Yes valuations matter if your horizon is 1-3 year, as you elongate your time horizons, share price should be more dependent on earnings growth.
Saregama was already 5-6x from 2020 buying price, but I started cutting its weight when I could not align myself on its capital allocation and overall industry dynamics. I have written about it in some posts on its thread.
In general, higher allocation is not a problem, but problem is deciphering how much each stock should be allocated. Generally, one should allocate higher when downside is limited. For example, ITC was high allocation in many portfolios in 2020, 2021 start.
In general my allocation depend on these things -
- How much I am willing to lose on this stock? So if in a given year I am fine losing 10% of my portfolio at max, so maybe I can afford losing 1% each on 10 positions in a year. So now if I think that downside to some stock is 30%, I will bet 3-4%. P.S: This is an example taken from famous investor - Rajashekhar Iyer
- This is also supplemented by my understanding of business, grey areas or blind spots, track record and my perception of management.
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