucked out with
Part 1 - having cash in bank to buy opportunities

But part 2 - buying great businesses, took me some time to get there and because it took me some time, I could only buy some of these great businesses at a fair price, not at an amazing price

So from today, I am only focused at two things

  1. Building a huge cash reserve in the coming months, hopefully leading upto another buying opportunity like Mar 2020

  2. Researching great businesses

Thank you

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83

Thats great and i too often wonder on successfully entry and wait.At times bull market have ran from 3 to 5 years so the other thought is how long you are in market.

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Thats a good question. One advantage I have going for me is that I am young and in compounding is the length of investment that matters more than the returns.

Everything I invest is the money I do not need for another 25 years at least. I follow basic principles of personal finance and have built emergency funds along with several good personal finance measures that keep me healthy in that regard.

My ultimate goal is to build a portfolio over the course of next 25 years that 1% return on the portfolio is enough to meet my yearly expenditure requirements.

So my investments time horizon is really really long and I think I am partly investing cause I love this game and profession. Studying business as a kid got me attracted to the world of investment banking in the first place, so it’s less about actual target and finish line for me but more about the process and journey of getting there.

Bull markets do run for a long period but they never run in a straight line, do they? :slight_smile:
Historically market corrects by 10% every 2 years and by 20% every 3-4 years. It’s those opportunities I am looking at.

If we take Indian markets for example, it gave us 3 very good buying opportunities in just last couple of years.

GST Demonitization - I increased my allocation to MF back then
2018 crash of small and mid caps
Mar 2020 Covid crash

The funny thing about market is, it won’t tell you when it has reached the top but will certainly let you know when it has reached the bottom.

I just think it’s more likely for me to correctly predict a bottom in the market (not individual stocks) with more degree of accuracy than I can time the top of the market.

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85

How are you investing in china ? is it through mutual funds or direct investing ?

86

@Tar thank you for sharing your thoughts. It has crossed my mind too several times. Yet I have always learnt that it’s not worth it. A bull market that corrects 20% after 2 years may also have probably risen by 20% in that time frame.
Just my opinion, no science behind what I am saying :slightly_smiling_face:

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87

I agree about bull market rising, that’s why I am not liquidating my current portfolio. I will keep remain invested and I not stopping my monthly SIPs either.

I have just stopped adding to existing 12-13 individual stock names I hold till I create a strong cash reserve for myself (25% of my current portfolio total). Think of this like a 'Break it in case of a recession/market correction fund).

The worst position to be in, is to have a 20-30% correction and not have enough sizeable cash reserve to buy big chunks of stocks and take meaningful advantage of the short term opportunity. I don’t want to be in that situation.

So for remainder for the year, I am just researching stocks and building this cash reserve. Wont sell a single share nor would I stop my SIPs though.

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88

Edelweiss China Offshore Fund, been investing in it for a while now.
Give you exposure to some really great world leading businesses that you wont find anywhere else.

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Thank you for your kind words. I plan to add more value to the community via Twitter in coming months.

I looked at Axis Greater China FoF and here are my thoughts.

On the face of it, it looks great as expense ratio is only 0.35%. But with choosing Fund of Funds (FoF) you have to look at what is the underlying fund Axis is investing in. Cause with a Fund of Funds, Axis isn’t doing anything but just taking money from you and feeding into another fund that ultimately does all the investing and makes all investment decisions.

So very important to check the underlying fund and esp. important to check what holdings does the underlying fund have, track record of the fund house and fund manager and the investment objectives and factsheet for the underlying fund.

In Axis’s case, the underlying fund is Schroder ISF Greater China Fund.
Here are the top 10 holdings of the fund

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Now looking at this top 10 holdings (ideally I want to look at all holdings, but couldn’t find it) I can decide if investing in the fund makes sense.

For me, I find Edelweiss China Fund to have better holdings. They invest into a fund operated by JP Morgan and the fund holdings are mentioned in the post above. Top 50% of their holdings include several Tech firms, Biologics names and renewable names like Xinyi and Longi. JP Morgan is also a better fund house than Schroder.

Edelweiss has a higher expense ratio though of 1.43% and I think its cause they are investing into a better managed fund by JP, which must be charging them a higher % of expense ratio and they are simply passing that onto us.

Edelweiss also has a bigger AUM base of 1491cr compared to Axis’s 59cr.
Higher AUM is important as if the AUM is too small, you have risks of fund being winded up and then you will have to reinvest your money. Larger AUM helps a fund house keep investing and doesn’t run into the risk of too many redemptions at once.

So keeping all of the above combined, I opted for Edelweiss.

My last advice to you would be to not invest 5% of your portfolio in one shot. Divide that over 24 months and SIP into the fund. China is going through a lot of regulatory changes at the moment and thats the reason their markets are cheap compared to US or India. China as a region will grow in the next 20-30 years so, it doesn’t matter which fund you invest via and gain exposure as long as you keep the above risks into account of fund house and fund size.

Hope this helps.

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92

Portfolio Update and Allocation as of 11th June 2021

Stock Name Current Allocation
Strides Pharma 22%
Laurus Labs 14%
Borosil Renewables 13%
RACL 8%
Rajshree Polypack 7%
Jubliant Ingrevia 7%
Sequent Scientific 6%
IEX 6%
Deepak Nitrite 4%
Syngene 3%
Divis Labs 3%
Biocon 3%
Vinati Organics 2%
Navin Fluorine 2%
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94

I see it as undervalued compared to what they have achieved so far along with the multiple upcoming triggers for the company in next 12 months.

They have completely revamped their generics business and have about 85+ ANDAs approved from USFDA. Only 33 of these are commercialized.
The good part about generic ANDAs is that even if the company doesn’t plan to use it, it can sell it to some other manufacturer. Typically one ANDA sells for less than a million dollars each, so Strides has a good set of IPs available for itself.

Last 2 or so years their business was impacted mostly cause of a key drug they sell in US markets being taken off the shelves. However, inspite of that the company was able to grow its revenues in US markets. There are multiple other developments happening across the generic business - they are one of the few ones that have a JV with a Chinese giant to sell drugs in China, have a strong presence in Africa and doubling down their business in EU and Australia. Lot of moving parts in generic side of Strides, would recommend studying it in detail.

Apart from all the good things happening in generics, the company plans to reenter its sterile injectable business (which is their expertise). They sold off this business to Mylan for ~1.2 Billion almost 6 years back and now their non compete clause time period is finally ended. This time Strides is developing sterile injectables as a virtual pharma company. They are only using their in house expertise and supplying R&D, manufacturing will be done via CDMO part by other companies which will enable Strides to unlock better margins for itself. Great area to study as well.

Finally, Stelis is one of the main reasons for buying. Its a 45%+ net profit margin business with orders for Sputnik V that will provide it about ~1 Billion USD of cashflow in the short term. The price at which I have bough Strides, I am essentially getting Stelis for free.

Stelis is also one of the only few firms that is developing Bio Betters and original Biologics along with Biosimilars. They are going after insulin and diabetics first to earn some cash flow. This along with Sputnik order should give Stelis enough cash to invest in other biologics (which are expensive to make, look at Biocon R&D cost for last 5 years to get an idea of how expensive). Stelis next has really great biologics for bone health and is in last stages of getting approvals in EU followed by maybe US sometime next year. This is the hidden and super exciting part of Strides.

The market has written off Strides as a generic manufacturer, where as they are so much more than that. Very few generic players are present in China which is 3 times bigger market than US.

Near Term Triggers

  1. PE firm buying Strides
  2. Stelis demerger
  3. Sputnik V revenues being recognized
  4. Generic business across the world markets taking sales higher

The company was available for a good margin of safety and hence the higher allocation. I do believe it can 5x from here in the next 2-3 years.

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