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.

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.

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
  • 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.

My stock purchases – update #1

As I had said in a previous post, I have taken a decision to build a secondary portfolio with an investment of about 8 lacs. The objective of the portfolio is to use it in about 8-10 years time for some life goals such as travel or as a cushion for future health expenses.

I had started building this portfolio more than a year back and there have been some negative surprises in the short term. For example a software product company in the Customer engagement space has great potential but poor results and it’s price has been beaten down much more than what I had anticipated. I had bought 500 of Intense Technologies at an average price of 91 and today it is languishing at 40. However, I have reason to believe that the company will perform in the future and it made sense to invest more in it.

Other investments included Federal Bank and Yes Bank – the first as I like their business model and my batchmate in IIMC being the MD there, the second as it is a private bank with short term problems but real good long term potential. In both these cases, the price fell much below the initial buying price and it made sense to add it.

Then there are others like Tata Motors that form a good part of my primary portfolio ( not to be confused with this one ) and I had invested in it here too. Again, with the brutal price cuts the counter had suffered recently, adding some more there was an obvious choice. It may take time to recover but this is an eight year portfolio after all.

Some midcap companies in my primary portfolio such as Global Vectra and Orient Abrasives had fallen to half their 52 week highs and were a good buy now.

The rest of the stocks added were based on recent market trends. The OMC cuts were again brutal and it was truly a case of the market over reacting to a fairly run of the mill cut in fuel prices, which will not affect these companies in the long run at all. 

So here is a list of stocks I have bought recently :-

  • Intense Technologies
  • IOC
  • HPCL
  • Global Vectra
  • Orient Abrasives
  • Federal Bank
  • ONGC
  • Yes Bank
  • Tata Motors
  • BEL
  • Elgi Equipment
  • ITC
  • PNB
  • Voltas

Note that I always buy in lots of 10000 or 20000 maximum, depending on the price of the stock. Some other information that may be of interest is as follows :-

  • Total investment in the portfolio is about 3.65 lacs as of today.
  • Courtesy Intense Technologies, Tata Motors and PNB the portfolio is significantly in the red but I am not worried about that.
  • I will continue to put more money in some of the above counters, look at other Nifty stocks that have been beaten down badly and check out some selective midcaps.
  • I am expecting some cash inflows in October and November – this will be used to buy stocks for building up the secondary portfolio.
  • As of now, I am in some cash and look forward to buying more in the next week, based on where the market heads.

I will come back after Dussehra with another post outlining the new purchases. Wishing all my blog readers a very happy Navratri, Durga Puja and Dussehra.