Continuation of the earlier narrative:
The period of 2008-2022 in my journey can be broken in 2 specific timeframes - One till 2014-15 and the next one till 2022. Till 2014-15, I was very much part of Theequitydesk group and acted generally based on the advise of the group with limited independent thinking. Since the focus was on buying high quality business, I did well.
In 2015, I became part of a popular new PMS(PMS1). The performance of the PMS in the first year was not good. Infact to subscribe to PMS high ticket amount, I sold most of my “Slow moving compounders” which in hindsight was a bad decision. The PMS had its share of wins but there were more losses as they went into smallcap stocks in search of higher returns. I dissociated myself from the PMS after one year but till then some damage was done to my portfolio.
In 2016, I went to another PMS (PMS2) focused largely on small cap stocks. In the first year, the PMS did extremely well (in line with 2016-18 smallcap boom) and doubled the value. However they did not reacted once the smallcaps were busted and held on the not so strong companies. I also invested a very significant amount in end 2017 into this smallcap PMS and also bought on the side the share that they invested in. Some of the stocks did not performed well and in couple of those, I lost 90% of the value. Post this fiasco, I did not invested any additional money into the but let the PMS team manage the account.
In the meantime, in 2018, I left my corporate job to become a full time investor. However given the meltdown in my portfolio happening in 2018 I got scared and went back to job in early 2019. In hindsight again, I could have possibly managed at that time, but my learning was incomplete. On the side, I was again investing any surplus amount into stocks with my own study, visiting different website and valuepickr also. I made some interesting bets on Suven Pharma (predemerger), JB Chem, Alkyl Amines (Small Cap PMS stock) and held to them.
If I want to summarize the reason for my limited success in the stock market, it will possibly be
- Sit on your winners - Water your flowers and Cut the weed - This is the single most important reason. I was lucky to have a few winners as mentioned and I sat on them without worrying too much (Did not had the time). Great companies come few and far between and it is our duty to sit on them.
- I have never been afraid of taking a loss. Infact I don’t like losers in my portfolio, from a fundamental perspective.
- Avoiding big mistakes - I never did F&O after 2008. I placed a trade to buy Satyam Option at that time. I invested some 12-13 K in that option. I lost all the money as the option was not called. I was quite horrified that I lost all money without anything happening in the company and vowed to never do that again. Till date, I have not done any other trade in F&O
- Not buying on Leverage - I was fortunate to not enter into leverage. It is a tool for very experienced investors. I believe my knowledge is still not complete. 5-7 years back, doing leverage may have been a disaster. It is also good that govt restrict LAS to 20L/pan so it not interesting anymore.
Some key learnings;
- Don’t trust anybody with your money unless you explicitly trust the manager and the investment philosophy which have to be making money in all kind of markets
- Leave the difficult to understand sectors. There are many parties in the market and I have to choose which parties to attend. (This is probably RJ’s quote, but very apt). So generally I now dont invest in Realestate, Construction, “Esoteric business models” etc.
- Investing is a very serious business. Unless you can devote significant effort every week to know/understand, you should not look to invest directly in stocks. I have realized this more after becoming Full time investor. The time aspect can be reduced if you work in your circle of competence and study few business at a time.
- Get out of your mistakes quickly. Hope trade does not work especially if the business model is not correct.
- Understanding the business model of the company is the most important aspect besides promoter integrity and their hunger for growth. If you get these 3 things cheap, you have discovered a gem.
Regards,
Nikhil
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