I am little wary of having this post in this thread – in the fear that we will dilute or digress from the core idea of the thread, but at the same time I am not sure if I should start my own thread for posts like these. Just putting it here as it pertains a lot to learnings and thoughts about the approach of constructing and churning a techno-funda portfolio.
This year has been good, so good in fact that I doubt it will be matched in any subsequent year, anytime soon. Lot of stuff worked – VBL, PML, Apar, Shilchar. Some like Welspun Corp, Garware, Spandana, Ugro, PDS were great trades in short period of time. A few like Vimta, HOEC, Mazda, Honda Power flattered to deceive. In the current portfolio, Taal, Ceinsys, Goodluck have done quite well. Sharda Motors and Wockhardt are setting up quite nicely. PML has been a rank underperformer over last 6 months but I hope that changes in ’24. I will find out a thing or two about long-term investing with PML as against my current strategy of churn based value investing.
Some ideas
Time Machine – Regret is a powerful emotion that can suck the joy out of even good outcomes. I feel only regret worthy of having is a “future-regret” – and our strategy should be geared towards avoiding future regret. Which decision if you don’t make today will leave you in regret in the future?
To avoid situations of regret, and also to learn from past trades – what I have found to be useful is a tool I use to re-visit a past portfolio as of a specific date – say Jan 1, 2023. The tool also shows what the returns on that portfolio will be, had I not made any decision from that point. When we are stuck with regret arising from narrow-framing (something like “oh I should not have sold Neuland labs”), it is better to look at all decisions together (broad-framing) for we leave out the other good that arose from this one seemingly bad decision. If the time machine shows you are better off not having churned (can happen a lot in 1-2 month timeframes), there could be something worth learning – especially in longer-timeframes (for a trader in a raging bull market that is ~6 months).
Trading Journal – Also worth having is a trading journal for the person making the decision is very different from the person evaluating the decision post facto. In Kahneman terminology, its the “Experiencing self’ vs the “Remembering self”. This ensures there’s a voice to the person who made the decision. A lot of times i have found a bad decision (say selling too early) arose out of my biases against a sector or business. Avoiding a certain trade (say Inox Wind) as well was due to same bias. I clearly have to see if those principles hold in a raging bull market.
Collaboration – I have for long worked alone. I led a large team at a OTT last year and that has changed the way I look at teamwork. I have made myself a lot more receptive and consequently found numerous great folks during the year to collaborate with who have enriched my thinking a lot. I feel this has been a crucial improvement for me personally in ’23. Collaboration is a force multiplier
Market Participants – concentrate vs diversify, illiquid vs liquid, short-term vs long-term holding period, meet vs avoid managements, charts vs fundamentals, value/growth/momentum, deep vs shallow research, micro vs macro, top-down vs bottoms-up – everybody has their moment in the sun and everything works or doesn’t and there’s no holy grail. In a bull market everyone is misled to feel that they have the holy grail. If you are not outperforming the index (I use microcaps to evaluate myself) over 6-12 month periods, it is time to re-evaluate and re-calibrate approach. You are not answerable to anyone unlike a fund manager who cannot afford to have style-drift
Macro – It is amazing how quickly the macro threats the global economy was facing in Sept dissipated in a matter of weeks. Oil nearing $100 and 10Y yields nearing 5%. Does it mean we shouldn’t use macro? I still feel at the turning points, macro dictates further moves. In this case, it de-escalated as quickly as it escalated. That’s the outcome and there’s no point resulting. In an alternate universe, ’23 proobably ended up with normal returns. What’s important is being able to change mind quickly when information changes.
Position-sizing – It is hard mentally to think position-sizing only in terms of percentages as related absolute amounts take time to get accustomed to for the mind in a pf that has grown fast. I know people who only use constant position sizes and make lot of bets as pf grows bigger but their time horizon is lot longer (A longer time horizon is an antidote to a lot of folly). If your time-horizon is shorter, you have to think in percentages or you will end up making a lot of 2-3-5% bets because that’s the only amount your mind is comfortable with and that will do nothing to the overal pf returns.
Hunger – Your hunger drives returns. Without hunger you will find reasons to stay out. What we lack most of the time is appetite for returns. By nature our culture is non-materialistic and has a love/hate relationship with wealth. If you feel sated, take a break and come back when there’s hunger or develop an appetite.
Technofunda – This has worked really for me but I notice that most of the time, the importance I give is to charts. It is a weird thing to admit when you can do fundamental research as well as anyone else. Everyone is a closet technician. As of now, I feel if I have to give up one thing between technicals and fundamentals, I will give up fundamentals (I am going to regret saying this I think). This is akin to Thom Yorke of Radiohead saying he would prefer drum machines and a computer to making music with guitars – on why he may never make a record like ‘In Rainbows’ again. I will continue to use technofunda though as the narrative bit from fundamentals is what makes me feel like I “deserve” the returns.
Long-term Investing – I think I will segue into long-term investing when the pf hits the large number I have in mind. As a long-term investor, it will be the fundamentals that will let you sit tight. So over time, I do think the transition to fundamentals and less of technicals is bound to happen. One thing @ayushmit bhai told me this year I will hold dear for a long time to come. Long-term investing is like sitting in a bus from start to finish, others travelers will get in and get out – but your destination is different. He meant this in the context of Shilchar which I was in a hurry to sell for flimsy reasons. Even now I feel I have committed a blunder in selling but you can only take the horse (me) to the water but can’t make it drink.
I hope I haven’t cluttered this thread with random stuff. I felt like documenting these thoughts from the year for posterity and it pertains a lot to this style of investing.
I hope ’24 is good for all of us. Happy new year!
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