Hi

After a long hiatus I am posting once again my portfolio for
everyone’s review and comments. Have been in good spaces to get almost
150% unrealized gains on overall portfolio worth exceeding 40 lacs over
last 3.5 yrs.

From the last time I posted my portfolio there are few minor changes

a. Applied in Syngene IPO as I had Biocon – sold out at 350 completely as needed to raise cash to invest in better stories
b. Entered ITC and Bajaj Auto some time back as kind of nibbling in and then decided to get out. Reasons are I couldn’t see myself invested in a company making cigarettes and causing cancer. Whats the point of earning money like this – My mother died of cancer. I switched over to Atul Auto from bajaj after a steep correction
c. Entered Supreme Industries, Care ratings and Axis bank as part of my core Portfolio which now constitutes 14 stocks – No stock exit from core portfolio
d. Yes I have 27 stocks overall in my 3 categories of portfolio but I guess its ok – as core portfolio provides stability and long term compounding and other two portfolios are more of multibagger types

My current Portfolios are as follows

Core Portfolio – forms 65-70% of overall holdings

1). Yes bank
2). Persistent systems
3). Alembic Pharma
4). DHFL
5). United spirits
6). Bayer crop Science
7). Lupin
8). Biocon
9). Marico
10). Rallis India
11). Glaxo Consumer
12). Axis Bank – New Addition
13). Supreme Industries – New Addition
14). Care Ratings – New Addition

Sub Core Portfolio

1). Agrotech
2). Vguard
3). HSIL
4).Tata Elxsi
5). Kaveri seeds
6). NRB Bearings
7). Atul Auto – New Addition
8). Aarti Drugs – New Addition
9). L&T Finance

Emerging Business Portflio as Wildcards – Less than 10% of my portfolio
1. Delta Corp
2. Lumax Auto
3. Gati
4. KPIT

Two broad concepts I wanted to share that I have found useful in thinking about these things:

Concept #1: Know the type of error you will be comfortable with.

Statisticians have a very useful concept of errors called Type 1 error and Type 2 error. It basically means you either err on the side of caution or on the side of aggression; a false negative or a false positive. Let us say you are not so sure about, after all analysis, whether management mis-appropriates funds that is generally expected to be minority shareholders’. You either drop the firm however cheap it may be or you go ahead with putting it in the consideration set. Now if it turns out that you dropped them and management was really “clean” then you have made a Type 1 error. If you give a green signal and you find they are mis-appropriating, then you are committing Type 2 error. Maybe you can ask yourself if you are OK with Type 1 error or Type 2 error. As for myself, in areas of integrity towards minority shareholders, I err on the side of extreme caution (or at least tell myself so ) however cheap the stock maybe.

Concept #2: Promoters’ may be divided into 3 groups based on their “ethical nature”. – this concept is raw in my mind but I find it useful to apply.

I find there are really 3 groups of people.

Group #1 are those who will wilfully violate the law irrespective of enforcement. They will not let law come in the way of their desires or ambitions. If an employee comes and tells them that this will violate this rule, the promoter will say, where is your value-add for the salary you take?

Group #2 are those who will violate the law depending how strongly or lightly it is enforced. To give you an idea recall many years ago a lot of employees were sacked at Intel in Bangalore because they ‘fudged their LTC’. Now when I was an employee in a company considered highly ethical (about 22 years ago) I was just told to fill it up to get maximum tax benefit irrespective of whether I took a holiday or not. The general thinking was – this is strictly incorrect, but who looks. But once enforcement increases or at least the threat of enforcement, compliance goes up. So the moment Related Party Transactions need to be disclosed, Group #2 promoter will call up his finance guy and ask him how to manage while complying.

Group #3 are those who do not need any law to be ethical. They are by nature ethical and actively ‘seek to know their duties and obligations’. They certainly err on the side of caution while interpreting the law in spirit and comply irrespective of costs. The real good news is that many such people exist, irrespective of whether they are rich or poor. An extract from a letter by Abraham Lincoln to his son’s teacher captures this well: “..But teach him also that for every scoundrel there is a hero, that for every crooked politician, there is a dedicated leader.” The bad news is that they may be running really poor businesses!

In my own assessment or rather theory, bulk of Indian promoters are in Group #2, some are in Group #1 and some in Group #3. In my view Group #3 is slimmer than Group #1. And more often than not our first impression of these promoters of which group they fall in turns out to be true.

Warm regards,

Feeling a bit sad ( ) to see high quality stocks drift down a few points as the days pass by even though the broader market seems to have stabilised in a range.

Of course, I’m not doing anything stupid. I’m holding with my full conviction believing in “As long as the underlying businesses are growing, the stock prices will have to catch up like a Hutch dog, there is no other way – if not now, later”.

Argh…Japan: India in the near future can never have a scenario like Japan as we are a growing economy. Deflation is only for this year as it’s an YoY comparison and while we move onto next year it would be inflation in low single digits.

Agree, If Page falls, it would be a very good opportunity to ride the economy turnaround.

Disclosure: As already made, I’m invested in Page. I read somewhere that stock markets discount any macro positive turnarounds about 6 months ahead and any negative turnaround markets will be a bit late to discount