I am the least qualified to make comments/suggestions on anyone’s Portfolio. simply because my experience base is just 2 years - in thinking about Portfolio, allocations, and/or making refinements.
This is the reason I have been shying away from making any comments anywhere. But your 65% allocation to Mayur - was provocation/enticement enough:)
1). Anything beyond a 10% allocation - even for a very aggressive risk-taker - MUST be from his/her own CONVICTION in the stock )- which will come from extensive homework- knowing all that is there to know about the company and its business, the industry. Seeking out others who may be are invested heavily in the stock - sparring with them on possible holes and/or negatives, and regular monitoring of the business performance. Challenging others to attack the stock -play the devil’s advocate - why woudn’t you allocate more, etc.
It should never be because Junta says so. or so & so ace stockpicker says so, or a couple of them say so. Wisdom of the masses is generally to be distrusted.
On a lighter note -The overwhelming ValuePickr (Portfolio) vote on Mayur sends me a signal - its time to reduce my allocations:).
2). If you cant do your own Homework - Aggressive Portfolios are not for you. If you CAN do your own homework, then that’s great, and I may like to differ with Ayush & Hitesh - theoretically, speaking:). There can be no blanket statements, Let me explain how & why.
If the Portfolio uploads/discussion could have been structured, I would have asked for a couple more (vital) additional information.
1). Equities allocation - as a percentage of Networth
2). Other Assets allocation - as a percentage of Networth (e.g. Debt Instruments, Gold, Real Estate,etc.)
3). Your assessment of your individual risk-taking ability (life’s lessons,etc.)
Let me put things in perspective with a real case: Mine
I am what others (my friends) call an aggressive risk-taker in Life. But the way I look at it is I am a calculated Risk taker. I am able to assess my abilities, and generally set myself slightly stretched targets. If I know I can achieve 5/10, I will set myself a target of 7 - because achieving 5 I know is a done deal, its actually under-achievement for me.
So I will calculate that the odds are stacked in favour of me if I attempt 7 (because I am growing stronger, I am practicing hard, I am increasing my stamina, I am growing in skill every day) but if I attempt 8 or 9 definitely the odds are stacked against.
Coming to Portfolios, Less than 5% of my Networth today is in Equities (at Market Value). Another 5% is in Debt Instruments. Balance 90% is in Real Estate - again by a fortuitous turn of events, beginners luck, whatever you may call it.
So it’s no great shakes for me to increasingly bet 28% of my Equity Portfolio (at cost) on Mayur. As I kept doing my homework, and my my conviction kept going up, and the company kept performing, (and none of the skeptics could meaningfully puncture my conviction), I kept finding that the calculated odds are inmy favour, so I kept increasing my stake.
Also, in my view, there was no other contender then to beat Mayur in the CONVICTION vs UNDERVALUATION multiple (See our Capital Allocation Framework thread, for details). Now I think, there are others like Astral Polytechnik and Kaveri Seeds to challenge that pole position held by Mayur. I have a big hunch that these two currently are better opportunities than Mayur, and if I do not reallocate I will be paying some Opportunity Cost. I have to devote time, asap, to validate/reject these hunches thru some data/projections/analysis homework.
1). Assess your Equity Portfolio vs Total Net Worth
2). Know Yourself - What kind of a risk-taker are you - Do you like to take calculated risks in Life, or you generally play safe. Will you have the stomach to bear a 20% or more (temporary loss) for a larger gain
3). Be HONEST(to yourself) - about the homework you have put in. Vs the Risk you are taking. Do you really have that CONVICTION. if yes, then you can ride out even 2 years of underperformance.
Suggestion: Even if your answers to CONVICTION is High (Highest) and answers to Equity Networth % is less than 20%, and answers to RISK taking ability is YES - I know myself well and my abilities well, **I CAN take calculated risks **(proven in other spheres of life than just equities), you will still be well-advised to pare your 65% allocation to Mayur.
We must be open. We must be humble. Despite all our work, things can go wrong which are beyond anyone’s control. We cant rule out a catastrophic event at Mayurs factory, or in the Artificial leather industry. Or even more simply we might have been just wrong, missed some real big hole or failed to assess the impact of an ongoing development/shift in the company/business/industry. Mr Market always knows, better!
So there is Wisdom in the adage of spreading the bets. Generally folks like to spread their bets among 20-30 stocks or more. That is a damn good strategy maybe for passive investors.
But For Active investors (like you) and who prefer a concentrated style (like you), have above-average risk taking abilities (I am assuming like you), have more than 50% of Networth other than Equities (I again am assuming like you), I would say 50% allocation may be in Top3, and balance 50% in the rest 3-7 stocks may not be a bad idea, provide this is backed up by serious, serious homework. Then you might be able to really leverage the benefits of a Concentrated Portfolio.
Disc: My views are not to be taken seriously; these may seem logical, but are purely theoretical -these are yet to be validated over any bull-bear-bull cycles to give any level of confidence to anyone. I pursue a high-calculated-risk strategy as Life has been kind to me; If and when I do receive big blows, these views are surely subject to change;)