Forcing A Concentrated Portfolio

Discussion in 'Ask A Query About Your Stock Picks And Portfolio' started by Fun_Da_Mentalist, Oct 18, 2015.

  1. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    There are of course pros and cons of running a concentrated portfolio.

    But one real pro is that it really forces you to think through your investments and generates higher quality analysis.

    If I were to give you this proposition :

    What would your portfolio of four stocks look like if you had to balance growth, capital preservation and risk management?

    Which ones would you have and why?
     
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  2. Srouta Mukherjee

    Srouta Mukherjee Well-Known Member

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    Very difficult task :) Even Dolly has diversified then why we should try?
     
  3. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    Aha! That's a neat way to escape some hard introspection:)
     
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  4. Srouta Mukherjee

    Srouta Mukherjee Well-Known Member

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    I will definitely have JB Chem in my concentrated list because:

    In the pharma midcap space, we aggressively buy JB Chemicals; it is available at 10 PE on one-year forward earnings basis. The company is sitting on cash pile. The company has around Rs 500 crore cash while debt is as low as Rs 100 crore. These are the two stocks we like in the pharma space.

    G Chokkalingam, founder of Equinomics Research and Advisory, is bullish on JB Chemicals stock. He says the company has been performing well domestically after sale of its Russia business and has also beaten industry growth in multiple quarters.

    https://www.ndtv.com/video/player/news/buy-jb-chemicals-for-1-2-years-g-chokkalingam/353237
     
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  5. Sachin pathak

    Sachin pathak Active Member

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    My concentrated portfolio consists of

    - Eicher
    - ITC
    - 3M
    - Asian Paints
    - L&T
    - Aurobindo
    - Biocon
    - Britannia
    - Maruti

    This are locked away. Every other holding remains opportunistic

    Now guys come up with a portfolio and not just one name which you would have in your concentrated portfolio
     
  6. Sachin pathak

    Sachin pathak Active Member

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    Missed my last name : HDFC bank
     
  7. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    Each one is a gem. So a core portfolio that could grow around 35 percent , yoy,over next few years; then the rest allocated to trading opportunities which would take your. Overall return north of 40 percent. Another key issue I grapple with is percentage allocation for core portfolio and trading / opportunistic portfolio.
     
  8. Carl Icahn

    Carl Icahn Active Member

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    It is a difficult task indeed because the margin for error in a concentrated portfolio is very low. The management has to be of proven competence, integrity etc. The stock has to be secular. One stock that I am feeling confident about is Bajaj Finance. It has great management capability with a conservative approach. Another stock like that is Cholamandalam Finance. I want to mull over the other names for a few days.

    However, I feel the insistence on a concentrated portfolio is overrated and may also be counter-productive. At least in the Indian scenario, it is not very difficult to find 20, 30 or even 40 mid-cap stocks that will grow at 25% CAGR for several years. I think 20 stocks is a reasonable cut-off with 5% allocation to each stock.
     
  9. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    Carl, the idea of this thread is not to emphasise the importance of a concentrated portfolio. I think, in the end, it is a matter of which approach works better for each person from a comfort and return perspective.

    It was more to get a list of shares in which we have deep conviction and force ourselves to reexamine if we are holding shares without having a clear investment thesis backing it.

    Finally, I wanted to get a sense of what is a concentrated portfolio in general perception. For ex. My entire portfolio has five shares. Period. Then, there is a trading portfolio which I churn every three months or every 20 percent whichever is earlier.

    I sense my concentration is extreme so I am using this forum to examine my own approach thru this conversation, really.
     
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  10. kharb

    kharb Well-Known Member

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    Carl Ichan, pl recommend your 20 ideas for concentrated portfolio.Start with your most trusted one and so on .
     
  11. Carl Icahn

    Carl Icahn Active Member

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    Agreed. In any case, we should have ready (or be thinking about) a list of our "high-conviction" stock picks.

    PI Industries would qualify as one of my high-conviction stock picks owing to its stellar track record and execution capabilities. It has 40% RoCE, debt-free balance sheet, robust growth outlook. Here is a recent research report by Motilal Oswal

    Built on impeccable R&D track record and trust

    Expect 26% EPS CAGR over FY15-17

    - PI boasts of a unique business model—a strong R&D-led custom synthesis business (59% of revenues) built over the last two decades and an equally compelling domestic agro-chemicals business (41% of revenues), largely built by in-licensing arrangements with major global agro-chemicals innovators.

    - With a mere 10% penetration, we believe there is untapped growth potential in PI’s largest product - Nominee Gold, which along with new products like Osheen, Vibrant will continue to drive growth momentum for domestic agro-chemicals.

    - With a strong order book amounting to USD600m, the CSM business has robust revenue visibility - book-to-bill of 3.1x; which will be complemented by upcoming facilities in Jambusar. We believe the foray into new segments like pharmaceuticals and electronics chemicals will be the next key growth drivers.

    - With best-in-class capital efficiency (40% RoCE, debt-free balance sheet, robust growth outlook - 23% revenue CAGR and 26% PAT CAGR), we believe PI is one of the best plays on India’s agri sector and CSM opportunities. Initiate coverage with a Buy.
     

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  12. Carl Icahn

    Carl Icahn Active Member

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    Yes Sir, I will. It will be a mid-cap portfolio of good quality stocks. Some names I am thinking of are PI Industries, Bajaj Finance, Ajanta Pharma.
     
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  13. kharb

    kharb Well-Known Member

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    Your ideas are worth waiting,pl start with maximum conviction and trust ,when you post.
     
  14. Sachin pathak

    Sachin pathak Active Member

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    @kharb

    Where is your list man???
     
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  15. Sachin pathak

    Sachin pathak Active Member

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    My split broadly is

    60% core
    30% semi core : fundamentally good names which are the flavour of the season : investment horizon 12-18months
    10% : punt names and turnarounds - The likes of 8k miles, kellton, suzlon. Mixed bag kindof including tips
     
  16. Srouta Mukherjee

    Srouta Mukherjee Well-Known Member

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    Yes where it is? :)
     
  17. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    RIL
    Infosys
    Aurobindo
    LIC housing
    Shriram Transport
    IDFC ( bank)
    Shilpa Medicare
    Camlin Fine Sciences

    Looking at Kitex but still haven't bitten the bullet.
     
  18. RAMA MURTHY SASTRY CHALLA

    RAMA MURTHY SASTRY CHALLA Well-Known Member

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    @ fun_Da_Mentalist ,

    Very Good Stock Selection .....
     
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  19. kharb

    kharb Well-Known Member

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    Dear Srouta Mukherjee ,which stocks other than JB chem in your portfolio? I am interested to know.TCI I know,but what else?
     
  20. Sachin pathak

    Sachin pathak Active Member

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    I agree and hence it should not be very difficult to guys in here to list their preferences. Surely each has an existing portfolio built and held out of strong conviction in companies ( should be core element) and others (if any)
     
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