Forcing A Concentrated Portfolio

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?

 

Very difficult task Even Dolly has diversified then why we should try?

 

Aha! That's a neat way to escape some hard introspection

 

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

 

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

 

Missed my last name : HDFC bank

 

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.

 

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.

 

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.

 

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

 

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.

 

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.

 

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

 

@kharb

Where is your list man???

 

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

 

Yes where it is?

 

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

Looking at Kitex but still haven't bitten the bullet.

 

@ fun_Da_Mentalist ,

Very Good Stock Selection .....

 

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

 

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)