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:
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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.
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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).
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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
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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!
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.
If you start from the top, it was a disaster/carnage since March 2018 till August 2019. As a noob, the first few months of extra-ordinary gains led me to believe the entire market was re-rating 