Portfolio Review:
Returns:
An exceptional year for the market overall and especially for the smallcap index and investors who tilt their portfolio toward smaller companies.
Things that worked well in the year:
- Early identification of some key trends such as microfinance cycle turn, options trading & “value” in loss making technology companies helped returns. In fact, these three trends alone were responsible for ~60% of my yearly return.
- Large tilt in the portfolio toward smallcap stocks. At the end of the year, ~65% of the pf was invested in smallcaps
- Active churn: churn decisions in general added value in the year: purchase of winners such as Indo-Count, Inox Wind, FDC, etc as well as early churning out of poor performers such as Delta Corp & ICICI Lombard helped to optimally use capital. The last 2 years have really shown me the value of churn in a small size portfolio.
Things that Didnt Work Well:
- Opposite to last year, large allocation to banking names was a drag on returns.
- Gepgraphical diversification into Chinese stocks was a disaster. Hard to see when this cycle ends but stocks there are unbelievably cheap. For now, plan to give the economy one more year to see signs of a turnaround. Good learning that sometimes things are cheap for a reason.
- Lot of misses (post research). In general, missed a lot of opportunities in the broad industrials/capex theme. I have noticed that I struggle to evaluate these companies and my predictions are often extremely wide of the mark. Definitely need to do some work here to understand the cycles better. Some of the misses were GE T&D, HBL Power, BSE, Sandur, Action Construction, Prestige, Voltamp, Disa India (all of these were 100%+ yearly returners).
In general satisfied with how the year has gone. However, as we begin the new year, the situation seems similar to end 2021 whereby valuations are in general stretched for most parts of the market and its hard to find great opportunities without diluting quality filters. 2024 is likely to be more challenging than 2023 and stock selection, active management and capital preservation are going to be key in the year. In addition, at the beginning of the year, there seem to be a lot of stocks with unfavourable risk-reward in the portfolio such as MCX, Zomato, Raghav, Faze Three. However, as seen in the previous year, one only needs to identify 2-3 new themes/ideas which with proper weight can lead to significantly alpha creation.
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