I sincerely thank you all for the encouraging words and feel grateful that I could share my portfolio for critical evaluation.
My Journey and Lessons Learned
My journey before COVID, when I was investing part-time, was filled with many mistakes. The following are some errors I made during my investment journey (though this is not a comprehensive list):
- Over-diversification (Deworsification): I bought up to 50 stocks without developing conviction in any of them.
- Paying Attention to Just Numbers and Not the Narrative: I used to only look at historical numbers and invest if I found them to be good enough.
- Selling Winners Too Early: I was an early investor in companies like Vinati Organics and Persistent Systems, but I sold them with only marginal returns. They went on to become multibaggers.
- Over-concentration: At certain points during my investing journey, I held fewer than four stocks. It was concentration for the sake of it, not because I had great conviction in the story.
- Not Having an Investing Philosophy: This was a big one. I used to invest purely based on past performance without an investing philosophy.
- Not Tracking: I hardly used to read quarterly calls or annual reports of my holdings, foolishly believing that I should simply hold stocks for the long term regardless of how the underlying companies performed or are performing.
- Not Being in the Market: I used to check out from the market for several months, thereby missing some crucial bull runs.
Immediately after COVID, I liquidated all my holdings and was sitting on cash for a year or so. At this point, I was trying to automate my business so it could run without me. This led me to miss the massive bull run that happened after COVID. This remains one of my biggest regrets. When I realized I had made a big mistake by not being in the market, it was a wake-up call for me, and I decided to dedicate myself full-time to investing, swearing never to miss another bull run again.
I started building the above portfolio in mid-to-late 2022. Investing in SME stocks is a recent phenomenon, except for Beta Drug and Macfos, which I have been holding for more than a year, the rest of the SME stocks were purchased recently (less than six months). I am new to SME investing and hope to increase my allocation as I gain more confidence in the space.
So far, in the last 1.5 years, my portfolio has returned a little over 100%, with Anand Rathi returning 4x, Aditya Vision returning 3.5x, Caplin Point returning 2.7x, and Beta Drugs returning 1.5x.
About Me
I was born into poverty, and growing up with limited means inspired an aspiration to build great wealth. I figured out very early on that in order to be truly wealthy, one either needs to be a celebrity or a business owner. I lacked the talent to be a celebrity, so I focused on becoming a business owner. I figured you can be a business owner either by creating your own business (entrepreneurship) or by buying pieces of businesses other people have created (investing). Since my 12th grade, I dabbled in various business ideas, trying as many as seven businesses until I found success in the last semester of my college. Meanwhile, I always considered investing as my Plan B should I never succeed in my ventures. I soon realized that business was always a means to an end for me and I was never truly interested in entrepreneurship. Investing, on the other hand, always fascinated me, and I am glad that eight years later, I was able to build enough capital base to not have to work and focus full-time on what I truly love.
My (Current) Investing Philosophy
I invest in businesses with the intention to hold them for the long term (5-10 years). I am not very comfortable with churning my portfolio very often. I am comfortable holding a stock even if it hasn’t performed price-wise, as long as the business stays good (case in point: Ugro Capital, whose performance has been muted for a year). I am comfortable because I have observed that most of the returns in a stock come in just a few trading days, and if you miss those days, you will miss a massive portion of the potential returns. Also, once a stock breaks out, it more than compensates for the period of no returns (case in point: Caplin Point, which didn’t perform for several years and suddenly broke out to give 2.7x returns in less than 1.5 years, with most of those returns coming in about 20 trading days).
This buy-and-hold approach forces me to look for long-term growth stories, where market opportunity and size are huge. It also means I must have able and honest management running those businesses, and the financial health of the company must be strong to ensure their survivability across various cycles. This means I invest in companies with management that are good at capital allocation, are financially prudent enough to not take on too much debt, and always balance growth with fiscal discipline.
I have a return expectation of ~25% CAGR from my stocks and only invest in those businesses where I believe this kind of return is possible.
I believe in diversification only when a stock meets my return expectations. This means I will only invest in a new stock when it matches or surpasses my return expectations, and since such ideas are hard to come by, the result is a fairly concentrated portfolio. This kind of diversification helps me sit through times when some of my stocks are underperforming because other stocks often compensate, and the overall portfolio tends to do well.
When I Sell My Stocks
I sell my stocks when:
- I realize there are holes in my thesis that I initially overlooked.
- My perception of the management changes for the worse.
- The future returns from the companies aren’t meeting my return expectation.
- I find a new idea that has much better prospects than an existing one.
I don’t sell when:
- My stocks have appreciated a lot.
- There is fear or greed in the general market.
- My stocks have underperformed relative to the general market.
My Approach to SMEs
With respect to SMEs, the main priority is growth with good management. Since they lack history, I simply optimize for companies growing at 40-50% where management seems to be competent and ambitious. I am willing to pay a little higher valuation for such stocks, although my allocation in such companies will be small.
PS : I am not a momentum investor, nor do I follow a sectoral or top-down approach. While these investment philosophies intrigue me, I haven’t fully delved into them yet. For me, the fact that a sector is currently out of favor—such as the financial sector right now—doesn’t deter me from seeking opportunities within it. In fact, I often find my investment picks in these undervalued sectors, where valuations tend to be more reasonable. My primary focus is on sectors with significant growth potential, irrespective of whether they are currently attracting capital.
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