Learnings and Questions from my Investing Journey (So Far)



It has been almost a year and a half since I started equity investing seriously.

During this time, my portfolio of stocks and equity mutual funds has risen by more than 7 times. During this time, the amount of money I had in equity mutual funds has halved, while the amount of money invested in direct equity has tripled. On balance, the portfolio has gained around a 100% in a year and a half.

Obviously, one has made a lot of money. I almost have my first 10 bagger (MPS) in less than a year and a half. Several Stocks (PFS, Mayur, PI, Sintex,Shilpa, VST(since sold), IRB, Bharat Forge, Balkrishna, Kaveri,Polymedicure,Oriental Carbon, Munjal Auto, KRBL,CanFin Homes, Orient Cement, RS Software) have risen between 3 and 5 times. Several of my more recent purchases, like Ajanta, Indiabulls Housing Finance, Akzo Nobel, Kitex, GPPL, Amara Raja, Bayer Cropscience, Munjal Showa) have also shown terrific performance. Many of the stocks which I picked, and sold (because I thought they had run up too quickly, like Igarashi Motors, Kesar Terminals,GMM Pfaudler, SRF, Alkyl Amines Chemicals, and Avanti Feeds, went on to prove me spectacularly wrong, with me paying taxes to boot. So lots of hits.

Some quality companies, like Cummins, Grindwell Norton, Larsen, EClerx have given me great returns too. Private Banks,like ICICI and Federal Bank haven’t done badly, but in fact the PSU banks (at least in my portfolio) have done better.

What about misses? PSU banks have not done that well, but I would not call them misses. Clearly Metal Stocks, like SSLT, Tata Steel, Hindalco, NMDC, Hindustan Zinc were a miss. Most of these I purchased during September-October 2013. Given that, they have all risen around 50-70% from there. However, I have purchased NMDC, SSLT and Hindustan Zinc at prices higher than currently. Selan has given me good profits (because I sold at the right time), but I still hold some, and it has come right back to where I purchased it.

The two stocks that have the highest weightage in my portfolio IDFC and Oberoi Realty have clearly not performed as well as some of my best picks. Holding and Investment Companies (and I own Tata Investment, Bajaj Finserv and Bajaj Holdings, and if you can it call it that, EID Parry), and while these stocks have not done badly, they have hardly risen 300-4000%, even though they represented value when I purchased, and represent even more value today. I haven’t purchased Tata Investment or Bajaj Holdings lately, though I have recently purchased a whole lot, since it the only meaningful listed insurance play.

Another stock which has consistently disappointed this year has been Reliance. Another disappointment has been Bajaj Electric. A third has been Tata Global beverages. And finally NTPC has hardly moved, though it has fulfilled my investment goal of a 5% dividend and a 10% stock price rise annually. In such stocks, one has to pay the right price and one must clearly know one’s investment goals. I sincerely feel that stocks like SJVN and NTPC are necessary to have in one’s portfolio, since they insulate you from severe capital loss, and give steady returns. But one must buy them at the right price.

All in all, my crazily diversified portfolio has given returns better than most mutual funds. However, had I invested in only

i) ValuePickr Portfolio companies my returns would have been 2-3 times my current returns.

ii) Prudent Equity Stocks (Looking for deep value stocks, with poor business characteristics) would have lad my returns to at least twice what they are.

So I have not done that well

So what have been the learnings:

a) I stayed away from Stocks that had high PE’s. Which meant I have very little of the likes of Unilever, and Colgate and Gillette, and the ABB’s of the world. On balance, I think this was a good strategy. In face, I sold Colgate and bought Cummins, and Cummins has done much better. I think the high PE stocks are terrific businesses, but others think so too, and so they have not been spectacular purchases. On the other hand, quality businesses (or businesses with poor management quality but great structural tail winds) with low PE’s at the time of purchase (like BKT,Mayur, MPS or IRB, or Canfin or IBHL) gave spectacular returns.

b) Investment companies seem to be a no-no. As a wise young man told me once, these companies which merely are the promoters holding companies will rarely reward minority shareholders, because there is never value unlocking.

c) Commodity stocks will in general mirror commodity prices. So these stocks ought only to be bought after several months of an extreme price breakdown in that particular commodity, and that also, only if the company is not highly leveraged. Trying to catch a falling knife in these companies can injure one’s portfolio badly

d) Markets often give you spectacular mispricing. If one has courage in one’s conviction, one can exploit the mis pricing wonderfully.

e) High Leverage can be very toxic. Highly leveraged companies ought to be avoided in all circumstances, no matter what price the business is available at.

f) It is easy to fall in love with a stock.I think before one keeps purchasing, one needs to get the contra view. And one needs to consider the contra view seriously.

g) I am naturally slightly risk averse, and I have great curiosity. So I often buy for diversification, and I often buy because I just like some company’s financials, or because someone recommends it. But it is easy to buy a 150 stocks, much tougher to buy only 20. But it is much easier to manage 20. So one needs to make a real effort to cut down on the number of stocks one holds.

Questions

a) If one knows that some stock is likely to do better after a year, is it better to buy now, or wait for 9 months and then purchase. Obviously, if I know it, other market participants too know, and won’t the stock price run up before actual company performance? I have accumulated both IDFC and Oberoi Realty in this hope, that the stocks will do much better after a period. I also knew the negatives. In the case of IDFC the negatives were clear:

i) Infra finance was a dog. There is lack of demand for finance, existing accounts are struggling and the company had lent to gas based plants, which are just postponing their day of reckoning

ii) In the transition to becoming a bank, IDFC will increase costs. But the returns will come only a few months after the bank actually fructifies. Also, the company can’t increase its book too quickly, because otherwise it will have a hard time meeting priority sector targets.

iii)FII’s can’t buy IDFC stock, and FII’s are the main providers of liquidity.

Instead of IDFC, one could have easily bought a newer less mature Bank, like Yes, and made spectacular returns already.

In the case of Oberoi, the poor state of the Mumbai Real Estate Market is a clear negative. Presales are slow, the company is not able to lease its new tower, the new Worli tower has flats priced in the range of Rs. 25-30 crores each, and how can the company sell 250 of these? And finally, the slow pace of construction and launches. One could have easily bought a Bangalore play like Brigade.

Yet there are features of both companies which ought to lead to price recovery by the first quarter of 2015-16. But what if the overall market has tanked by then, or really risen up? One misses out on the run up in stocks which are already doing extremely well, and the opportunity cost is nothing to be sneezed at. Isn’t it better to be buying the stocks later, even if you don’t get very cheaply, but buying something that is rising now? Time will give me the answer to these questions.

The second question is what stocks to buy? How much should one trust the market? There are influential market gurus advocating that one buy’s stocks which have hit 52 week highs, not stocks which are at a loss. I buy those stocks which fall, not the ones which rise. It seems to me that if something is available cheaper (for eg in a sale) in real life, I rush out to buy. I don’t buy clothes when the prices are the highest. Why should it be different in Markets? But so far, in this market, in the last one and a half years, it seems to me that these gurus make sense. If I would have bought the same stocks which had given me more returns already, I would have had even better returns. Again, I have not followed their advice. Again, Time will tell how right the gurus are.

Current (December 2014) Portfolio Picks



As mentioned in the previous post, I am no longer monitoring my portfolio picks for performance. However, the downside to this is that I do need to restrict my stock universe. I have brought down the number of stocks in my portfolio. I intend to keep bringing this down. Below is my current update and outlook on the eventual 40 odd stocks I intend to have in my long term portfolio:

Sector
Sector Stock Current Outlook Weightage in Portfolio
Finance 13%
IDFC Accumulate
ICICI Bank Sell on Rises
Indiabulls Housing Finance Accumulate
Diversified 2%
Reliance Accumulate
DCM Shriram Buy
Consumer Facing 6%
Akzo Nobel Hold
United Spirits Hold
Indian Hotels Hold
IT 6%
TCS Accumulate
EClerx Accumulate
MPS Hold
Pharma 5%
Shilpa Hold
Ajanta Hold
SPARC Accumulate
Investment Co 4%
EID Parry Accumulate
Bajaj Holdings Sell
Bajaj FinServ Accumulate
Tata Inv. Corp Hold
Oil and Gas 1.50%
HPCL Hold
Cap Goods 2.50%
L&T Accumulate
Infrastructure 3.50%
IRB Infra Accumulate
ITNL Accumulate
GPPL Accumulate
Financial Intermediary 2.50%
IVC Accumulate
Metals 4.50%
Sterlite Hold
Tata Steel Hold
NMDC Accumulate
Hindustan Zinc Accumulate
Engineering and BtoB 9%
Cummins Hold
Grindwell Norton Hold
Bharat Forge Hold
Mayur Uniquoters Hold
Polymedicure Hold
BKT Accumulate
Auto Ancilliaries 4%
Munjal Showa Hold
Banco Hold
AmaraRaja+Exide Hold
Agriculture and Agrochemicals 4%
PI Hold
Kaveri Sell
KRBL Hold
Real Estate 12.50%
Oberoi Realty Hold
Nesco Hold
Sobha Hold
Telecom
Idea Buy 1%
Total 81.00%

Of course, these 45 odd stocks constitute only 81% of my portfolio. Even these 45, I want to trim down to 25. Of the remaining 19%, the prominent ones I want to dispose off include: ITC, BASF Agrochemicals, Oriental Carbon, Selan,RS Software, CanFin Finance, Unichem Labs, Muthoot Capital, Shriram City Union Finance, PTC Finance, Kitex Garments, HUL, Gillete, Repro, National Peroxide, Mazda, Gandhi Special Tubes, Syndicate Bank, Carborandum Universal and Oriental Bank. I would do this right away, but the problem is that I am sitting on hefty capital gains on these, and I will wait for a year of holding to get rid of them. In some cases, I don’t like the stock well enough to buy, but I like it well enough to be reluctant to sell, unless I get a good price.

Pls. note: The above is simply a list of stocks I hold, and don’t intend to hold. This is a personal journal. It is neither a recommendation to buy/sell, nor is it an endorsement of any of the stocks being discussed. I am an amateur investor, with a patchy record, and my own peculiar risk profile. Please do your due diligence before you buy/sell any stock.

No more monthly updates on investment performance



After long thought, I have decided to stop monthly updates on my investment performance, at least for a while.

There are many reasons for the same. Certainly one of the practical reasons is that I was spending way too much time on updating and refining my spreadsheets, neglecting more essential things. The other was that I was almost reviewing my performance on a minute to minute basis, and I think that that kind of obsessiveness results in too much activity on the stock markets. It is better not to know every minute what your performance is. The third reason is more nuanced. If indeed, I am a long term investor, why am I worried whether I have beaten the benchmarks daily, weekly, monthly or trimonthly. I should take a view on a stock at a particular price. If the price falls, I should buy more. Then I just need to review the performance every year, and try to beat the benchmarks every year. This is because my one and a half year’s intense experience has taught me that a) Markets often get it wrong in the short run and b) that momentum traders sometimes trade up a stock excessively, or sometimes punish a stock unreasonably. Momentum trading may be profitable for the people who practice it, but I cannot see myself trading solely on price, without any fundamental backing.

If markets do get it wrong in the short run, then why worry about performance in the short run. I should only worry about performance in the long run. And this is what I intend to achieve by not keeping on comparing myself to benchmarks.

I won’t overpay for stocks!!!


One should not overpay for stocks.

There is no question that sometimes markets get it spectacularly wrong. While broad market performance is often sentiment and liquidity driven, individual stocks are sometimes completely misunderstood, and the market simply does not give them their due.

Within the broad market today, there are a number of stocks available at PE ratios of 30-50. There are several others available below 10. The large majority of midcap and large cap stocks are available with PE ratios between 10 and 30. Why this wide divergence between PE ratios of different businesses?

As I have understood it over the last year and a half or so, markets currently like companies which

a) Have Good Corporate Governance

b) Have steady growth, notwithstanding economic conditions. Usually, a necessary condition of this is economic pricing power through some kind of moat – brand power, distribution power, unique location or asset.

c) Are present in sectors markets like for the moment, because of the market’s reading of macro or microeconomic themes.

d) Have high Return of Equity and High Return on Incremental Capital Employed

e) Have Low Levels of Debt, which again allows them to come through economic cycles unscathed.

As a result of this, companies which are currently available at “high” prices (in my parlance, high ¬†PE ratios) are typically multinationals across the board (though especially those which own consumer brands, like Colgate), Pharmaceutical Stocks (like Sun Pharma), Indian Consumer Goods Stocks (like Marico and Emami) or Consumer Discretionary Goods Stocks (like Asian Paints). All these stocks share many of the above characteristics. The darling sectors of the markets are FMCG, Consumer Discretionary, and Pharmaceuticals. Autos and Auto Ancilliaries and Private Sector Banks are raring to join the party.

But it wasn’t always so. Rewind back to 2006. I wasn’t an active market participant at that time, but what I do remember is that HUL(which meets all the above criteria) ¬†languished for a long time in the first decade of the new millenium. And what was going at crazy valuations- DLF. DLF did have unique assets (Land) and did have good growth, and was present in a market sector which agreed with the market theme of the moment.

But on all the other parameters, Debt Levels, Corporate Governance, Return on Incremental Capital, DLF actually scored very low.

While DLF and HUL are probably only two examples, I think it is hard to argue on the broad thesis that stock prices run up first, and then broad thematic explanations are fashioned later to explain the stock run up.

One enduring theme is the notion of Economic Moats. Popularized by Buffett-Munger, and then expanded by Pat Dorsey, Economic Moats seem to deliver enduring returns over long periods of time. But even here, there can be a slow decay of moats over time, (witness Coco-Cola and Microsoft, as vivid recent examples), and thus for investing over the long run, investors need to focus on more than just economic moats-they need to be careful about the price they pay for stocks. If one pays too much for a stock, no matter how great the structural and human characteristics of the business, then you cannot expect that over the long term, you can make great returns on your investment.

This is particularly true when one confronts the kind of bull run we are in, and which may, hopefully, translate to being a multi year bull run. In September 2013, all stocks, save for some FMCG stocks, were available at prices which would have given great multi year returns, One did not need to be a stock market genius to acquire stocks at the prices they were available at then and then just wait till they would give you great returns over time. But as the bull run proceeds, I am quickly becoming sad. While I still have capital to deploy, I do not find prices very attractive any more. But the uncertainty is killing: On the one hand, if this is a multi year bull run, then it is best to purchase today, otherwise one might miss out on all the great gains that are likely to accrue. In the next post, where I discuss contrarian investing, I will also discuss how a great stock price itself propels companies forward. On the other hand, if it turns out to be a chimera, then one needs to be very careful about the price one is paying, and the kind of business one is paying a high price for. Otherwise, one needs to start worrying about capital preservation, rather than return on capital.

The time has not come yet, but I do see a time in the near future, where I just keep enjoying the run up in stock prices while doing absolutely nothing in the market other than staying invested. As far as I am concerned, I will not overpay for stocks beyond what their earning capacity is, plus a small speculative element where they may find avenues for growth in earnings beyond the obvious. So the only alternative is to wait for others to do so. Gauging value of stocks, and then sticking to that notion of value, is my investment style.

 

Update:

Here is a nice article by Dr. Vijay Malik, which talks about the same principle of not overpaying for stocks, but in a much more analytical way.

Investment Performance October 2014



The last 2 months were not happy, from a relative performance point of view. The reasons for this are not difficult to see. I went on purchasing IDFC, Oberoi Realty and IL&FS Investment Managers, despite poor market performance. This general underperformance of some of my largest holdings was a prime reason for the underperformance. Other stocks which significantly underperformed also included Selan Exploration and Sesa Sterlite, partly driven by the Oil price fall. NMDC was another underperforming, based on low global iron ore prices, though NMDC’s own financial performance should continue to be robust.

Here is my graph of relative performance:

Here is a table of rolling returns:

Column1 Nifty Midcap Nifty SBI Midcap Fund Kotak Classic Fund My Porfolio
Last Month 3.3 4.3 3.6 4.4 3.8
Last 3 Months 5.6 7.6 13.0 7.5 8.3
Last 6 Months 22.0 32.7 41.0 24.0 47.3
Last Year 32.3 53.4 76.1 38.5 89.4
Since Inception 32.3 53.4 76.1 38.5 89.4

Portfolio Composition at the end of October 2014



Here is a new edition of my portfolio composition. The last two months have not been particularly kind to my portfolio performance, as can be seen in the next post. In fact, partly due to the fact that I was travelling, and partly due to procrastination due to my relative poor performance in September, I missed putting up my portfolio at the end of September.

But here I am, with my portfolio at the end of October 2014. As usual, this is not a complete disclosure of my portfolio. This list is only of those scripts which constitute more than 1% of my portfolio. Nevertheless, I am also disclosing in the text below if there were major changes in the rest of the portfolio.

Stock Latest Price Inv. Price Overall Gain % Portfolio %
IDFC (97) 148.25 133.3108609 11.21 10.55%
Oberoi Realty (64) 242.15 238.5116518 1.53 8.96%
eClerx Services (18) 1,347.80 1029.558952 30.91 2.82%
ILandFS (36) 20.2 15.32131761 31.84 2.39%
Larsen (22) 1,597.70 1096.596358 45.7 2.13%
Cummins (4) 720.05 411.2417355 75.09 2.12%
MPS (14) 712.4 128.6641026 453.69 2.12%
Indian Hotels (20) 104.8 73.70118644 42.2 1.88%
Selan Explore (28) 487.9 317.7249493 53.56 1.83%
IRB Infra (18) 254.5 90.26702128 181.94 1.82%
NMDC (28) 168.3 133.9162406 25.68 1.71%
Mayur Uniquoter (11) 430 111.0322327 287.27 1.67%
Balkrishna Ind (11) 756.3 232.4213927 225.4 1.61%
Kaveri Seed (13) 915.45 296.6391304 208.61 1.60%
HPCL (13) 522.15 470.71725 10.93 1.59%
Bharat Forge (9) 801.4 272.25 194.36 1.59%
Shilpa (11) 539.65 370.2180563 45.77 1.49%
Munjal Auto Ind (11) 117.45 33.99787765 245.46 1.43%
PTC India Fin (6) 50.1 14.68682894 241.12 1.36%
Oriental Carbon (9) 382.6 113.2114733 237.95 1.34%
Muthoot Cap (11) 253.2 97.38 160.01 1.33%
Ajanta Pharma (14) 1,887.60 1007.725543 87.31 1.32%
Sesa Sterlite (3) 253.05 150.9941003 67.59 1.31%
Sun Pharma Adv (19) 196.5 123.5597701 59.03 1.30%
EID Parry (13) 218.85 141.47 54.7 1.30%
Poly Medicure (7) 833.15 280.2228601 197.32 1.22%
PI Industries (11) 429.9 171.8891892 150.1 1.21%
Hind Zinc (18) 168.95 121.9935484 38.49 1.20%
RS Software (11) 630.9 204.2701613 208.86 1.19%
Grindwell Norto (7) 526.05 256.5177241 105.07 1.16%
TCS (9) 2,558.20 1953.9 30.93 1.13%
Reliance (7) 979.25 810.3029891 20.85 1.10%
Sobha Developer (14) 430.9 314.4363636 37.04 1.08%
Akzo Nobel (5) 1,299.05 1027.196154 26.47 1.03%
Tata Inv Corp (13) 556.5 404.9865 37.41 1.02%
ICICI Bank (9) 1,614.05 948.6365854 70.14 1.01%

The movement towards consolidation continues. However, this is also tempered by the fact that I have bought new scripts in the last two months. Nevertheless, the number of scripts which have at least a 1% contribution to my portfolio is 37 (compared with 33 at the beginning of September 2014), and together they constiture 71% of my portfolio. As before 32% of the portfolio was invested in the top 8 scripts.

What have I been buying in the last two months? And what did I sell?

Well, I continued to purchase IDFC, Oberoi Realty and IL&FS Investment Managers, averaging down as the stocks fell all of September, and most of October. It requires great guts or folly to keep buying in the face of negative outcomes from a stock price point of view, and sometime in November, I hope to have a post which will talk about these dilemnas.

I also purchased a significant quantity of L&T and TCS, again as they fell. In addition, I added a small quantity of Jaypee Infra, Sobha Developers and DLF, when they fell rather sharply because of a weak real estate environment and negative news flow.

In general, I have also resolved to improve the quality of my portfolio, from a cap goods, finance and realty bias to more quality names with better moats. To this end, I made significant purchases of Indian Hotels (Convertible Debentures) Akzo Nobel (which now is in the list of 1% stocks), United Spirits (which is almost there), and Dr Reddy’s Labs.

In terms of my older themes, I bought significant quantities of Reliance, Bayer CropScience, India Bulls Housing Finance, Gujarat Pipapav Port, and Vardhman Testiles.

What did I sell? Only RS Software at a time when the stock really shot up. At that price of 730 or so, the stock is more expensive than say EClerx, and EClerx has a superior track record of governance, disclosure, earnings, and dividends. I still own significant RS Software, and given my purchase price, I will evaluate my position only after a quarter or two.

Portfolio Composition and changes in August 2014



Here is the list of stocks which constitute 1% or more of my portfolio:

Stock Latest Price Inv. Price Overall Gain % % of Portfolio
Oberoi Realty (52) 255.15 239.2 6.68 9.59%
IDFC (77) 142.35 130.0 9.52 8.14%
eClerx Services (17) 1,345.00 1026.5 31.02 3.23%
ILandFS (31) 20.35 15.0 35.95 2.65%
Selan Explore (28) 562 317.7 76.88 2.45%
Cummins (4) 699.3 411.2 70.05 2.39%
IRB Infra (15) 257.3 81.3 216.29 2.09%
Larsen (16) 1,581.85 1024.8 54.36 2.04%
NMDC (27) 177.85 133.0 33.75 1.99%
Bharat Forge (9) 856.75 272.3 214.69 1.97%
Mayur Uniquoter (11) 434.25 111.0 291.1 1.95%
Kaveri Seed (13) 930 296.6 213.51 1.89%
MPS (14) 545.1 128.7 323.66 1.88%
Balkrishna Ind (11) 752.6 232.3 223.92 1.86%
Shilpa (11) 517 375.1 37.84 1.74%
Sesa Sterlite (3) 279 151.0 84.78 1.67%
RS Software (14) 539.6 206.5 161.29 1.56%
EID Parry (13) 220.6 141.5 55.93 1.52%
Sun Pharma Adv (18) 197.85 121.9 62.27 1.48%
PTC India Fin (6) 44.15 15.0 194.98 1.41%
Hind Zinc (18) 165.1 122.0 35.34 1.36%
Indian Hotels (13) 96.55 59.9 61.06 1.35%
PI Industries (10) 437.6 159.0 175.23 1.35%
Ajanta Pharma (14) 1,604.10 1007.7 59.18 1.30%
Grindwell Norto (7) 490 256.5 91.02 1.25%
Munjal Auto Ind (11) 84.7 34.0 149.17 1.20%
Tata Inv Corp (13) 561.45 405.0 38.63 1.19%
Oriental Carbon (9) 290 113.2 156.17 1.17%
ITC (21) 349.95 307.0 13.99 1.11%
NTPC (6) 141.3 130.2 8.51 1.07%
ICICI Bank (9) 1,548.75 933.8 65.85 1.05%
Sobha Developer (12) 465.5 288.6 61.28 1.03%
Banco Products (2) 142.1 56.2 153.02 1.00%

The stocks representing more than 1% of my portfolio now constitute 68% of my portfolio, and the number of stocks are 33. 32% of the portfolio is represented by the top 8 stocks. I fully intend to concentrate further, so that the top 8 stocks represent 50% of the portfolio.

However, the concentration of scripts has hurt me, since my top stocks, Oberoi Realty, IDFC, Selan Exploration, and IL&FS Investment Managers have significantly underperformed the market in the last couple of months. The only one amongst the top 5 which saw outperformance was eClerx Services. Other top stocks which underperformed included Mayur Uniquoter, IRB Infra, BKT and Sterlite and Shilpa.

The three stocks which saw major outperformance was my old favorite MPS Ltd., and Kaveri Seeds. NMDC and Larsen, while not majorly outperforming in the month, gave me the benefit of buying these stocks on dips in July.Old favorite Cummins continued to do well. Another stock that did well in August was SPARC. PTC India Financial Services and RS Software did remarkably well in August.

What new stocks did I buy? I bought some Exide and some Amara Raja, since both constitute a nice duopoly, I bought HPCL, because there is tremendous value embedded in the company, with or without GOI policy issues, I bought Kitex Garments on a ValuePickr recommendation, Mazda Ltd and Linc Pens on my own reading of the balance sheets and potential. I added to Indian Hotels on a dip after the result. I bought HIL on an India Nivesh Recommendation. Finally, I continued to buy IDFC on dips.

Performance Tracker for August 2014

Here is a graph of my investment performance in August 2014:

 

While I continued by relative performance over the other benchmarks, I am still quite disappointed with my performance in August 2014.

Why is this? Well look at the table of rolling returns below:

Returns My Portfolio Kotak Classic SBI Midcap Nifty
Last Month 6% 5% 7% 3%
Last 3 Months 18% 9% 18% 9%
Last 6 Months 64% 31% 41% 30%
Since Nov,8, 2013 85% 36% 67% 32%

So, while my portfolio still outperformed the large caps, the one month and 3 month performance over the SBI Midcap fund is disappointing.

Why was this so? Partly, I think because IDFC and Oberoi Realty have now a nearly 20% share of my portfolio. And these shares are hardly moving. As a result, the overall portfolio performance is getting muted. While this is disappointing, I still believe strongly in both stocks. And I am using the relative underperformance of these two stocks to buy more.

On a more positive note, the total assets being managed by me have grown to nearly 3 times what it was in November 2013. Part of it is a nearly 80% jump in the NAV. Partly, it is more investment.

Given that I believe we will have a secular bull run for some years if the Modi government performs, I intend to deploy more funds in the market. However, now each stock I intend to purchase is going to have some thing going for it, which is aside from government regulations, and which is unlikely to perform very poorly, if the promised economic agenda does not materialize.

 

 

Portfolio Composition and Changes in July, 2014

Portfolio Composition, July 2014

 

Here is the list of stocks which comprise more than 1% of my portfolio at the end of July 2014.

Stock Latest Price Overall Gain % Percentage of Portfolio
Oberoi Realty (49) 251.9 5.34 10.23%
IDFC (71) 149 15.87 8.57%
eClerx Services (17) 1,284.95 25.17 3.40%
ILandFS (25) 24.85 75.91 3.16%
Selan Explore (28) 585 84.12 2.80%
IRB Infra (15) 249.1 206.21 2.23%
Mayur Uniquoter (11) 430 287.27 2.13%
Balkrishna Ind (11) 769.9 231.37 2.10%
NMDC (26) 169.8 28.28 2.06%
Larsen (14) 1,469.15 45.25 2.03%
Cummins (4) 606.9 49.22 1.93%
Shilpa (11) 514 37.04 1.91%
Sesa Sterlite (3) 282.5 87.09 1.86%
Bharat Forge (9) 722.25 165.29 1.83%
Kaveri Seed (13) 700.15 136.03 1.57%
Ajanta Pharma (14) 1,664.60 65.18 1.49%
EID Parry (13) 190.65 34.76 1.45%
Hind Zinc (17) 162 33.88 1.43%
Sun Pharma Adv (18) 168.2 37.95 1.39%
MPS (14) 348.05 170.51 1.32%
PI Industries (10) 383 140.88 1.30%
RS Software (14) 407 97.08 1.30%
Tata Inv Corp (13) 539.4 33.19 1.26%
Grindwell Norto (7) 420 63.73 1.18%
Indian Hotels (8) 94 75.65 1.18%
Munjal Auto Ind (11) 75.75 122.84 1.18%
NTPC (6) 140.45 7.86 1.17%
Oriental Carbon (9) 264 133.2 1.17%
PTC India Fin (6) 33.15 121.49 1.17%
ILandFS Trans (15) 228.7 70.18 1.17%
ITC (20) 349.6 14.84 1.16%
ICICI Bank (9) 1,474.00 57.85 1.10%
Muthoot Cap (10) 170 80.81 1.07%
Tata Steel (4) 549.9 100.66 1.07%
Sobha Developer (12) 438.8 52.03 1.07%
TCS (7) 2,515.10 42 1.03%
Banco Products (2) 129.5 130.58 1.01%
Reliance (6) 975.4 29 1.01%

What has changed? For one, I have spent all of July 2014, increasing my stake in Oberoi Realty and IDFC. This was as per my earlier stated intention. Now, both stocks comprise around 10% of my portfolio. This is essentially in keeping with my objective to concentrate my portfolio. Sometime this month, I will write about my investment rationale for both stocks.

I sold all of my Clariant Chemicals, simply because it had risen out of sync with possible valuations, and invested the proceeds in eClerx services. Increasing my exposure to eClerx was also my stated intention in earlier posts.

I also increased my exposure to NMDC and Tata Global Beverages, on a dip in prices of both. I increased my holding in Shilpa Medicare and PI Industries (PI following nice results). Finally, poor Larsen and Toubro results for the quarter resulted in sharp dip in prices, which I bought into.

I sold out of Morganite Crucible, more for the sake of not investing in stories without any technological or brand edge. Instead, I dipped my toes into Bayer CropScience, and on the MNC theme, increased my exposure to Grindwell Norton. Finally, there was some buying of PTC Indian Financial Services and IL&FS Investment Managers, both on a relative dip in market prices.

Concentration continues apace. The stocks which comprise at least 1% of my portfolio are now down to 38, and the total percentage of these in my portfolio is now more than 75%.

My eventual aim is to increase the concentration even further, with 25 scrips comprising around 90% of my portfolio.

What stocks gave the best performance in July, 2014 within my portfolio?

IDFC for sure, following the RBI announcement on CRR and SLR requirements on infrastructure loans. IRB Infra, following a decent result, and positive government announcements for the roads sector. IL&FS investment managers, despite becoming ex-dividend.

From the ValuePickr basket, Ajanta, PI, Mayur and Shilpa, all gave great returns in July.

Another great stock last month was Bharat Forge.

Investment Performance in July 2014

After a relatively muted performance in June, July was again more of the same. Part of this was the overall relative poor performance of the markets. As far as my portfolio was concerned, there was outperformance vis a vis the Nifty, and I finally managed to outperform the small cap index too, but compared the SBI Magnum Midcap fund, the performance was not better.

Nevertheless, there was reason enough for satisfaction. My performance might have been even better, had I not lost some money in speculation based short term trading. I am still not able to do this well, and maybe I should just stop doing it. That, or I need to control my psychology better.

Here is the familiar graph of overall fund performance. As you can see, the total assets undermanagement are increasing very rapidly. This is because I am deploying fresh cash, and also because the portfolio is doing well.

 

I have tried to improve upon the graph a bit. I hope this is more intelligible than the earlier version.

Also, as always, a table of rolling returns:

Returns My Portfolio Kotak Classic SBI Midcap Nifty
Last Month 5% 1% 5% 2%
Last 3 Months 42% 14% 24% 15%
Since Nov, 2013 75% 28% 56% 26%

As you can see, since Nov 2013, my portfolio, in terms of the NAV, has increased by 75%. The Nifty, meantime, has increased only by 26%, and the SBI Magnum Midcap fund, by 56%. In a blended sense, between the Kotak Classic Fund and the SBI Midcap Fund (Blended in a ratio of 1:2. similar to the ratio of large caps to small caps in my portfolio), the outperformance in 3 quarters is around 30%.

As always, to understand how the NAV for my portfolio has been arrived at, I would refer you to the following post: Understanding the NAV Calculation