My current stock portfolio – the best by value

When you have a portfolio for the length of time I have had, the best stocks either by value or by overall returns keep changing. Within that you will have spectacular successes and abysmal failures at different points in time. However, in the long term there will be some stocks that form the bulk of your portfolio and these are normally also the ones providing you with your best returns.

Based on the current market turmoil, I wanted to take stock of my stock portfolio and it was interesting to see that, though depleted in value, several of the stocks that have done well by me earlier are still holding fort. The ones I am talking about here are all above 3 lacs in value right now. It was of course a lot more earlier and can be so again.

So here are the stocks in terms of percentage of portfolio as well as the return multiple :-

  • Maruti – 5.4 % of current portfolio value and multiple of 10 times.
  • Infosys – 5.1 % of current portfolio value and multiple of 3.3 times.
  • TVS Motors – 4.35 % of current portfolio value and multiple of 11 times.
  • M & M – 4.33 % of current portfolio value and multiple of 5.2 times.
  • Mindtree – 4.15 % of current portfolio value and multiple of 6.5 times.
  • HUL – 3.85 % of current portfolio value and multiple of 7.6 times.
  • Bata – 3.8 % of current portfolio value and multiple of 10.6 times. 
  • L & T – 3.45 % of current portfolio value and multiple of 95 times. 
  • ICICI Bank – 3.23 % of current portfolio value and multiple of 3.5 times.
  • ITC – 3 % of current portfolio value and multiple of 2.85 times.
  • TCS – 2.81 % of current portfolio value and multiple of 9.5 times.
  • DRL – 2.61 % of current portfolio value and multiple of 4.8 times.
  • PVR – 2.43 % of current portfolio value and multiple of 7.5 times.
  • Hind Zinc – 2.43 % of current portfolio value and multiple of 5.2 times.

The important thing to note here is that these are good businesses, I bought them over a period of time and have held onto them for a long time now. As an example, I bought L & T through convertible debentures, way back in 1992, and it has paid me handsomely. Note also that the above stocks constitute about 50 % of my portfolio value currently. 

I think this is good evidence that building a long term  portfolio with stocks of good companies is one of the best ways to make your money work. Importantly, all these companies pay good dividends and that serves me well as part of my passive income.

So far so good – but are these also giving the best returns? Not necessarily as I will show you in the next post.

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My stock purchases – update #3

October has been a really bad month for the markets and what is more it came after a terrible September too. Like many other investors my equity portfolio, be it stocks or MF has taken a very bad hit. As far as my primary portfolio goes I am not too worried about it as that is a long term one and, even at my current stage in life, I can afford not to draw money form it for the next 10 years or so. I do need to review and quite possibly rationalise some holdings but that can wait for better days.

A lot of my current focus has been on my secondary portfolio – the one where I want to invest about 8 lacs and am hoping to see it grow to about 20 lacs in 10 years. In my two previous posts I had given some details about the stocks I am planning to buy and also a snapshot of it. From now on I will do a post every 10 days or so where I will talk mostly about the changes to it and the new purchases. Readers who are interested in following this series should make an effort at reading my 2 earlier updates for better clarity.

So here are some updates to my portfolio :-

  • I have started buying HDFC Bank and Indusind Bank as of yesterday. Though I am a little wary of banking as a sector, these banks should do well over the period that I have in mind.
  • As usual, I buy in small lots so it is 10 stocks per share that I have begun with.
  • Added some more of my earlier purchases this week as follows:-
    • Tata Motors
    • Intense Technologies
    • BEML
    • BHEL
    • Indiabulls Housing Finance
    • Yes Bank
  • As of now my total invested amount is 5.1 lacs and the portfolio is still in deep red.
  • My top holdings are Tata Motors and Intense Technologies. Together they make up 30 % of my portfolio in terms of invested amount.
  • These are also resulting in most of the portfolio losses currently but I am not too concerned about it as I think they will be on the upswing soon.

What do I look to buy with the 3 lacs I will put into my portfolio still? Well, in this market there are many options but I will largely stick to the 20 odd stocks I have bought so far. In these Banks, NBFCs and some of the other large caps can prove beneficial.

Should you be buying in this market when there is every possibility of further cuts over the next few months or so? Yes, definitely – you are getting Yes Bank at 180, Tata Motors at 170 and many others are attractive in terms of prices. Buying stocks now or at least investing in MFs is the best decision you can make for your money.

As for my portfolio, my prediction is it will be in the green by the time 2019 is here.

My 3 portfolio strategy works best in a market crash

I am sure most investors are shell shocked by the turn of events over the last 2 months. For me, even with my decades of market experience and that of 2008 downturn and so on, the fall has been pretty brutal to say the least. My combined equity portfolio in stocks and MF got whacked down by more than 20 % in a few day, not to speak of the cuts of the previous months that it had witnessed. The point brought home rather forcefully is this – it is one thing to understand the nature of equity returns, quite another to experience it in real life.

However, the good part in all this is that the crash was not the first of it’s kind and in all previous instances the markets had stabilized in the medium term. This time, the global factors and the domestic situation in India are both against a quick pull back in the markets. I can foresee a lot more pain in the markets over the next few days and the earliest signs of some turnaround for us may well be linked with the election outcomes and quarterly results of Q3. As far as your investments go, it will be a good idea to deal with them as outlined in my other posts.

As I have said before, such times of tribulation are a good instance for checking out whether your overall investment and asset allocation strategies are designed to weather the storm. If you are following the 3 portfolio strategy of debt, MF and stock portfolios then here is how you are affected and also some pointers as to how you need to deal with the context:-

  • Your stock and MF portfolio will undergo serious cuts, more so than what you have witnessed so far. It is quite possible that by the time the pain is through these can reduce in value by 30-35 %.
  • More importantly, you will suddenly see your SIP amounts of the last 2 years or so starting to show much less returns, some of these will be in the negative territory.
  • As a lot of the portfolio value of MF was really dependent on 2014 rise in the markets, the current crash will have a severe effect on overall XIRR. It will definitely fall to single digits if this continues.
  • Continue your SIP and add more MF units manually from time to time. You will find it difficult to predict market bottom, but considering the long term growth potential, every 5 % cut is a good investment opportunity.
  • For your stock portfolio make selective purchases in stocks you want to have in your portfolio. As always, do not put a big sum of money at one go, use price triggers and ensure your unit costs are coming down.
  • If you are not comfortable to buy into equity now, park your surplus money in Liquid funds for later use.
  • For those who are working and have an active income, some specific pointers are as follows:-
    • Continue investments as before, stopping SIP will really be a bad idea at this time.
    • Build up your cash reserve if you believe there will be better buying opportunities round the corner.
    • Your equity portfolio is for your long term goals – in that case do not worry at all.
    • If any of your goals were coming up shortly and your plan was to redeem part of equity portfolio then you need to change your plan. This is the wrong time to sell equity, look at getting the needed money from debt.
  • For people in the FI state like me, some of the specific pointers will be as below:-
    • Check how much of your passive income stream was dependent on equity. For example, in my case the income from dividends in stocks and MF amounted to about 30 % of my annual needs.
    • Understand that contribution from equity towards passive income will reduce in this and possibly next year. You need to have alternate sources now.
    • One way can be to look at generating some active income through what you do. In my case, I will be putting more efforts into getting Consulting assignments now and over the next 1 year.
    • If you had a goal which was depending on equity redemption, you may need to check the feasibility of postponing the goal. Your debt portfolio will need to generate passive income and it may not be a good idea to leverage it for your current goals, unless absolutely essential.
  • For people in retirement, most of the above will apply, except for generation of active income part.

People not familiar with the 3 portfolio strategy can read about it here. If you are interested in building up these 3 portfolios for your own investments read this post. The fundamental concept is that your equity portfolios have been grievously injured now and may well sustain further damage in the near future. The only real way to help it recover is to give it time. In time, markets will recover at least in India we can be reasonably assured of future growth. How much time it will take, none of us can really foretell.

Till then you need to be conservative with where you put your money and also a little ambitious in seeing if putting some money into equity makes sense.

Interested readers may pls follow my blog on email by clicking on the relevant button on the right hand panel. I will shortly be stopping the practice of posting the links in different Facebook groups. Following the blog will ensure you get intimated whenever there is a new post.

Read for HELP

I have been writing this blog for over 3 years now and one of the most common queries that I get from readers is whether I provide any Financial Planning services. Let me be upfront about this at the start – I do not provide such services in the way they are normally understood, nor am I a SEBI registered Financial Planner. In fact, I have absolutely no intention of being one too as I do not see this as my profession.

However, I do provide a service to select people who approach me directly. I have given the acronym of HELP to it. The expanded form is Holistic Engagement in Life Planning. In this post I will explain about this service and explain as to how interested people can avail of my services for this. As I have explained in several posts of my blog, life planning must precede financial planning. As an individual or as someone responsible for your family well being, you will need to plan the important life events as well as the lifestyle choices you want to maintain. Note that the typical financial planning process assumes that people will by and large plan for typical goals such as children’s education, marriage, own retirement etc. I find this a completely unsuitable way of doing things as the life of each individual is unique and needs to be catered as such.

So what is HELP then? As I said, the starting point is to take stock of your life in terms of where you are today and what are your dreams as a family – individually and collectively. So if you are a family of 4 with two teenaged son and daughter, your dreams could look like this when you are 42 years old :-

  • Son wants to take up a career in Bio technology, daughter wants to be a film maker.
  • Your wife is 38 and gave up her career for her kids 10 years back – she now wants to open up a boutique of her own in the next 3 years.
  • You are interested in starting your Consultancy practice by the time you are 50 and for that you need to be financially independent.
  • All of you like travelling and want to take a domestic vacation every year apart from short trips and also an international vacation every alternate year.

The idea of HELP is to bring out these life goals and lifestyle choices clearly, so that it can be determined what kind of financial support these would require and how can that be organized. Yes, the last part will involve financial planning but it will be in a very different way than just how to buy MF through SIP etc. 

As I said, I have provided HELP to several people and all these were people who have approached me after reading my blog. Some examples will make interesting reading:-

  • Advised a Colonel in Indian army as to how he could fulfill his dream of migrating to Canada in a teaching role.
  • A software professional in Kolkata was worried about longevity of job and worked out an alternate plan should such an event occur.
  • Got several people started on building a stock portfolio from scratch.

Note that in all of these cases, the people already had a financial plan made through a SEBI accredited Financial planner but they were not happy with their life and lifestyle.

The question that will definitely be asked is why am I the right person to do this? Let me start by giving some background of myself :-

  • BE in Computer Science & Engg from Jadavpur university, Kolkata in 1986.
  • PGDM from IIM Calcutta in 1988, with major in Marketing and Systems.
  • Overall experience of 30 years plus, 27 years in regular corporate roles and nearly 3 years now in my Consultancy practice.
  • I have worked almost entirely in the software services and BPO space.
  • Have worked as a CXO for 15 years plus, nearly half of this in 2 publicly listed companies.
  • Lived in Kolkata, Delhi, Chennai and Hyderabad besides having travelled widely all through the world for my work.
  • Have been financially independent since 2014 and writing a blog since 2015 June. The blog has had views in excess of 3.5 lacs till date.
  • My daughter is BE from BITS, PGDBM from XLRI and working in a Consultancy firm now. My son is in his final year at BITS, doing a dual degree – Msc Maths + BE in Computer Science.
  • I am associated with helping students in career counselling for Engineering / MBA.
  • Am in the Hyderabad panel for IIMC admissions.

I believe in the Indian context, I am one of the few people who are able to deliver a service such as HELP. This has been proven by the 10 situations where this is done.

So if you are interested in knowing more about this, how do you get started? Well, the first step will be to write to me at rajshekhar_roy@yahoo.co.uk expressing your interest to avail of this. I will then ask a few questions over mail to assess your current situation and then we can have an introductory call. After this I will let you know if I can do this for you and what will it cost.

Typical duration for the complete exercise is 1 month, with 2 interactions over phone per week and there is a one time cost initially. Yearly reviews after first year will be 25 % of the year 1 costs.

If you reach out to me, do not get offended on my inability to take you up ( if that happens ). I am doing this to add real value to the lives of the people and therefore cannot spread myself too thin.

Look forward to hearing from some of you – believe me, your life will undergo a serious transformation once you go through this exercise.

My stock purchases – update #2

To begin with, let me wish all my readers a very happy Dussehra. Though our markets do not offer any cheer right now, I hope all of you had a great time with your family and friends. I certainly had a nice time courtesy both my children being hone during Durga Pujas after quite a few years.

As far as the markets go, they did look up for a couple of days but then the sharp cuts came once more. The opinions are divided along these lines – this is either a bull market with bearish phases or a bear market now. In my opinion, it is really the first for large caps and may well be the latter for mid caps and small caps. Though the results season has not started badly, the markets do not seem enthused by it at all. In the current situation more downsides are normal and stock selection opportunities are galore.

Back to my secondary portfolio that I want to invest 8 lacs in. Read the below in conjunction with my earlier update for better understanding. Right now these are my thoughts as to how I will go about it in October and November.

  • I am primarily sticking to large caps and the exceptions are only for companies I have invested in earlier or know reasonably well.
  • OMC’s and NBFC’s have been beaten down a great deal and may well give great returns over the time frame of my secondary portfolio.
  • It is risky to catch a falling knife – I bought Indiabulls Housing at 800 and again at 685 but it is now trading at 653. While I do not regret the purchases, it shows that stocks can fall to any level when there is selling pressure without any real demand.
  • BEML was the other stock I bought at 600. I am quite convinced about the long term prospects of the company, given the business it is in. India will be engaged in a lot of construction over the next decade or so and this company will benefit greatly.
  • I also bought some of MOIL and EIL, mainly based on the businesses they are in and my own assessment of how it will do in the future. Prices were attractive too.
  • As of now I have invested about 4.25 lacs so there is some way to go yet.

The current stocks in my portfolio then are as follows :-

  • BEML
  • BEL
  • BHEL
  • CIPLA
  • Elgi Equipment
  • Engineers India
  • Federal Bank
  • Global Vectra
  • HPCL
  • ICICI Bank
  • Indiabulls Housing
  • IOC
  • Intense Technologies
  • ITC
  • Just Dial
  • MOIL
  • ONGC
  • Orient Abrasives
  • PNB
  • Shilpa Medicare
  • Spicejet
  • Tata Motors
  • Voltas
  • Yes Bank

My plans are to invest more in these stocks for the secondary portfolio unless there is some compelling opportunity to add other stocks. The losses in the portfolio come largely from Tata Motors, Intense, PNB and Yes Bank. Right now these do not bother me too much as all of them are probably at low points in the pricing cycle. I do have plans to buy more on these.

I am still in cash with current availability of about 1 lac and am looking to get another 3 lacs in the next 2 months. These will be used till the end of 2018 and by then I would have investments of 8 lacs in my secondary portfolio.

So there is a lot of action planned over the next 2 months and more !! Let me come back after Diwali and give an update as to where my portfolio building has reached.

Strategies for your MF portfolio

Over the last month or so, I have been inundated with several queries about the fall in the markets and the effect it is having on the MF portfolio of investors. In August all investors were happy as the large caps did rather well and even the mid caps and small caps seemed to be recovering a tad bit. Just 6 weeks down the line the picture is one of utter despondency – this, of course, makes no sense at all.

I keep reminding readers that equity investments are subject to steep rises and falls at times and they will always need to look long term. However, this is not easy to do temperamentally for MF investors as many have been told that the MF schemes are managed well and would be subject to less volatility. While a good fund manager will be able to do better than a poor one, the fact remains that when the markets fall sharply then the NAV of all MF schemes will decline – some more than others. So, in reality what is happening to your MF schemes and your portfolio is natural, you only need to see what you should be doing right now.

Here are some of the things you must be considering now :-

  • Do not stop your SIP investments, if you are doing them regularly. Falling markets are a good time to invest and you will get great value for money at a future date.
  • In case you are thinking of making a lump sum investing into MF schemes, hold on for some time and keep studying the 200 DMA levels of the indices. For example, if you want to put 1 lac in a large cap fund, look at the 200 DMA of Nifty. As long as it is declining and 50 DMA or 30 DMA is also declining, do not put your money. When there is a reversal in these figures start putting money in 3-4 instalments.
  • Review your MF schemes – if they are underperforming both the benchmark indices and peer group schemes, then you need to think seriously about moving out. However, this is a bad time to sell so hold on till the market improves and then do it in a proper manner.
  • For all MF schemes which are in the top 20 % or so there is really no need to change. They may have been beaten down badly but you will just have to give time to them for recovery, there isn’t much else you can really do.
  • In case you have any goals coming up in the next 6 months or so, take stock of your entire portfolio and check how you can arrange the money. Do not sell equity MF unless there is no other option at all – redeem your debt, withdraw from your PPF, even take a loan from family/friends if need be.
  • If you have done your asset allocation right then you need to stick to it. This is the time to put more money in equity despite the brutal cuts. Do not redeem debt investments for this but put your current surplus in equities largely.
  • In case you have time on your side there is no need to panic, markets and economy will do better eventually. You do need to review and get out of bad investments.
  • For people retiring or planning FI in the next 5 years or so, think of deploying your assets so that you are able to give more time to equity.
  • Mid caps and small caps allocation can be looked into – ideally put 50 % in large caps, 20 % in multi caps and the rest in mid caps and small caps.

So, for people who are trying to change schemes or starting their MF portfolios now, which are the good funds to look at? Here are some suggestions from experts :-

  • Multi cap funds
    • Motilal multi cap 35
    • Kotak standard multi cap
    • Invesco India contra fund
  • Mid cap funds
    • HDFC mid cap opportunities
    • Kotak Emerging equity
    • L&T mid cap fund
  • Small cap funds
    • HDFC small cal
    • Reliance small cap
    • L&T emerging equity
  • Large cap funds
    • Reliance large cap
    • ICICI Blue chip
    • Birla Front line

A final point – you will now need to look at the portfolios of MF schemes too. This is really the job of a fund manager but you have to check if they are taking the right calls. Many of you cannot do this on your own, engage an adviser then.

Happy Dussehra to all my readers and their families.

How to build your own stock portfolio

I understand that getting started in stocks is not an easy thing with so many experts giving a lot of conflicting advice to you. Some will tell you that you have no hopes of building a good portfolio unless you can understand all kinds of ratios and read Balance sheets like a CA does, others will tell you that going for direct stocks is akin to a horse race where anything you bet on is almost certainly going to lose. Yet others will chide you for thinking anything beyond Mutual funds. After all they are experts and invest only in MF with all kinds of complex strategies, who are you to even think otherwise?

While all of the above has very obvious counters, read my post on Why you must be in direct equity to satisfy yourself on the importance of being in stocks. Building a long term portfolio of direct stocks does take a lot of understanding of the economy, the industry and the business. You can get these only with experience and there is really no magic potion to make you an expert overnight. There is however, a way to get started on building a portfolio of stocks, while you gain this knowledge and experience over time. Is there a guarantee that you will not lose money if you follow my suggestion? Unfortunately not, but the chances of your losing money are indeed very slim.

Without further ado, let me give you the simple steps to what you need to do from scratch:-

  1. Choose the 5 sectors – Auto, Pharma, Banks, IT and FMCG. You can add other sectors at a later date.
  2. From each sector choose 2 market leaders. You can do it by their Market caps or the PE ratios. Honestly, it does not matter a great deal as to which method you are using as long as you are consistent in your approach.
  3. For people focused on names look at DRL, Cadilla, Lupin etc in Pharma. Tata Motors, Maruti, TVS Motors, M & M in Auto etc. SBI, ICICI, HDFC Bank in banks. TCS, HCL Tech, Infosys, Wipro in IT. HUL, ITC, Marico in FMCG.
  4. Decide on a comfortable amount that you can spend every quarter on stocks related investment. Set price triggers based on 200 DMA of the stock. For example, if the 200 DMA of a stock is 3000 and the current market price is 3200 then set the first price trigger at 3000 or just below it.
  5. Stick to this discipline and never go beyond 20 % of your quarterly money in one go. You are in no hurry, wait for the stock price to drop. In the next 6 months there will be many ups and downs. Buy only on downs, let the ups go by without bothering too much.
  6. In a quarter there are bound to be many more bad days than 5, you just need to be patient.
  7. Remember you are building a long term portfolio, so even if you miscalculate and buy at a higher price it does not matter too much. In 10 years the markets will be far higher than 11000 on the Nifty.
  8. Keep adding to each stock regularly, do not start chasing other stocks that seem to be doing better.
  9. Increase your quarterly allocation based on your surplus availability and your comfort level.
  10. Stick to this for 2 years, by then you will have enough knowledge to get to the next level of risk.

Stock investment is like swimming, you will not do it by reading how not to do it. Get started with it and you will see how things work out at a portfolio level – remember, it will never work out for all stocks that you invest in. Also, next time someone advises you on how to pick stocks, ask him about his portfolio and how successful he has been in his own stock portfolio performance. Trust only advisers who put their money where their mouth is.

I will do other more involved posts on stock picking but this one is good enough for all new investors to get started.