Tanishk_Ojha I never hold any large caps. In fact I sold out Bharti once it hit Rs 120 (Market cap Rs 20,000 crores) after getting in at Rs 25 (Market cap Rs 4000 crores) because it was approaching a market cap I was not comfortable with. I hold at most between 3 and 5 companies in my portfolio. Yes only 3 to 5. Once I finish analyzing a company I ask myself one question “Is the company good enough to take 20% of my portfolio. When ever I get an answer as yes the next question is OK what can I replace it with. If I get another yes I would buy that stock. I prefer putting all my money into one company but just for the event risk I have divided it into 3 to 5. I like to know what business the company is into and then look at whether it is scalable. I prefer new sectors since the growth is highest there. I avoid cyclical because I cannot predict the peaks and troughs. RoCE is a better concept though because you could hike the RoE by using debt but not the RoCE. Dividend, book value is something that I look but do not base any of my decisions upon. I think that they tell you what the company has done and not what it will do. Once a stock is bought and the price falls without any change in fundamentals and if I have the required cash I will buy at each fall. I must have read One up on Wall Street over 15 times. I have underlined the important lines and prefer reading them again and again. My advise is that biographies of the best guys in business should be read like a text book not like a novel. Many stocks become overvalued and remain there for the entire length of the bull cycle. Again if you hold a concentrated portfolio you would be able to follow the stocks in such detail that each movement in stock price could be explained whether it is being fundamentally led or market led. Never followed the historic pricing method. Always thought that our purchase price becomes irrelevant the moment the trade is executed. Personally I would wait for fundamentals to show negative strain before selling rather then wait for prices to rise. Yes, If they rise abnormally by say 50 times forward then one could think but with growth stocks the story gets cheaper if can get the visibility correct and stay with the sector leaders. I used to mark up each individual investment (and trade) where I lost money and try and analyse where I went wrong. I came to the conclusion that whereever I had invested on heresay and especially where I did not understand the working of the company, I ended up loosing money, principally as I did not understand why the stock was going up and when to exit. Over the years, this has made me tune up my investment methodology to an extent wherein I avoid any investment wherein I can myself a understand the fundamentals of that sector and stock. People want to have new ideas each week rather the hold on to their ideas for weeks. I have made the maximum money of my life in ONLY 3 ideas - so it is better to understand the stocks and hold on rather then try something new by selling the older ones each time someone whispers something new. If I have 4 ideas in my portfolio all potential multibaggers I just check up to see if after 4 years the increase in price of one of them should be equal to my total capital as on today. I assume no returns from the other three - which if it happens is a super bonus.
Tanishk_Ojha Very difficult to make a 10 bagger with 15 times forward. Pantaloon when I bought it was 8 times current year and Tv18 was 12 times current year but we have to look at these PE ratios in conjunction to the market. At that time the market PE was 10 times so 10 times was not as cheap as it appears now. Similarily with the market at 15 times forward 15 times now (2007) is as good as 10 times in Fy 03-04. The biggest money is made in a PE expansion and at 40 times forward the scope for such a PE expansion is limited and that is the problem - we can rely only on EPS growth from there on for capital appreciation but if we buy something at 8 times and the company's PE expands to 40 times a 5 bagger is made without any effort whatsoever - without a PE expansion it is almost impossible to get a 10 bagger in quick times (2 years) hence the desire for a lower PE company even if companies grow at 70% that PE cannot hit 70 on a consistent basis. That is because everyone knows that in the longer run the growth would taper off and the PE would come down to more reasonable levels (30-35 times) hence the possibility of losing half the capital on a PE contraction is very high.
Tanishk_Ojha If you see a stock like TV18 it seems to have been owed by everyone. That makes it popular. Popular stocks do not go up 5 times so if I am not playing for a 5-10 bagger I might as well curtail my expectations and play somehwere else because Risk adjusted return is all that we want to focus on.
Tanishk_Ojha Normally I take a position and then do not keep changing it too often. If ever there is a drop in the price of one stock with the others not dropping I move a bit into the stock that has gone down only if that stock has a lower exposure in the context of my overall portfolio. About being fully invested it works both ways so I bear the pain and also enjoy the gain. Making a 30% cash call and investing in a set of stocks that have gone down 50% still puts you back 35% from the top. My objective is to try and see where my companies would be in 2-3 years and invest only if there is a chance of making a 50%CAGR in that process we can handle some losses. I have realised that over time if one can be sure of a company growing its EPS at the same rate as it was doing for the past couple of years then the chances of making serious money is very high. The best defensive stock isn't ITC or the HUL but the one that can grow its EPS with predictable ease over the next 12 quarters! For example if you are holding a company which is working in asegment with huge scale of opportunity then there is every likelihood of the revenue growth staying though the trend could slow down in tough years. But holding acompany for 1-2 year isn't the best thing around unless there are major earnings disappointments and valuation excesses stocks should normally be held. Ultimately the more the company pays lesser the chances for future growth Growth = RoE (1- payout ratio). So you have companies like HUL which pay 100% and find it tough to grow at 10%. But the strange thing in investing is companies that have a high RoCE can create returns in their businesses should not pay back but they do since their incremental requirement of capital is low whereas companies that have low RoCE need more capital can create little returns in their own business and therefore should pay back but they would not since they are in perpetual requirement of capital. But shareholders of low RoCE companies would like their money back and hence a constant fight with the management to pay back more. That's theory and not followed the way it should be.
