Sharing my portfolio and requesting feedback/critique. I will update this thread when I remove/add any new stock. I also have mutual funds from PPFAS and Quantum, but I am not adding them here.
Stocks as of Feb 8 2020:
Facebook (US) - 29.78%
Google (US) - 15.18%
Syngene - 14.89%
ITC - 14.22%
Thyrocare - 12.35%
Cera - 7.75%
Fiverr (US) - 4.83%
Tracking positions - 1%
My philosophy
I invest in companies with high ROCE, high FCF, strong balance sheet, non-cyclical, relatively not very expensive companies that can grow at atleast 10% long term and have trustworthy managements. I don’t mind a very concentrated portfolio. My aim is to further reduce the companies in my portfolio by cutting out the non-performers. Some of positions like Facebook and Google have become large because they have performed exceptionally well and I kept deploying more capital as they did.
I understand consumer stocks and technology stocks. The reason I don’t invest in financials is because I don’t understand them. I don’t like to add/remove new names often. The only fresh position I’ve added in the past year is Fiverr after it IPOed.
Rationale for investment
Facebook (US)
Dominant player in social media, growing revenues at 25-30%, super high cash flows, super strong balance sheet with $50 billion of cash, lots of opportunity to further grow with e-commerce, payments, further monetisation of Instagram, WhatsApp. I have extremely high conviction on the core business and am slowly adding more every month. Regulation risk remains.
Google (US)
Growing at 20%, high FCF, strong balance sheet with $120 billion of cash. Controls Android so has very good distribution for products. Google products are dominant in the market.
Syngene
Top pick to play the CRAMS theme. I think the story will be similar to how TCS played out.
ITC
Super high cash flows from tobacco business. Building FMCG brands is a long game and I am prepared to wait for it to play out. Everyone seems to be factoring in the worst. I find the valuations attractive.
Thyrocare
Great growth even in tough times, extremely high cash flows, cash being returned to share holders in the form of dividends and buy backs while still growing the business. Picked up stake at lower levels, now averaging up.
Cera Sanitaryware
Leader in sanitaryware, moving into other home furnishing products. I’m waiting for real estate to come back to normalcy to see if growth returns. Not adding any more before that.
Fiverr (US)
This is a micro cap startup that recently IPOed. Growing at 40%, gross margins of 80%, invested at P/S of 4-5, improving EBITDA margins. I feel the product market fit is very strong, with gig economy poised for huge growth. Initial investment as a %age of PF was way lower, the stock price has shot up quite a lot recently. May add capital slowly if results continue to be good.
Fully invested and keep deploying cash flows from other sources every month. Requesting others to share their views.
Hi. I own Google too and have been looking to add. However, does the fact that close to 45% of your portfolio in the form of Google and FB have anti-trust probes, data issues potentially affecting their business model and other regulatory headwinds going against them factor into your stock allocation strategy?
I think they’re great businesses but considering the recent run up, their large base and the other regulatory issues mentioned above - have you thought along the lines of if they still warrant such a high percentage allocation?
Did you looked/studied Apple, Coupa, Team, Paycom, Trade Desk, Tesla in US markets ? Facebook is kinda struggling with Ad business and below stretch expectations from last 2 quarters.
Hi. I own Google too and have been looking to add. However, does the fact that close to 45% of your portfolio in the form of Google and FB have anti-trust probes, data issues potentially affecting their business model and other regulatory headwinds going against them factor into your stock allocation strategy?
I think they’re great businesses but considering the recent run up, their large base and the other regulatory issues mentioned above - have you thought along the lines of if they still warrant such a high percentage allocation?
In my opinion the strength of the core business is far too strong for these headwinds to meaningfully affect their operations. Google and Facebook are separate business, so it is fair that I talk about them separately. I feel that sustaining >20% revenue/earnings growth for Google in the future could be a challenge as it is largely a single product trillion $ company and litigation risk doesn’t seem to be factored in. That is the reason I haven’t added it as aggressively as Facebook.
As for Facebook, I feel they have far too many avenues to grow into, largest of which would be e-commerce and payments. They have amazing distribution with > billion people using their products. My biggest concern is the growth of TikTok and how fast things can change in social media. The way the management fought off Snap gives me confidence that they can fight off TikTok too. At the end of the day it’s hard to find a company growing at 25-30% with such low price to free cash flow(about 25x ex-cash). Regulation risk remains but I doubt US lawmakers would be stupid enough to regulate their tech companies too much when China is giving theirs sops.
I’m curious to know, does Thyrocare has any kind of moat or it just first mover advantage?
In future when competition grows, what options does company have to defend its margins?
Sorry… my bad…I wanted to say bottom line (profits) as privacy issues (Additional expense) have creeped in for both google and fb !!!
Yup, but those were already disclosed by Zuck in earlier conference calls. It still beat analyst EPS estimates. I think the expectations are that costs would start substantially moderating by FY21. Ex-fines and Q4, EPS has grown by atleast 20% for all quarters of FY19.
I have TEAM in my watchlist but the valuations are way out of my comfort zone. I’ll look into Paycom, thanks.
I’m curious to know, does Thyrocare has any kind of moat or it just first mover advantage?
In future when competition grows, what options does company have to defend its margins?
They are the cheapest cost player, are asset lite(so throw around a lot of cash), are growing in tough environment and have excellent distribution. From my experience of limited scuttlebutt, I’ve found their processes to be sound and that they have a wide network to reach end customer.
Low cost can be a moat too, especially in B2B. Nothing is set in stone and I’ll re-evaluate my position if/when there are competitive headwinds.
I would stay away from Facebook from an election year in the States. I purchased it when it was trading at $140 and got out of it recently. I don’t have an issue with the platform and the product it offers but I am not going to add them to my portfolio unless they ban political advertising on their platform like Twitter did a while back.
Google is a perfectly fine company to have in your portfolio and I have been increasing my allocation over last 4 years.
Apple is a hit or a miss. With the cost of the products increasing, I am not entirely sure of its future. However, I bought them cheap and continue to hold them.
I don’t have an issue with the platform and the product it offers but I am not going to add them to my portfolio unless they ban political advertising on their platform like Twitter did a while back.
What would be the rationale for that, unless you somehow think the ads could increase litigation risk? One would imagine political ads would add to their revenue significantly.
Have you thought about V, MSFT, MC, and FiserV?
MSFT is very diversified and there is too much going there for me to value it/understand it completely. Also from my observation I’ve found some of their products to be not upto scratch. It’s in my watchlist and I keep trying to understand it.
MasterCard/Visa have the risk of digital payments like UPI or Cash App in the US disrupting their business model. I think it won’t be long before other countries adopt central digital payments infrastructure like UPI in India for payments. There are also low fee alternative cards like Rupay. All of those factors could lead to degrowth in high transaction fees charged. I’m not sure the rich valuations are factoring this in.
With Facebook, the biggest challenge keeping the politics and fake news out of it. Sure, Google and other face similar challenges but none of them have potential to influence American election the way Facebook does. I believe you haven’t read the reasons why it went down to $130 levels before going back up. In an election year, with a country so divided, it’s not at all a wise investment.
Quantitative investment strategies have their merits and demerits. Sure, there is a ton going on at MSFT but Nadella has successfully steered it away from becoming a dinosaur like IBM. It has been one of my best investments in the last 4 years and with a new xbox coming out this year and Azure competing tow to toe with AWS, there is a lot of room for growth.
Mastercard and Visa aren’t going to go anywhere. There are only 4 providers: V, MC, AmEx, and Discover and everyone is bound to consume their services. With more and more people getting credit cards every day, they will continue to grow. I don’t know what it has to do with UPI but every single CC or debit card I have in India uses either MC or V.
This is one of the challenges of investing in a country where you don’t reside. It’s hard to grasp and understand the reality at ground level. USA is still using technology from 50 years ago and they have no plans of changing the systems anytime soon and I can talk about it from personal work experience.
I gave you my rationale for not investing in MSFT, V or MC. I don’t need to touch every stock that exists and that’s fine. You may hold separate views and I respect that.
About MC/V: Rupay holds 58% marketshare in India for total card issuances, inspite of it being launched recently. There’s not much the incumbents offer for so much higher transaction fees. There are a lot of other head winds coming up IMO and the valuations do not reflect that. It may work out fine, but I am not comfortable owning them for that reason.
Like I said the only risk that matter to me for Facebook is regulation and I do not see it happening for the simple reason that the US won’t regulate their companies too much when China gives theirs a safe space. Nonetheless the risk is priced into the stock price. Most of the rhetoric about fake news is being peddled by the same media outlets that Facebook put on the deathbed. I as a shareholder am very happy with the values that Zuck intends to promote: https://about.fb.com/news/2019/10/mark-zuckerberg-stands-for-voice-and-free-expression/. Again you are free to disagree with me. I do not buy/sell in and out of stocks every year because of a single event.
I have moved out of Cera and added Marico. Rationale was that it would take a lot of time for real estate to recover, there is competition increasing in the space and the stock had held up so gave good exit opportunity. I liked Marico at 250. It’s a great company going through temporary growth issues.
Other than that it is mostly a lot of additions to the same names at bottom and reorganised/consolidated some MFs that I owned. I’ve increased weightage to ITC particularly. I’m trying to find a way to generate list of holdings by percentage in an automated way. I’ll be updating the above PF list in some time.
I would recommend having a look at Samsung Electronics (GDR’s listed). Prefs are even at a bigger discount
Why?
Cheapest tech play, tremendous value creation and cheap valuation.
Cie has atleast a quarter of market cap in cash. (last time i checked was about 95trn KRW on 400 trn of mcap)
Ofcourse big chunk of earnings rely on semiconductor cycle. But semi’s is not as bad a industry as it was a decade back. Nand is more commodity type but DRAM is becoming value add. Industry is consolidated with 3/4 players (Intel, Micron, SK Hynix) virtually controlling everything.
Despite cyclicality, generate 7% fcf yield (in bottom cycle) and upward of 15% (yes 15%) at peak of cycle.
Plus, long term secular drivers are there to stay: 1. Cloud migration by big hyperscalers (Google, Amazon et all), 2. Increased content in devices, 3. 5G related demand
