I follow a relatively simple selling strategy:
- Incorrect assessment of business (e.g. exits made in Lupin, Shemaroo, etc.)
- Well priced (when expected IRRs < 10%). I am very stringent with this criteria and have made timely exits in a lot of cos (e.g. Balkrishna Ind., HCL Tech, Infy, IEX, Maithan alloys, Nalco, Natco, etc.).
- Switch to another company that offers significantly higher IRRs (e.g. switch from Mahindra Logistics to NALCO in April 2020, switch from Divis to Cadila in July 2020, switch from IEX to Inox Leisure in March 2021, switch from Biocon to Jubilant Ingrevia in March 2021, Bajaj auto to Maruti in April 2021, Infosys to HDFC Bank in May 2021, IEX to Jamna auto to Ashok Leyland last year, etc.).
- Changing portfolio weights depending on valuations (reducing Lupin’s weight and adding to Ajanta Pharma in March 2020, moving weights from Biocon to Ashiana Housing in Feb 2021, moving weights from Indigo to Maithan alloys and Cadila in March 2021)
If you go through my indiviual exit posts, you will find the reason mentionted.
Generally, most people struggle to exit their big winners (or their big losers). I have found that exiting both are very important. In order to understand my own track record, I analyzed each transaction of mine with a holding period of >1 year. My conclusions based on my own track record for outsized stock returns (>20% IRR) was:
- Whenever EPS growth was >20%, entry valuations didn’t matter
- For 10-20% EPS growth, I failed when I paid very high prices
- For 0-10% EPS growth, I always made money as the prices that I bought at were very reasonable.
- For negative EPS growth, I also did reasonably well except when the business went really bad (e.g. shemaroo, lupin). This was again because the entry valuations were very reasonable.
The presentation is below. The video will also be uploaded on the VP Europe channel (link) in a couple of weeks.