My portfolio updates and investment journey

Thanks a lot Mudit and Manan for your comments. I can’t tell you how much I try to understand myself before responding to you and to this forum. I went back to most of my sell decisions.

Reasons for churn:

1. At the heart of it, the two main ingredients in my “buy” decisions are growth expectations and valuations. Simply put amalgamation of growth and valuations result in my buy and sell decision. So, first reason for churn is easy to say that growth lagged my expectations vis a vis valuations or valuations overshot vis-à-vis growth.

2. Screening avenues and tracking: Why should I just trust myself only or limit it to myself? I have my own limitations, so I piggy back, leverage, tail, and copy other skilled investors. I get my ideas from Ishmohit (Sandhar Tech), Sahil Sharma (XPRO), Amit Jeswani (PB Fintech, Paytm), Dr. Prashant (Pitti), Forum Valuepickr (Shivalik Bimetal) to give few examples. I study those ideas and try to make them mine as much as possible. Its like screener giving you ideas and then you do your own work. How do I make them mine? Read annual reports, investor presentation, conference calls and industry research. Sameer Arora says even if we take one idea from each of the concentrated investor/fund manager then we still might end up with 30-40 ideas. However, the key is to make these ideas our own. Sometimes to make these ideas our own they need our attention, one of the way to give them attention is by taking a tracking position (1% or less). If we are not able to make them our own then invariably we shall end-up exiting them, sometimes even after scaling up the position. So churn is the result. New will look always attractive because its new to you, discovery bias.

A side note here: you don’t have to look for ideas always. You might wait for inflection periods or period of pain. So, in my case I look for ideas when my portfolio or market is down 20-30% or market has consolidated for 12-18 months.

3. A quote from economist John Maynard Keynes – When facts change, I change my mind what do you do sir? I sold PVR as I thought Netflix will kill it. I sold Yes Bank as I could not understand the reason they pull back QIP in 2016 (How Yes Bank’s billion-dollar QIP ended in failure – The Economic Times). I sold Dixon after solid downgrade of guidance. Affle started giving flat earnings and has remained flat for last 5 quarters. Indiamart reached PE of 80+ and growth also tapered down.

4. Emotions and rash decisions : this one is the one I need to avoid. Example of my emotional/rash decision: When I entered insurance businesses like HDFC Life in 2018-2019 I could visualize 15% cagr for next 10-15 years. However, one budgetary announcement of removing insurance premium deduction/simplification of tax led me to take rash decision of selling it 6 months back. I am wrong because I never included tax benefits as reason for HDFC Life’s growth. My reasons to buy HDFC Life was under-penetration, increasing awareness and increasing income levels.

5. Cash build up for personal reasons: In the last year I sold many businesses to beef-up cash levels to deploy them in fixed income securities.

Bottom-line is, I find reasons to buy or sell. I make errors and I try to rationalize my decision. Someone correctly said we are not rational but rationalizing animals. Having said that I have also following points:

Long-term bucket – For a company to be in my long-term bucket in addition to growth and valuations, I need pristinity of the cash flows. So how do I define pristinity of cash flows – granularity, predictability (stability), and in B2B businesses strong counterparties. Bajaj FinServ and ICICI Lombard have kind of businesses that have granularity as cash flows coming from millions of customers and are in mostly collected in advance. Hindustan Foods and Saregama are B2B business but have strong counterparties like HUL, Reckitt (Dettol), Bata, Tata Consumer, YouTube, Spotify etc. I have been invested in Bajaj Finserv for now over a decade, while in Hindustan Foods over 5 years now and ICICI Lombard/Saregama/Tips its been ~3 years. These businesses accounted for combined 40-50% average allocation in the last 5-7 years. So I have not done bad on long-term side. Its worth noting that despite Saregama consolidating for over a year I have not sold it (but trimmed ).

New businesses – I have invested in new businesses like Affle (exited), IndiaMart (exited), Nykaa (exited) I entered them at 25-30 PE but they started trading at 75 to 100 PE while in Nyakaa I had to bear 30-40% loss. I am always bit nervous on tech businesses (partly owing to limited understanding) and when they hit such high valuations, I cannot hold my conviction. For me to pay 70+ PE, I need to have very good understanding of the business and visibility. These businesses got listed 2-3 years back only so I could not have long-term time to show on these. Currently these businesses account for ~30% of my portfolio.

Having said that I might go feeble on new businesses as they can be disrupted as well as my ability to understand them fully is limited. However, I don’t know when they will be disrupted so I need to be very balanced on my views here given growth momentum.

R&D stocks: Now if you see my two above buckets those account for ~80% of portfolio. Remaining bucket is 20%, which I use for R&D and to play trends (EMS – Syrma, Permanent Magnets, Shivalik), .

I have tried my best to explain however as investing is personal, apologies if I was not able to do justice to your questions.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example and learning purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.