ValuePickr Forum

The Anti-Portfolio

The start was made in September 2017. Before this was only buying mutual funds, nothing else, for past 5 years. The first thing in my mind was that the markets looked incredibly over-heated but switched to investing 100% in stocks. Thought that long term investing need not look at timing the markets that much. Having studied business could understand numbers but did not make any attempt to understand investing. The style initially was very superficial, using screeners filtering on various simple scores, focusing on low valued stocks with high potential upside. Not having tracked markets previously was ignorant of the background of most but thought had a rough awareness of the macros. For picks, Valueresearch was very helpful (but they seem to be stuck in MF theme zone), IIFL, Motilal Oswal, Edelweiss but finally settled on Screener.in (bit buggy though in PE) and Trendlyne.

Several looked good and trying to spread the risk ended up with an incredible number of 250 stocks! Idea was downside is limited if nothing is more than 1% of portfolio. At the first results season, found it difficult to keep track of the stock movement and fresh numbers. That provided a good opportunity to do some quick pruning. Another round of results and more pruning followed. At the same time, the decrease was getting matched by number of more opportunities found. Some did very well, the track record/trend did play out as expected. But this ended up being just investing in the broad (small/mid-cap) index, no gains made from spending time. Indices over-shadowing stock value might be true but here there was no chance of any alpha.

Idea was then to concentrate more on the consistent and better quality ones. Finally, some short talks with an old investor made me realize the basics of concentration/spread and research. After few months, had chanced upon ValuePickr but at first it looked defunct to me and finding the forum boards would take me another quarter. So, it was almost a year after starting investing that I joined ValuePickr. Before that had only been exposed to the fish-market of MMB!

Thanks to this excellent forum, on which my entire learning is based, my performance has improved by tons! Unfortunately, it came a bit late, by this time the flying bull market had settled into a severe “small/mid-cap carnage”. The incredible 30% gains of the first few months which lasted till the crash of January 2018, had lulled me into thinking playing the markets was easy and the bear phase would be over soon, a correction is normal, had been overdue etc. Well, 2 years later and the correction for small/mid-caps is still playing out!

So, having bought every other cheap crap stock, ended up with an massive 30% loss (at the worst, about 6 months ago). Thankfully was still pumping liquidity to take advantage of the new learning. That was not helping much and by August 2019 was ready to quit and move majority of capital to mutual funds for life. But I am still invested and now happier because I understand better overall and while mistakes happen they are less and cut them fast. Performance is thankfully keeping pace.

  • My learnings were:
  1. There is no substitute for knowledge. Threads of ValuePickr form the essence of my vicarious research. Rest I try to find more background info by searching.

  2. Quality first. Plain number games are not useful. Investing is an exercise mostly in psychology. You only buy things which others want to buy. Best you can do is stick with the crowd and try to stay ahead of the curve while doing that. So, you have to understand the investment mentality of the herd. The extra-ordinary alpha comes rarely since information arbitrage chances are less. And punts being punts, can go either way (play them wisely, small risk with low amount and low downside).

  3. Patience is of value. My mentality is different but learning this is helping me in life in general. Beating the index by 5% is the name of the game. Anything better is godsend. This, given my limited resources in time and understanding.

In this 30 month expensive learning phase, have churned through about 10% of the entire listed universe of stocks. Thankfully transaction costs are so low nowadays. Now I try to keep only 10-20 stocks, core being 15 and some trading opportunities the rest.

The short-list of losers: (even after concentration to some 35 stock picks)
1 Graphite – ADD removed
2 HEG – ADD removed
3 8K miles – suspended
4 Manpasand – suspended
5 OBIL – shrimp oversupply + very doubtful quality + illiquid/pump-dump (ok if you can play it)
6 Shri Jagmdamba poly – multiple unlisted owned by promoter, no growth in listed company
7 SREI Infra – directly hit by IL&FS crisis [still holding!]
8 Sterlite – fibre optic oversupply, 1st degrowth after 15 years
9 Kellton Tech – seems like same scheme like 8K miles, market is dis-interested
10 Sanwaria – seems like corrupt promoter
11 Ruchi Soya – NCLT case, worthless shares, stock exchanges should de-list such garbage, they take years
12 Avantel – just slow down
13 Tejas – crazy investment, slow govt spending
14 Rain – stupid Supreme court order/import ban, environment concerns on use of Petroleum Coke (not as fuel, simply as raw material)
15 Lypsa Gems – down trend, micro-cap junk
16 Meghmani Organics – promoter sipohoned off money into non-public subsidiary company
17 Sagarsoft – nothing happening really, micro-cap
18 GPIL – steel slowdown globally [last sold off a month ago!]
19 Maithan – steel slowdown globally
20 Prakash – steel dumping by everybody, everywhere
21 Kriti – micro-cap, soya, nothing happens, except natural and obvious derating
22 Jain irrigation – 3rd time liquidity crunch, slow-down, govt dues issue [still holding]
23 Coffee-day – bottom-fishing

Some historical gains: (not holding anymore, all short-term, few months, sold on target)
1 Coffee-day (long ago)
2 Best-steel logistics (now Apollo tricoat)
3 Muthoot
4 Milkfood
5 Bhansali Engineering Poly
6 Edelweiss (bottom fishing)
7 Yes bank (bottom fishing)
8 ACE
9 Ajmera
10 Associated alcohols
11 Fineotex
12 GM Breweries
13 HPCL (long term - should have bought BPCL!)
14 LTI
15 Indiabulls ventures
16 NR Agarwal
17 TV today
18 Welspun Enterprises
19 ITL
20 CMI
21 Som distilleries
22 Globus spirits

  • Investment Objective:
    Try to find popular stocks with high potential upside of good probability, playing out in an average 2 year timeline or longer.

  • Reasoning:
    Markets are a time/news discounting machine, some future upside is already baked into the current price, so time-line has to be sufficiently longish for gains compounding.
    Such plays mostly bank on structural strength of the story, macro environment and industry being in a position to support the better performance.
    De-risk by diversification, tracking to cut loss on prompt analysis of downside story.

My current portfolio:
1
Granules - 10%
Pharma, API to Generics switching ongoing. Story should become better rapidly, valuation looks beaten down because of pledging overhang, which will fully disappear in few months. Promotors are now consistently sticking to their promises for about 1-2 years. Better focus on higher margin businesses with long runway for growth. Good track record with some misses in the story few years ago (hence the cheap valuation). Pharma is trusted for consistency by the market.

2
Arman fin - 10%
Micro-cap MFIN. SAIF picks up 27% big stake, stock zooms anyway not bothered with dilution. Rapid growth, good, consistent, performant management. Banking on growth with the under-banked. Seems long runway to ramp up operations. Private banks struggle with whole-sale, now they struggle with retail. Public sector are mostly least bothered with growing much at this point. These guys have very less complaints, only good results with the market they understand and serve.

3
JB Chem - 8%
Pharma brands in Indian and some non-developed markets. This keeps on zooming. Good brands and good recommendations. Hopefully they are able to keep up the amazing performance to keep pushing the valuation. Capex has been done previously and MR network keeps on getting better. They are good management with good understanding of business who make wise decisions, longish runway again.

4
SREI Infra - 8%
It might take time and market does not love them generally, but the upside would be a good one if they are seen turning consistently better numbers after recovering from the shocking slowdown. 100% survival, only pace of growth should be faster for re-rating. PE might settle around 2 which shows the lack of trust. That takes time and performance.

5
Mangalam organics - 7%
Camphor and some other minor resins. We know growth is coming, in next few months. Capex has started, commodity PE, risk of price inelasticity. They have long track record, trying to grow branding and higher margin products.

6
Kanchi - 6%
Camphor and some other minor resins. Huge growth in pipeline, with very low capex. Consistent record for few years, survivors for decades now as listed micro-cap. Honest management, trying for good growth. Again commodity PE with risk of price/demand crunch.

7
Amber - 6%
AC contract manufacturing. ACs are getting more efficient and inverter models are cheaper. Global warming is globally accepted calamity. AC penetration is exceedingly low. Purchasing power increasing, power supply and tariffs are not an issue. Contract manufacturing, Make-in-India are structural shifts. Good strategy of inorganic growth (Sidwal etc.) and in the product value-chain. Risk of customer concentration.

8
Dixon - 5%
White-goods Contract manufacturing. Contract manufacturing, Make-in-India are structural shifts. Dixon has demonstrated decades of expertise and willingness to grow into the value-chain. Risk of customer concentration.

9
Polyplex - 5%
PET film, packaging. Deserves better value. Margins are steadily improving, back to historic highs. Credit rating has improved to A+, noting the large demand-supply gap which notes the well-diversified markets with 50% in mature US, EU and 50% in growing Asia. Good value added product range, RM prices are expected to be flat/low. Some growth with Indonesia capex and overall efficiency focus. 10% dividend yield! Very low and decreasing debt. High FCF for 5 years now, best performance and lowest valuation amongst peers. Steadily increasing institutional interest. Risk of a commodity cyclical, over-capacity issues in future, plastics environmental back-lash.

10
Gujarat Gas - 5%
CGD story. Gujarat is mature market but still they are winning new GAs. Switch to gas (piped) is structural, industries and CNG supply.

11
GSPL - 5%
LNG pipeline story. Open access, pumping cost fixed for 4-5 year time-period by PNGRB. Interconnect in progress to all 6 LNG terminals in Gujarat.

12
Indiabulls Housing Fin - 5%
Poor guys, their story looks true. Risky trade. Dividends paid = 10,000 Cr!

13
Ion-exchange - 5%
Water-treatment play. “Har ghar, jal” project. Water-treatment for pollution control. Ramped up capex to win greater contracts. Have expertise and consistent good growth. Valuation should increase.

14
Jain Irrigation - 5%
Micro and other irrigation. Risky, betting on turnaround from debt trap. Hoping they are getting easier terms as a massive, agriculture-focus business.

15
Welspun India - 4%
Cotton home textiles. I think it is quality company which can benefit from India gaining export edge and now fully recovered from blow in 2017. Good visibility for 3 to 5 year, management seems to have good plan which should start showing in results soon. But valuation was high, so I thought of not buying anymore.

16
Roto pumps - 3%
Seems they are scaling rapidly for a 90% export focus.

17
Biocon - 1%
Biologics. Generics. Syngene.
Tracking.

18
Bandhan Bank - 1%
Tracking.

Summary:
Heavily mid-small-micro cap focus, 20% in small-cap mutual fund. Large-caps look bit over-heated now.
NPS can always give me tax-free 11% long term (historical) and 15-17% (past year).
See no point (now) in buying huge PE, large caps for 15-20% pa (bull run historical!) when any decent fund/index can do better and waste time. I am still learning the benefits of a quality, large-cap portolio or at least some balance.
Not found enough conviction still.
Unless of course, there is a special situation like ICICI bank.
Preservation of capital and popularity does make a self-fulfilling cycle and PE is then mostly irrelevant as long as the story more or less, is consistent, then 10-15% PAT growth looks good. Gentle on the downside too.
The inconsistent, less stable, risky, non-large-caps have to grow at twice the rate to get some valuation around half that of the safe-popular bets. That makes sense, perfectly rational markets. Search for alpha is a bit of both.

Thanks to the quality of discussion on forum, I am now a better person! (And the portfolio is also doing well)

Note – I have only started paying attention past 6 months after the major carnage forced me to!

9 Likes

Update to portfolio. I am not a patient investor except when I know there is deep value (mostly here I am stuck with loss also) and then also for a small portion only. Mentality is to look ahead for gains materializing in about a year, in order to at least average out movements and leverage structural strengths, since there might be other horses to ride, without too much of time on trading/timing markets.

1 Arman fin - 18%
Increased since it seems they have a long runway of growth from a low base, maybe 1-2 years more left. Liquidity is biting definitely but they have managed and that gives some confidence.

2 Apollo Tricoat - 18%
Added since few weeks. Only reason for giving this a miss was doubtful promoters but this is India and a big, bad world, not a Gandhian paradise, let us not delude ourselves. Used to own Best steel logistics because of spectacular results, same applied now. They just hit installed capacity past week, have more growth planned. Have good product range, are trying to have more branding. These people have somehow made a great business out of a small-scale, commodity. Power of scale will help. Locations of Dadri and Bangalore are very good. Plenty of room to grow. RISKs – is the steel price cycle which hit previous quarters of APL Apollo, high priced inventory v/s low steel prices (for end products). Housing/Infra demand is unpredictable, might stay extraordinarily low for some time.

3 Granules - 16%
Increased, this is a definite re-rating candidate.

4 Amber - 7%
Increased. covid-19 effect is wearing off, RM supply chain should be back on track.

5 Frontier springs - 7%
Added. Used to own 2 years ago, shows consistent growth which is accelerating. This is a structurally strong micro-cap. They make springs for railway rolling stock, now also incl. metro networks. LHB replacement is 100% for converting all ICF-type, safety, speed, weight, capacity, looks and comfort are all better. Metros are big upcoming market, Indian cities cannot do normal western-style road-based transport and also control pollution, congestion. Railway throughput capacity might increase dramatically by end FY21 when DFC is complete. Freight wagons may have good demand. They have good, long relations with Railways, not easy to be certified supplier of RDSO standard. Make in India is a boost. RISKs – Low capex budget of govt/rail. Competition emerging. Steel price squeeze to margins.

6 Kanchi - 5%
No change.

7 Ion-exchange - 5%
No change.

8 SREI Infra - 5%
Decreased, results are good but found some other less risky bets.

9 Blackrose - 5%
Added. Seems like next quarter onwards capex should show results. covid-19 is a definite gain. Arcylamide (expansion) and Polyacrilamide (new) where only competition in India is SNF (lagging capex). Advantage of India over imports. Good promoter, dealing in chemicals is still major revenue, they chose the chemical they wanted to produce with help from Mitsui. Water treatment major use, also paints, oil+gas wells, adhesives. RISKs – commodity oversupply, SNF is many times larger competitor.

10 Dixon - 5%
No change.

11 Mangalam organics - 4%
No change, stock price dropped on bad results, expected comeback soon.

12 Jain irrigation - 4%
No change.

Added cash. Only SREI, Kanchi, ManOrg and Jain are long-term holdings where my understanding is more developed, but these are difficult subjects where info is limited. Tried to consolidate and keep portfolio size to single digits to find more time for quality research, while keeping eye out for better horses! :sweat_smile:

Tracking: Atul, KEI, Biocon, Bandhan, Shivalik, Fairchem.

Some observations on the portfolio and investment strategy in general.

  1. Management integrity does not matter till the stock price is rising. It will be the only thing which matters when price starts falling.
  2. Commodity business is given high valuation in rising market and is present in large allocation in core portfolio. When the stock starts falling then its cyclical nature is exposed.
  3. Momentum investing gives good returns if holding period is short. If held for 3yrs momentum can reverse and reversal to mean occurs.
  4. A company will take minimum of 3yrs to show it’s true potential. Minimum holding period for growth investing should be 3yrs.

Thanks! Some observations:

  1. Several big guns of this forum are invested in Apollo companies. I only comment on management having side-deal/skimming, not frauds (fingers crossed). People are still holding Yes bank. Tata steel and motors are quality, so was Tata tele. Quality is bit over-rated. At least Apollo do their dealing openly, not hiding behind pseudo-scientific accounting cookery, and quality rating agencies.
  2. Gold is a commodity. RIL was a commodity play and stock market king for decades. As long as it is easy to judge demand/supply. Have tried to reduce exposure, some are holdings due to loss, see #4 below.
  3. It is not coffee-can, since I have some time (now) to find stocks and guess movements. If the value has played out and only 10% upside remains, I exit, Avanti few weeks ago @750 and J B Chem 2 days ago @575 because there were much better horses in the 4000+ running. (plus consolidation)
  4. Yes, Kanchi, ManOrg, SREI, Jain have been held for 2.5 years (max life of portfolio). I did believe the compounding would play out. My stock selection has not been that great to give more examples. :blush:

Strategy is not high frequency trading but riding some good stories (like momentum). Bandhan seems to be at good spot for example. But once that has gained full valuation and most price action has played out, looks like Avenue etc. then there are mostly better horses to be found.
I get bored with too much research and not capable/skilled for detailed analysis, even then in the end you might even end up with Sun, BHEL, Tata motors, Yes, Idea and a big hole with quality.
Try to balance my ignorance with shorter runway.
Most large cap/quality performers would have done better with Gold and perhaps with funds, past years. See that as wasted time. But, yes when markets turn, then the safe bets are best. Totally missed this approach for “capital preservation” in 2018.

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Change made today morning:
Dixon sold off, converted to HLE Glascoat.

Reason: Peak valuation of Dixon (1 year only) and risk of bad performance due to covid-19 in next 1-2 quarters. Found out today that the promoter may have been thinking the same. Dixon drew the short straw with weakest outlook in holdings. (plus no need to book losses)
HLE Glascoat, because management is constantly ramping up capacity, improving overall, exploring exports and have a good industry outlook for some years at least. PE 47, growth is faster than GMM and increasing, upside seems good.

Change made today morning:
Amber sold off, converted to Solara (7% of holdings).
Added Diamine and Bandhan bank.

Reasons:
SOLARA - APIs, Indian focus is increasing in this segment and should be faster with covid-19 and sourcing risk from China. Strong heritage, Strides and Sequent. Just has USFDA all clear for Mangalore and Puducherry sites. Strong growth predicted, decent valuation at PE 15.

DIAMINE - 3% of holdings - Not sure about this, but seems related to API base chemicals, Organics. Commodity and Cyclical plays thread mentions it related to Ethylene short supply till 2022. Trend seems to be of strong growth with decent micro-cap valuation of PE 11. Covid-19 effect may turn growth trend even faster/longer.

Bandhan Bank - 3% of holdings - This is an excellent opportunity to get a high-performing stock. Assam risk is over-rated. This is a consistent, strong performer. OK at PE 20 for a CAGR of 30%, given quality of franchise.

Amber - Jittery because of Covid-19 effect on margins/volumes. Not sure about management commentary on Solar AC, CFM and noise, EER etc. Own several hot/cold+inverter AC (heat-pumps) of Daikin and Voltas since several years, somehow their technical discussion does not make sense to an engineer like me. Seem to be beating around the bush.

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Exited Bandhan bank and Mangalam Organics.
Added IOLCP, 12% of portfolio @ 287.

Reasons:
Consolidation.
Found what seemed like a better bet, so had to liquidate some of the weak hands.

Bandhan - had good opportunity to exit after good news about branches, in the morning today, just breakeven. Price action itself led to loss of conviction and if nit-picking then promoter stake, gruh over-valuation, MFI “crisis” were not great news exactly. Stock is priced well, upside may be limited. January OTR in Assam was same as December, surprising.

Mangalam Organics - breakeven exit after 2 years. This cannot be trusted, an 85% fall in PAT and company has nothing to say. Promoters suck.

IOLCP - now, with Solara and Granules, looks like I do not have to buy Ibuprofen ever :stuck_out_tongue_closed_eyes: Company managed a turnaround and has enough cash rolling in to setup a good business strategy for future growth, which they have been rolling out. Market cap is less than sales. Debt free and dividend payout to happen in next 1-2 quarters hopefully.