ValuePickr Portfolio

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21

I think there should be a clarity on what a HOLD recommendation means.

Does it mean that one should not buy at current levels, if you have already bought it at lower levels, you do not sell, but continue to hold?

Is it not a case of bias with respect to the historic price levels?

I think a stock would be a buy or a sell. How can someone intend to hold for 2-3 years if price does not justify fresh purchase?

What I mean is if someone does not have a stock in the portfolio, a HOLD recommendation would actually mean an add for him. If someone has may be too much exposure to the stock, a HOLD recommendation would mean, reduce. Of course, this decision is for the investor to make, but does HOLD mean DO NOT BUY/SELL?

Probably what we need to indicate is the max exposure that we could give a stock in our portfolio.

If someone is starting fresh or just redoing his portfolio does it not make sense to buy the VP stocks which are recommended as HOLD?

A new investor, say transferring his MF assets to stocks, does it means that he should invest everything in Shilpa med and Alembic pharma and ignore the other great VP stocks? Or does it mean that he should invest in Shilpa med and Alembic pharma and keep cash so that he can add the other stocks if and when their prices reduce (which may not even happen). Or does it mean that he can invest in any VP stocks at current prices, but limit the exposure to some of the stocks that have stretched valuations?

22

Donald,

At the outset, I would like to congratulate you and the team members for churning such high quality analysis of stocks which have benefited a lot of regulars like me at Valuepickr. May your tribe grow!

Personally I feel that it would be nice if instead of a HOLD or SELL recommendation, we could have a recommendation saying the stock is FAIRLY priced. I like to keep referring to this wonderful quote “IT’S FAR BETTER TO BUY A WONDERFUL COMPANY AT A FAIR PRICE, THAN A FAIR COMPANY AT A WONDERFUL PRICE.”

This would bring a lot of clarity in the mind of an Investor. He will know that the Price fully captures the future prospects of the company and any entry at this price will be risky or will not lead to appreciation of capital. Ultimately the aim of an Investor is to seek Capital Appreciation and not to lose precious capital.

Tony

23

Only BUY reccos - imply fresh buying at CMP.

HOLD, Add on Declines - imply there isn’t very good Margin of Safety at current levels. But that in our view the business will continue to perform on expected lines (20-25%+ CAGR expectation). So those holding on from lower levels have good margins of safety.

Fresh allocations can be made on declines. Mr Market usually gives us opportunities to buy at lower levels too.

Re: those new to direct equity investing

Please note we are not Portfolio Advisors. If you trying to create a decent Portfolio for long term wealth building, you (especially those new to direct equity buying) MUST consult certified professionals.

Folks who aspire to do it on their own have to do their own homework, play themselves in, take small bites and get some confidence going, and thus get themselves to a stage where they develop their own comments.

To try and use ValuePickr Portfolio recommendations before you are thus ready, is dangerous. Everyone is advised to please read the website Disclaimers & Terms of Conditions.

Disc: ValuePickr Portfolio is a concentrated Portfolio. This is not suited for Passive Investors who cannot take interest and track their investments on a regular basis. Because of the higher risks involved, this is aimed at Active Investors (who spend a minimum of 10-15 hours a week). The investment decision is completely yours. This website, its members or ValuePickr Admin is not liable for any losses/gains that may arise out of your investment decisions.

24

Dear Donald & Team,

Thank you for this wonderful forum.Truly appreciate the massive efforts and high level of transparency being followed at valuepickr during any discussion or any stock reco.Hatsoff to all…

I have a below suggestion…Administrator can think over and impliment if it is useful.

Can we maintain a list of stocks (Watch lists?) stocks are in consideration to incorporate in Valuepcikr Public Portfolio (Work under progress,companies with temporary problems etc.). This will help investors to track.

regards,

Shanid V H

25

Hello Admin,

Few querries on the VP Portoflio

1). Can we have a Portfolio Peak Pit Drawdown, as a measure of risk added to the stats . (worst % drop from the peak)

2). What is the normal lag time between - adding / reducing a stock to portfolio and updating it on the form. I see that the recent entry was made on 12th Feb Close - and the post was updated on 13th - which is excellent. I ask this because, the stocks do really jump up in a short time post reco on this forum and if one checks the post on weekly basis, one may miss out on the same.

3). Equity as an asset class is rewarding and non-linear. Could we have a discussion effective modes of hedging the drawdowns such that the impact on downsides are restricted, in return of compromising some profits on the upside. This will add scalability to a great extent.

Regards

Ronak.

26
Posted bysandeepat Thursday 06:22
Wonderful track record .. VP team Hats-off . This one will beat any absolute MF , PMS service or any other investment returns. Mere replication of your portfolio would have yielded awesome results which i was unable to do ... This site has taught us that it is not the valuation that is important but growth with quality and the scalablility are the most important factors.
Keep up the work and one day i am sure that this site can turnout to be the bible for investing in Indian stock markets :)..
Posted bysandeepat Thursday 06:26

Hi Donald,

"4.Couple more contenders are under serious consideration currently. However completing due diligence may take some more time."

Out of curiosity, Is SELAN/TATA ELXSI/MPS one of them ? . I mean if you can reveal thecontenders( although not as VP recommendation ), we can churn out more data and help analyse better to reach on a conclusion. Of course, VP team is the best judge always:)

Posted byPrasanna Sankaranarayananat Sunday 00:23

Wonderful performance by ValuePickr so far, but more than that, offering such a portfolio with no strings attached is highly altruistic. I owe a lot to this community. I'm a good software developer and I can help with any issues/features you might require in my free-time. (http://myprasanna.com/)

Admin,

I want to bring out a few numbers that seem too good to be true, and want to see if you actually believe it. The Fwd PE and Fair PE, I understand, are just estimates. But if you interpolate them together to see how much returns one stands to make if they play out, the table is below.

Stock 1 year Fwd PE Trailing PE Fair PE min Fair PE max 1 year returns min% 1 year returns max%
Mayur 6 19.68 16 18 266.67% 300.00%
Ajanta 7 19.15 20 22 285.71% 314.29%
Astral 12 27.59 18 20 150.00% 166.67%
PI Industries 12 20.63 16 20 133.33% 166.67%
Kaveri Seeds 10 16.5 16 20 160.00% 200.00%
Poly Medicure 12 21.78 18 20 150.00% 166.67%
Shilpa Medicare 13 18.54 18 20 138.46% 153.85%
Alembic Pharma 15 19.8 18 20 120.00% 133.33%
Atul Auto 5 11.19 8 12 160.00% 240.00%
Avanti Feeds 3.5 5.37 4 8 114.29% 228.57%

"Fair PE min" / "1 year Fwd PE" = "1 year return %"; Am i mis-interpreting the meanings somehow?

From what I understand from individual threads and tracking the companies so far, the 1 year fwd PE seems way off. For eg: Atul Auto is for sure, from my understanding not at 5x "1 year Fwd PE"; which is why I suspect I am mis-understanding something here.

Thanks,

-Prasanna

Posted byPrasanna Sankaranarayananat Sunday 00:31

I actually now think likely the 1 year Fwds were calculated at the time of initiation, not as per the recent recco. It would really be more useful if you share the current forward looking view for the basis of the "Attractive on 1 year Fwd basis" reccos.

Thanks,

-Prasanna

Posted byNarinder Yadavat Sunday 20:20
We are into the last quarter of FY14, Mr market, depending on the visibility of future earnings, starts factoring FY15 earnings into the stock price. What we need to be careful about is how much growth we are factoring in our stocks while calculating one year fwd earnings. As Donald mentioned that 25% growth is the minimum we expect from our VP stocks, the one year fwd PE @25% growth would be as follows:-
Company CMP 1Yr Fwd PE
Ajanta 989.00 15.6
Alembic 246.80 17.08
Astral 389.70 22.28
Avanti 486.30 5.71
Kaveri 498.50 12.58
Mayur 458.40 15.53
PI Ind 252.30 16.96
Poly Med 430.10 18.54
Shilpa 352.20 15.00
Posted byUtkarsh Patelat Sunday 21:52

Kaveri looks interesting at 12.6 x FY14E at conservative growth estimate of 25%. Even Ajanta looks interesting.PI Ind looks bit expensive, considering it still has a significant pesticide business but CSM visibility looks decent.Avanti is cheap with high industry volatility but recent MD interview suggest visibility till 3-4 quarters due to slow recovery on Vietnam & Thailand side. On SOTP basis, even JB chemicals looks good.

If one looks at longer term, 3-4 years, Ajanta, Kaveri, Alembic & Shilpa look decent if one looks from angle of disproportionate growth.

Posted byPrasanna Sankaranarayananat Sunday 23:01

Assuming a uniform 25% growth across all companies, removes the purpose of using them in the first place. You might as well have just taken the view of TTM PE and compared it, since you've just applied a 25% discount to it. The Fwd PE exercise is all about pricing in growth visibility in the next year.

27

@ Ronak - Lowest level from Recco/drop from Peak etc can be incorporated in Rudra’s sheet. Rudra - please see if you would like to incorporate that

@ Prasanna - 1year Fwd PE - on the recommendation date. Yes it is to be included from here on with all reccos - to indicate a certain measure of safety at the time of recco. it was added retrospectively for the earlier reccos (wrt recco date) - again to indicate how Mr Market gave us excellent opportunities in last few years. We might not be that lucky in coming years. For outsized performance - Mr market must be handing out great opportunities! Please also read the discussion (in ValuePickr Scorecard thread) on how to use Fwd PE for eliminating price anchoring bias.

@ Sandeep - one easy way to keep track of official work-in-progress contenders is to check upcoming Stock Story/Management Q&A and references to the same in the specific stock thread :). Keep participating with enthusiasm and keep adding value to fellow-members and to the community - who knows your next idea- may be the one!

28

Two points that I have to make here:

a) In another thread on Capital allocation one of the point that stuck to my mind is how many companies do we invest in and that for any new company to enter in a portfolio an old one must slip out. This also forces us to have a strong justification for the newer entrant. Do you think that such a scheme should also be applicable on the ValuePickr recos?

b) While rating the companies (A/A+) etc one thing which seems to have been paid a lesser importance are the downside scenarios. For example incase of an economic downturn of the scale of 2008 how will each of these companies behave? Since a lot of the current recos are from Agri space there is a need to assess how will a bad monsoon impact returns. I am sure that these kinds of scenarios impact most of the companies but some are more impacted than others.

29

@ prasanna

i agree that all companies in our portfolio are growing at different rates, however, the reason i have taken 25% for all is that anything that looks cheap to me at 25% fwd PE growth will always be cheap at 35%. but the reverse is certainly not true. by factoring in higher growth we would find a lot of companies cheap and may expose my portfolio to future underperformance shocks…

sticking to 25% growth meets my minimum growth criteria and if it delivers higher growth, u wont find me cribbing :wink:

30

1year Fwd PE - on the recommendation date.

Yes this will be included from here on with all Reccos - to indicate a certain measure of safety at the time of Recco. It was added retrospectively for the earlier Reccos (wrt recco date) - again to emphasise how Mr Market gave us excellent opportunities in last few years.

A 6x Fwd PE against Mayur Uniquoters indicates it was available at 6 PE on the reccomendation date viz. 10th Feb 2011. It does not mean it is today available at 6x PE. In our experience we have seen a consistently growing business (undiscovered, or where where Mr Market is still undecided/poorly-informed) being available at entry valuations multiple times in its journey. A good example will be Kaveri Seeds being available at 10x for extended periods so many times in last 3 years, including very recently.

For better-informed decision-making, we have found it useful to keep this metric in our head along with the Fair PE band metric.

We might not be as lucky in coming years. For outsized performance to happen - Mr Market must be handing out great opportunities! We may or may not get them now or in near future.

31

@Admin: It’d be great if you constantly update the 1 year Fwd PE, during each new recco round. Including the old ones. That’s the only way to get rid of price anchoring continually, which is the intent of the parameter, I guess. I’m not sure if it helps to know in 2011 Mayur was an attractive buy based on that parameter. Do you see any reason for past-dated PEs?

Thanks

32

@ Prasanna - Always quick to the draw;)). But there lies the danger of missing the point entirely.

Enthusiastic guys like you should put their hands up for doing some homework/thinking on your own, take responsibility, do the detailed work and supply back things like Fwd PE data back for everyone’s consumption:)). Please give this a thought - we are here to show young enthusiasts the way forward… to spur you on to explore and also work out things for yourself - question and challenge the assumptions - add value to yourself and the community.

Guys - I don’t think ValuePickr Portfolio is about spoon-feeding trigger-happy enthusiasts. It is about showing folks a consistent methodology that seems to be working. It is about triggering the curious learner to start thinking/applying some concepts/methodologies for himself/herself.

We think there is lot of merit in including the 1yr Forward PE on Recco day - we have tried to make the nuances pretty clear - Perhaps if feverishness is out of the pursuit, there will be more tolerance and respect for history:)).

1 Like
33

Some concerns have been raised post publication of ValuePickr Scorecard 5. Thanks a lot for bringing these on - Life has been too easy for ValuePickrs:-). Better wake up to some real risks.

My thoughts below on the common concerns identified so far. Views are invited so we can all refine our thought process - and be more prepared - for maybe some uncharted waters in coming times.

Disc: My investments are majorly in VP Portfolio. My views are biased.

#1. Too much of Pharma. What about sectoral risks -should something go wrong? @Ashwini Damani

Depends a lot on one’s temperament. One can adopt a broad 10% allocation across the spectrum of 10 VP stocks - that will leave one with 30% allocation (Ajanta/Shilpa/Alembic) to Pharma - Don’t think this should attract much criticism as being too aggressive a call.

Those looking to make a tactical call on Pharma sector tailwinds and our own (daresay solid :-)) homework on the individual business prospects might seek higher concentration.

There is that stricter USFDA headwind - but does that affect everyone of our businesses equally? Have we done that due diligence. Alembic does carry that risk - but do read the Management Q&A - about how much stress is on ensuring compliance. Personally I am invested. Those not comfortable on this count may skip Alembic altogether or reduce allocations, drastically if they like.

#2. Mostly Exports focused Portfolio. What if there’s a 10-15% currency reversal? Is there any thought process on that?

@ Ravikumar Bhoopal

This is a very valid observation. Though I can assure everyone the Forex-kicker x-factor in selections was deliberate only from late 2012 or so. We stand by our tactical call on exports-focused business tailwinds supporting superior earnings growth. At the same time we have 3 mostly domestic-focused businesses (if any they have a reverse impact) - Astral Poly, Kaveri Seeds, Atul Auto.

So yes, we are happy to have that decisive tilt in the Portfolio - which does not take anything away from the robustness/medium-term durability of competitive advantage of these businesses. A 10-15% currency reversal might slow down the earnings momentum a bit - but all still good for 20-25% CAGR earnings growth over next 2-3 years.

#3. Have downsides been considered for a Portfolio stacked only with small caps? What impact will be there on such a portfolio in the event of an economic downturn of the scale of 2008?

@ Anant Jain

This is again a very pertinent observation. What happens when there is a secular fall for months on an end. Will our (quality) small caps be spared the hammering? I have often thought about this. Some counter-observations from my side

a) We have seen this Market fall to 15000-16000-17000 levels too in the not too distant past since the 21000 high of Diwali 2010. At the same time our quality businesses that continued to demonstrate superior earnings growth - continued to be rewarded by Mr Market - the stocks have moved into stronger hands - ensuring higher highs - almost defying the (then) bear market

b) Since then the Portfolio has also matured. None of the businesses are in undiscovered territory - except may be an Avanti Feeds to an extent - but that’s also going to be 1000+Cr Sales business this year.

c) In tune with market uncertainty, there may be a 20-30% volatility expected depending on poll outcome/fed tapering/other unforeseen events. That is something anyone focused on building capital over next 2-3-5 years should easily take in his stride. I certainly do. I also keep 20% CASH handy to take advantage to accumulate my favourite toys.

d) For a big secular fall to happen over months - first the market has to reach a frenzy - before that kind of a crash takes place that crushes everything in sight. Small caps seemed to be reaching that kind of frenzy just about a month back - but not the overall market. I am in favour of staying more or less fully invested till the fist signs of that big frenzy. We have models for detecting that )- and for staging calibrated exits - built post my inability to get out in 2008!

Yes, we must be exiting our small-cap businesses almost completely - once that stage of a bull market is reached. But we are far from that happy situation right now perhaps?

#4. What about measuring Portfolio Risks? The drops from the peaks? What about measuring Risk-Adjusted Returns?

@ Ronak

Valid Points. Except for an Indag Rubber I do not recall any of our stocks dropping decisively below peaks. Most stocks have continued to consolidate past earlier peaks in last 3 years. That itself is an indication perhaps of low risks for VP Portfolio.

But not for nothing we have our resident number/portfolio cruncher Rudra Shankar Chowdhury :-). Think he may like to take this up in a formal way to measure and document Portfolio Risk (Standard deviation, and the like) and Portfolio Risk-Adjusted Returns (Sharpe Ratio, and the like) that can attempt to measure excess return(or risk premium) per deviation or unit of measured risk.

34

My two cents worth …

#1. Too much of Pharma. What about sectoral risks -should something go wrong?
Pharma as a sector is a defensive. So, when the markets fall, it would fall less. That way a higher weightage on pharma is a benefit. Also, allocation depends on one’s understanding of a business / sector - circle of competence. Also, investors like Seth Klarman have always been overweight on small & mid cap pharma. But, as Donald has suggested, if someone is not comfortable, then reduce the overall allocation. End of the day, ideas can be borrowed from others, conviction cannot be!

#2. Mostly Exports focused Portfolio. What if there’s a 10-15% currency reversal? Is there any thought process on that?
In an economy which has been deficit in nearly all budgetary parameters over the last 60 years, it makes more sense to bet on export oriented companies (or atleast those who generate significant revenues in foreign currency). Over the long term, rupee will depreciate against the dollar as long as dollar remains the reserve currency and India remains a net oil importer. Short term reversals do not matter.

#3. Have downsides been considered for a Portfolio stacked only with small caps? What impact will be there on such a portfolio in the event of an economic downturn of the scale of 2008?
In the downturn of 2008, a lot of the Valuepickr “small caps” like Astral, Mayur etc did not fall as much as some of the large caps. Business quality matters. Market cap also does, but only upto a point.

#4. What about measuring Portfolio Risks? The drops from the peaks? What about measuring Risk-Adjusted Returns?
How do we calculate portfolio risk? By using price volatility?? That is one of the most erroneous ways of doing it. There is no quantitative way to measure portfolio risks. The quicker investors understand & realize that, the better for them. Portfolio risk comes from not understanding the businesses one buys and holds on to or not understanding the overall macro business & political context.

35

Donald -

In a good market, people contribute whatever they are best at. I just offered to volunteer what I am really good at, and what I perceive the community needs the most – software.

I do have my own estimates of forward PE bands, but it won’t be anywhere close to accurate on what you guys see, which I have to concede. As a customer and target user of valuepickr, it’s my duty to give my feedback on what would be useful. Don’t shoot the messenger :slight_smile:

Here is what I see as future growth rates from by basic understanding of the respective valuepickr threads:

1). Ajanta - 1300 is the approx target after the next quarter results. Beyond that people are predicting the growth to slow down. Have to see.

2). Shilpa Medicare - Explosive growth of 80-100% might just continue. People don’t have too much visibility into source of revenue growth.

3). Alembic Pharma - International Generics keeps doubling. Expected at 450 Cr FY14 & 1000 Cr FY15,16; NPM from the new stream might be close to 20%, giving a target stock price of 500 in 1-2 years.

The rest there is not much clarity on the profit growth estimates except for the fact that the past growth rates have been good and the underlying growth story remains.

Cheers

36

**

While I agree in general about Risk - actually lies in not understanding the business*, I have a different take on measuring Risk.

Portfolio Returns alone do not/cannot determine the quality of the Portfolio. If my Portfolio undergoes very little volatility (over the years) as compared to the overall market - for sure I have a much better Risk-adjusted Return profile for my Portfolio. For any Fund Manager say (and for his clients) that must have great practical value :). That should help in scaling up Funds under Management? There may not be 2 arguments on this one.

So Prof Rudra - I will keep encouraging you to measure Risk and Risk-Adjusted Returns. Think straight and don’t get too-overwhelmed by Prof Basumallick’s influence.

*[With due respect advise folks not to take our Guru Mr Buffett’s words too literally…at a practical level you have to disagree with him here, as you have to say…with the case for diversification]

#4. Returns? **

37

You should then call it “volatility-adjusted returns”, not “risk-adjusted returns”. My point is very simple, **volatility has nothing to do with risk. **Risk is when there is a probability of **permanent capital loss. **Having a smoother ride is preferable, but not an end in itself.

My take is very simple - when constructing a portfolio, risk to capital loss has to be the primary consideration. To really understand if I will lose capital on a business, I need to understand what it would take for the business to perform extremely badly or go belly up. That will only come from deep understanding of the business and its operating environment (macro, sectoral,political, geographic etc etc). It will NOT come from an excel sheet with past data :slight_smile:

Footnote: Any fund manager, as long as he/she is not publishing daily NAVs, why does volatility matter? One can do what Buffett used to do during his partnership days. Give people their asset value once a year. Then one doesn’t need to focus on short term volatilities :wink:

38

Though I agree with the need to measure risk, I endorse Abhishek’s view that volatility is not the right measure. Price movements on the upside should be more than welcome. The downside price movements is what we dislike.

I feel risk lies in being forced to sell when there are drops.

The drop in prices could be due to two reasons:

1). Something wrong fundamentally with the company or some regulatory action etc. that may not be of a temporary nature. It would be prudent to sell at this point, because otherwise we are looking at further falls.

2). Due to market sell off which is unrelated with company performance. Here it would be prudent to hold or even add more.

in either case, the worst situation is if we have bought at the peaks and decide to sell after fall. So I endorse the idea of measuring the maximum historical drops in the stock in the past, as also current position with respect to 52 week high for each stock.

It depends on the capacity of each investor to see the drops in the stocks in the portfolio and these figures could be used in making the decision to include the stock or not.

I personally keep track of the max loss from highest level (after purchase) posted by the stocks in my portfolio with respect to the current price. As the stock would post new highs, this ratio gets reduced and it increases as there are drops. It is like an opportunity cost of not selling at the highs. One cannot predict the highs, but if a stock keeps losing from its high, an investigation is needed. One can also keep a limit like say 20% max fall is what you can accept or decide on stock specific basis. This way you limit your losses and extend your gains. I currently have 1 stock which is more than 20% below its high. It is on my exit list.

_ actually business*, _

_ *[With diversification]

#4. What about measuring Portfolio Risks? The drops from the peaks? What about measuring Risk-Adjusted Returns?

How do we calculate portfolio risk? By using price volatility?? That is one of the most erroneous ways of doing it. There is no quantitative way to measure portfolio risks. The quicker investors understand & realize that, the better for them. Portfolio risk comes from not understanding the businesses one buys and holds on to or not understanding the overall macro business & political context.

_

39

Semantics apart, two things:

a) Yes we can agree to call it/measure volatility risk-adjusted returns

b) VP portfolio has only had a 1 way ride so far (luckily).

I can say with full sincerity that having this superior volatility risk-adjusted return has been a major confidence booster for everyone. Despite market going to 15000-16000 levels too during this period, VP stocks continued to grow stronger.

Had VP stocks also towed the market swings, no matter how many Buffett platitudes we may have to offer, confidence levels would have been very different.

I cannot say with any confidence that we understand any of our businesses deeply enough. Many things can go wrong - and there could be significant loss of capital - and that is practical RISK for me. I would always pump for someone with a record that shows a smooth ride - if anything it tells me the driver has enough experience and perhaps some required expertise - than someone offering a bumpier ride record.

That should be worth measuring? Why not?

** volatility Risk **permanent capital loss. **Having

_ Footnote: ;)) _

**

40

can someone explain how we arrive at the fair PE band for these companies?. as we know a) most (or all) of these have undergone a PE re rating over the past few years. ( a few of them may even have gone a little ahead though. b) all of them are still showing consistent earnings growth. so we still don’t know how market rates them on a negative surprise. obviously we cant take historical P/E as a reference.

as an example, i can think of ttk and hawkins. they both were trading at a single digit p/e. got re rated to around 30. now even after flat earnings or degrowth, still trading in the range of 25-30.