Standing: From Left to Right:
Tirumal Rao, T Anil Kumar, Ananth Shenoy, Rohit Ojha, Sandeep Patel, Dhwanil Desai, Anant Jain, Naman Mawandia, Aman Vij, Dheeraj Dave, Rohit Balakrishnan, Ankit Gupta, Davuluri Omprakash
Sitting: From Left to Right:
Manish Vachhani, Aveek Mitra, Hitesh Patel, Sandeep Kapadia, Prof Bakshi, Ayush Mittal, Vinay Parikh, Donald Francis, Abhishek Basumallick
In front: From Left to Right:
Pratyush Mittal, Abhishek Shah, Vishnu Chennareddy
It was an unbelievably charged 4 days of free-flowing interactions - of expanding our horizons - under the august presence of our Gurus Shri Vinay Parikh, and Prof Sanjay Bakshi
Will be sharing the proceeds of the deliberations, once we get them more organised, as is our usual practice.
This time we had as many as 8 new faces qualifying to join the TopContributors League. Will be sharing again for everyone’s benefit the criteria used to shortlist, why some qualify and some do not - there are also some who fail to pass our final screening interview.
This time round, we allowed a little laxity in relaxing the “consistency” criteria - given that most folks had gone into a shell post the confusion over SEBI Analyst/Insider Trading regulations. The year since has given us enough time to reflect and work out (individually for ourselves) how to comply with the Regulations, and yet find it possible to add value to the Community effort - as so many have been able to demonstrate.
The 8 young new faces certainly could find ways to add value - they have shown conclusively there are many different ways to add value (read what the community finds useful, and have overwhelmingly voted up), which means the seniors too have to find ways to be able to do the same;
Once the criteria are published shortly (within next week), they will be strictly enforced for 2017.
Thank you guys for your hard and smart work. Really appreciate for keeping the standards of this invaluable forum high. Looking forward to learn more and hopefully contribute in my own capacity in FY2017!
Cheers.
This year’s VP meet was graced by two gurus as donald mentioned earlier.
Prof Bakshi was at his eloquent best. My main learnings from him were
To focus on businesses which would be around for a long time. And the end products/services of the business has to have a win win proposition for all concerned in the business ecosystem. The end customer/service receiver should be a happy guy. He should be delighted customer.
Squeezing your suppliers for the sake of improving your own margins/working capital benefits is not a good idea in the long term. It leads to disgruntled and unhappy suppliers and sometimes these kind of situations lead to poor outcomes esp in long term.
Position sizing is of paramount importance in managing portfolio risk. One cannot just get carried away by over exhuberance/overconfidence and bet unusually high amounts of PF to a particular stock. In other words, shit happens…
One must always be cognisant of the risks of disruptions which could affect any business which we track/own.
One must be wary of reinvestment risks. (applies to me ) Getting hold of good companies is often difficult and if one has got hold of it it makes sense to ride through. Selling a good business and then trying to replace it with another good business entails element of risk.
While valuing some businesses one has to take into account some or other reason of temporarily depressed earnings. e.g a company which is deriving 60-70% revenues from a particular geography at high margins whereas 20-30% revenues from a recently entered new geography with margins which have reached barely breakeven levels after a couple of years of existence. (here the assumption is that as time goes by the new geography would keep providing higher and higher margins and reach the margins of the older geography. I guess here in such situations one has to visualise the business a couple of years down the line from now onwards with much higher than current levels and assign an appropriate valuation.
Annual reports if well written often provide a lot of clues about the future potential of the business.
(these are the things that came first to mind and I have jotted them down.)
The other guru was Mr Vinay Parikh. He is a value investor and likes us to think of the terminal value of a business and exit multiples while valuing a business. His strategy is to remain within his circle of competence and buy great businesses that are going to be around for a long long time especially when there are temporary clouds on the horizon for such businesses for whatever reason.
My take home message was to inculcate a lot of these learnings in our investment style to make it better without necessarily drastically changing the style that suits our temperament.
Thanks
Great feed back
I saw a question on twitter which sounded very relevant
Everyone talks about 100 baggers and 20 baggers etc and holding for the whole ride
But that would mean at some stage the hundred bagger will be over 50% /60% of the PF if the initial allocation was around 10%
How do you manage portfolio sizing in that case - keep regularly taking profits would mean missing the whole ride
Not my original q- saw on twitter by Anil
What is your opinion ?
Hitesh has very well summarised the learnings. Just to add somethings that caught my mind in addition to above:
On Leverage:
Prof. Bakshi suggests to adjust the required returns based on the leverage on the balance sheet. For example finance companies carry a lot of leverage. If you take on a similar personal leverage and invest the entire sum in a zero debt sound business, what would be comparable returns?
On Multibaggers:
He also suggested that if you have a huge multibagger you have not averaged up. He advocates regular averaging up.
On Business model:
Guru Vinay Parikh urged to question, “how the business is making money?”.
Thanks for your reply
Could you please elaborate as it’s not clear to me
If you keep averaging up the eventual size of the stock let’s say a 100 bagger will be more than 60 percent of your pf ( not that I have that problem, just found it contradictory- PF sizing and holding huge multibaggers)
Thanks again
If you buy say 5% at 100 and average up by buying another 5% at 200 and 300 each, the average cost wlll be 200. So if the price goes to 400 you have 100% returns instead of a 4 bagger.
200 * 15% =30
300 * 5% = 15
Instead of not investing after increase in price and just counting the multibags, one can actually invest more and earn more.
What level of exposure to portfolio one can take depends on an individual. So there is definitely a limit after which you cannot average higher as you have reached your position limits. As quoted by Hitesh, Prof Bakshi said, “Shit Happens”. So there is no point going for very high positions in a single stock.
this averaging on the up was in the context of companies displaying strong business momentum. e.g business continues to grow at healthy rates of 25-30% and along the way you keep getting some sharp price cuts due to market corrections or whatever other reasons, one can add more and keep adding more.
I dont have price anchoring problems but my initial exposure is substantial in the first place so for guys like me, sometimes its not possible to keep averaging on the up except in case where all stocks or nearly all stocks in PF continue to run up and weightages dont get skewed inspite of averaging up.
Hitesh sir, wanted to ask you, do you use pyramiding concept in your favourite businesses. For example, Can fin has been getting stronger business wise but also valuations will also get richer. My question is, in such a case would you pyramid at higher valuations or when stock hits new high if you see business continuing its performance.
I actually answered your question in previous post. Since i already have a good allocation at the time of buying if price increases then weight of that particular co in the PF also increases and hence for me it doesnt make sense to average up bcos that will ultimately skew the PF balance.
I personally give a lot of importance to portfolio allocation and at times even more than stock selection and that seems to have helped me.
While looking at any company to buy after deciding on the merits of the company the question I ask myself is how much will I be able to allocate to this particular company. The decision is made on basis of the downside protection at that particular price point besides the quality of biz and promoters (which are already considered at the time of stock selection) and the potential upside. Basically its risk reward. If its very favorable I right from the time of buying allocate a good amount to that particular company.
