Alpha Invesco Reveals Facts Of Its Portfolio Service & Explains Lessons Learnt From Mistakes

First of all, we have to compliment Chetan Phalke and Shiven Tapadiya, the co-founders of Alpha Invesco, for their candour. The duo has candidly admitted in their newsletter for FY 2015-16 that the performance of their stock advisory service has been “below expectations”.

This is quite unusual because while stock market advisories love to tom-tom their achievements, they are loath to admit their failures and shortcomings in the fear of scaring away potential clients.

Returns:

In FY 2015-16, the model portfolio consisting of all active stock ideas recommended by Alpha Invesco during the year generated a return of 10.2%. While this outperformed the Sensex return of (-) 10.32, the BSE 500 of (-) 8.8% and the BSE Mid-Cap’s return of 0.25%, the performance is described as “below expectations”. It is not stated what the “expectations” were though my guess is that there is disappointment because the return does not exceed what one would earn from a Fixed Deposit.

It is worth noting that in the same period of FY 2015-16, Manish Bhandari’s PMS (called Vallum India Discovery) clocked in an impressive return of 26.7%. This makes it clear that stock selection holds the key to superior performance.

In the period of seven years since inception (November 2009), Alpha Invesco’s portfolio of stock picks is stated to have given a CAGR of 37% which compares very favourably with the absolute return of 75% given by the BSE Mid-Cap Index (10524 – 5994) in the same period. It is not revealed whether the CAGR of 37% is audited by an independent agency.

Winner and loser stocks:

A look under the hood reveals that Alpha Invesco has had several huge multibaggers in its portfolio. IFB Industries leads the list with mammoth 480% gains. Siyaram Silk comes second with 320% gains while Honda Siel Power Products comes third with 230% gains. Capital First comes fourth with gains of 155%. Everest, Hinduja Ventures and Venkys have also contributed hefty gains to the portfolio.

Sadly, all of these winning stocks have been sold by Aplha Invesco with the object of “creating a concentrated portfolio going forward”.

With the benefit of hindsight, the decision to sell stocks like Capital First, Everest Industries, Venkys etc may not have been sensible because even after 1st April, 2016, the stocks have generated hefty returns ranging from 30% to 17% (absolute).

Amongst the loser stocks, Suzlon stands out with a loss of 45%. Chetan Phalke and Shiven Tapadiya describe Suzlon as “the worst stock idea we have ever generated” and state that “we feel ashamed every time I’m reminded of this blunder”.

Concentrated Portfolio:

The duo has revealed that the strategy that is being implemented by Aplha Invesco is to have a concentrated portfolio of not more than ten mid-cap stocks.

Whether this is a sensible strategy or not is debatable. A concentrated portfolio means that there is not much room for error. Generally speaking, mid-cap stocks are volatile and can suffer dramatic price and performance swings. A concentrated portfolio of mid-cap stocks can spell doom if the stock selection is wrong.

It is worth remembering that all of our favourite stock wizards, namely, Ramesh Damani, Dolly Khanna, Vijay Kedia, Ashish Kacholia etc have highly diversified portfolios of small and mid-cap stocks. In fact, Dolly has multiple stocks in each sector. Rajiv Khanna, Dolly’s alter ego, revealed in an interview that there are more than 40 stocks in the stock portfolio.

So, the premise on which Alpha Invesco is proceeding, namely, the “firm belief that concentrated portfolios are ticket to wealth creation” may require reconsideration.

Stocks in the portfolio:

Phalke and Tapadiya have also revealed that Alpha Invesco’s Model Portfolio presently has eleven mid-cap stocks. Of these two stocks, namely, Mirza International and Amrutanjan Healthcare are said to be on the chopping block on the basis that they are fully valued and/or do not have much potential for growth in the foreseeable future.

Three stocks, namely, Wim Plast, KRBL, Take Solutions have been put on hold on the basis that the “best is yet to come for these companies and present valuations suggest there could be further upside”. It is, however, clarified that there will be no further entries (investment) in these three stocks.

The names of the remaining six stocks have not been revealed. It is stated that in four of these stocks, the conviction has gone up while in two of these stocks, the conviction has gone down. It is asserted that the two stocks in which the conviction has gone down will find themselves on the chopping block soon.

The bottom line is that at present there are only four stocks in the Model Portfolio which are investment worthy. It is stated that two or three new stock ideas will be added during the year, possibly within the next three months.

One of the high conviction stock picks appears to be TV 18 Broadcast, a stock backed by Radhakishan Damani and Rakesh Jhunjhunwala. Alpha Invesco had recently made public some promotional material on the stock which implies that they are bullish about it.

Lessons learnt:

The duo has distilled their experiences from the stock market into three actionable points:

(i) Buying Too Early Doesn’t Work, Even If The Story Is Good:

Don’t look too far into the future & buy based on future projections, even if valuations are dirt cheap. The stock may be a “value trap”.

(ii) Don’t Try to Shoot Moving Objects, Odds Of Success Are Rare:

Avoid companies which are doing too many things, or are flitting from one thing to the other, because it is difficult to understand the business. Avoid companies without an established model towards profitability.

(iii) Sometimes It Is Important To Exit & Take Profits Early:

Everything that has had a spectacular run will eventually revert towards its mean. This will happen either by way of stock price correction, or time wise correction where the stock simply remains flat until earnings catch up with inflated values.

The three actionable points formulated by Alpha Invesco make a lot of sense. Hopefully, the lessons learnt will help Alpha Invesco generate magnificent returns in the future and delight its subscribers!