What a massive year this has been for both India and US equity investors. My India portfolio is up 31% whereas my US portfolio is up 51%!!! This “Double Engine” growth has helped me to achieve my financial independence a couple of years earlier than I planned for:)
Varun Beverage is the new multibaggers in my India portfolio. I sold Paytm with flat gain (went with Mr Buffett) and replaced it with Rainbow Children Medicare as it has created its own niche in the Child care segment. Ethos, Polycab, PI Industries, VBL and Granules India came out to be the winners in the India portfolio. My India portfolio 5 year CAGR return has crossed the 20% mark due to this crazy bull market that started in 2020. 10 out of 24 stocks are giving more than 100% return and the average holding period is nearly 2 years as of now.
Not sure if I will take up quant trading if I go for RE after achieving FI to increase my return:) It will surely be new learning for me. I generally avoided short term quant trading as I wanted to do it after automating the entire process. I shunned this idea temporarily after reading the stock trading related book “The man who solved the market”
(this is the only stock trading related book I read) After reading the book I somehow understood how difficult it’s to create such system (in fact this team first used AI/ML to do the quant trading) and why it’s futile for me to try the same before achieving my FI:) As a result with a corporate demanding private job in hand, I went with long term investment (along with MF/ETF investment) as it demands little time to generate above average return (specially in India where leaders don’t get disrupted frequently like in US).
Since last year I actually faced a challenge in investing in the US market. If anyone is interested to know about how severe the bear market looks then one can look at the US small cap Russell 2000 chart from 1st Nov, 2021 to Dec 2023. During this time period the US small cap index fell more than 35% from top on 3 different occasions. As my US portfolio is equally divided across Large and Mid/Small cap so as a long term investor I had to negotiate such storms doing just nothing and praying for this to end as early as possible. This period tested my resolve and conviction on my investing thesis. But I survived as I was on the right side of the structural change happening in the tech world.
As a techie I could get a first hand experience on how technology is changing day by day. As I stated earlier I became bullish on Cybersecurity, Cloud and AI (Cloud and AI go hand in hand) related stocks from 2019. Last year here I in fact listed stocks that I believe are the leaders in their respective segments. Those were Nvidia, Microsoft, DataDog, Tradedesk, MongoDB, Snowflake, Hubspot. Crowdstrike, Zscaler, Confluent, Cloudflare, Palantir, Zoom and UIPath. I also have a stake in AI apps like insurer Lemonade and Upstart (two most heavily shorted stocks in the US market). I also have invested heavily in Tesla, Shopify, Intuit and Mercadolibre as they use AI in some way and others and leaders in their respective segments.
Since my initial purchase in late 2019 these investments were going in the right direction. In fact these stocks quickly recovered after covid crash and started making new highs. But then came the 2022 bear market where all these stocks fell on an average 70% from top. Not only did it sucked out all my profits, it also took my portfolio into deep red. As I am a firm believer of these structural changes and familiar with their products so I took the plunge and started buying more as I took it as a golden opportunity to load up. I also noticed that though companies revenue growth rate fell but they were still growing comfortably 30% YoY even in this tough environment. Not only that, these companies became prudent with their expenses and became FCF positive in no time.
This time I understood how difficult it’s to hold onto such stocks when they are getting shunned like plague patients due to the impending recession scare in US that never arrived. But familiarity with these technologies and products helped me to stay the course. And then the advent of chatGPT and the large language model in early 2023 vindicated my investing thesis. Nvidia is now up 4.5X, Microsoft is up 3.5X and others are up an average 70% (except Zoom) in the year 2023. I think these are just getting started and I have no intention to sell them in the foreseeable future. I may rebalance some of Nvidia’s gain with my other dividend investment to increase my income after FIRE:). Having said all that, I am still aware about risks involved with new tech like AI. All bets are off if companies are unable to show productivity gain and thus bottomline gain using AI in near future. Will sell these stocks ruthlessly if revenue growth falls below 15%.
I also think the US Small cap is finally ready to run and may give a similar return as India Small cap gave in this year. One interesting data point, during the 2000-2002 dot com bubble burst Nasdaq which mostly represented loss making high growth companies fell almost 83% from top. But what most people don’t know or admit is that the Nasdaq return is way higher than S&P 500 since it came out from a bear market low sometime in 2003.
Now exactly after 20 years, ARKK which now hosts similar loss-making high growth companies, had a similar fate (fell exactly 83% from top) during the latest US bear market. Can it beat Nasdaq 100 in terms of return on the way to its recovery in due course? I firmly believe so as it rightly invests in companies benefiting from long term structural change:) As usual I may be wrong though.
Happy investing and wish all Happy and Prosperous New Year.
Disc. This is not a buy/sell recommendation. Biased as invested in all stocks discussed above. Not a SEBI registered advisor.
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