Monthly Archives: January 2014

Review of markets and stocks, end January 2014

Hey everyone,

31st of December ended with a celebration, not just customary as in new year eve but also on account of a rather good investing year. January 2014 had me worried. Not in terms of stock valuations or bubbles as some like to call valuations at times but due to the inherent difficulty of looking at a performance for 2014 that could beat a rather good 2013. 

sometimes ownership of stocks over a long term with the objective of wealth creation rather than income has its short falls. One you tend to hold compounders, a strategy that may eventually pay in terms of compounding and tax planning but which leaves you at a tough spot in terms of capital availability when you clearly see better gains in some other stocks, albeit as a market catch up game. The interesting part of markets is the race is run by many participants some of which lead initially and some of which catch up mostly due to the same problems that plagued their valuations in the first place. Thus some companies solve their over debt, some clean up past messes including acquisition of mis-priced assets, some attract interest as take over targets again due to belief that they can be run better and some gain sympathy from newer investors who believe they know it all when they see them cheap.

 

this is the very reason why markets always impose challenges in shorter duration of investing but are more sane in longer terms. Mostly by self balancing even if it makes one believe he knew it all. This trend shows well in mutual fund performances too with each other a different fund winning the race and over a longer term many showing similar trends. This does not take away from the fact that some funds and investors still suffer negative or subdued returns even over longer terms as they make incorrect allocations, choose over hyped companies or buy cheap stocks as lottery tickets, forgetting the rules of randomness and attributing luck to skill.

In December, I took a negative view on banking stocks and had even reduced weightages on them. Not withstanding zero ownership in psu banks, I felt that pain in one part of the body usually impacts another part and to see higher interest rates rule, tight liquidity, impact of npa’s, the impact of not chasing higher but riskier financing by banks etc were some of the reasons. The move played well and most banks have corrected a good 10 percent or nearabout. While this percentage of 10 percent could mean little to many, it is a big no considering that it is absolute for one month and equals more than one year yield on capital in a bank deposit or debt instrument. It gains even a better feel when one sees that banks had underperformed some part of the markets namely mid cap ideas where i personally was invested.

 

woth the statement of mr raghuram rajan today on interest rates and the sudden thud that banking stocks experienced, it makes sense in my personal view to increase portfolio allocation to some private sector banks.

 

In January I tweeted my buying into some consumer stock and some small caps. I stopped putting names as a) I am not a fund manager or even qualified under sebi to be b) my own activity of investing is driven by my own objectives, funds, risk appetite, belief etc. c) I don’t want anyone to simply follow what I do as a little knowledge is more dangerous than no knowledge d) I enjoy stocks. stocks give me reasons to be glued to macros, to read on industries, to study different aspects of consumer and human behavior, to be alert on risk management, to benchmark and thus be competitive, to read etc. Thus even at no gains stock enrich me. I find it disturbing and boring to have people interested in stock names as if stocks are some random horse tipped to win the race and as if I know the no Horse, it’s jockey, the rest of the horses and their jockeys and the risk to reward on each horse to be able to make it as a winner. 

 

I also see a rather disturbing trend in many people buying stocks including on tweets or blog posts, perhaps doing rather well in them and not even having a courteous thank you or an even better exchange of thoughts. What matters in investing are different perspectives and education and not names dropping.

 

i remain committed to my passion in investing and hope to do well in the markets. 

 

Now coming to the portfolio changes, i used by worry to match 2014 returns with 2013 returns as. Guiding star to initially book some profits. This gives me oxygen for the year as sitting with pre booked profitsWorks well in the mind, it’s called a winner’s habit and when markets fall, if they fall, it gives a better chance to do well. Also a habitual knock off causes a forced selection of scrips that you already thought were good and did well with and gives the mind a winder horizon to compare them with other opportunities that one could have passed through. This is something that I do only with non core stocks and precisely why some stocks are non core. 

 

Using this, stocks that were sold in profits include Zensar technologies, sintex industries, fulford, piramal enterprises, biocon at 485, although now re added, torrent pharma And credit rating agency Care. I may have forgotten a name or two but that should not matter now as I have exited them.

 

a stock that was added in core was selan oil exploration. I did tweet on the fact that I added an oil sector stock and some smart guys who track me well guessed the name right, kudos to them. Selan has since done well and moved up close to 20 percent in a rather insipid month of mid cap performance. 

 

I alos increased allocation although marginally in supreme industries, Alembic pharma, accelya, Cinemax, divi, heritage foods. 

 

My belief in dairy sector was boosted by the recent acquisition of a few diaries by international players and I remain bullish on this sector. The play on sanitary fittings is also intact with cera being a top holding (In top 5) and with a great performance on the markets.

 

The technology boys did well too with tcs, tech m, wipro and Hcl tech leading. Tech m and Hcl are in high weightage although their cost of acquisition remains fairly low. 

 

Other ideas I own and which have done well include fiem, all housing companies namely gruh, repco, the agri themes Kaveri, pi industries and stocks like eclerx, Atul auto, Eicher, finolex cables. I remain invested in bajaj, hero and most of my previous stock ideas. 

 

There are still some ideas that look inviting. However being committed to already a handful of ideas also in terms of capital deployed I am awaiting either a rather attractive reason to deploy additional capital or by booking out of some of my existing ideas.

 

i have also increased weightage on media and digitization mostly by shuffling and adding to two ideas.

 

the alcohol segment is looking up with so much talk on united spirits, united breweries, radico and even Tilaknagar. I own a few of these now though united spirits is in core. 

 

Some money has been taken off from mahindra finance, Indoco remedies which was a non core buy as tweeted and in Tata global beverage. Some of this was reinvested in Tata elxsi, niit tech and in vmart retail.

 

as I conclude this update which started off well but ended in a stock talk I must admit that today I have deployed some fresh funds in the markets in some banks and in an auto company. The banks are already part of my core holdings and thus not new names.

please treat this article as just informative. It does not intend to suggest or recommend any stock and does not suggest buy or sell. It is merely a reflection of my thoughts and actions and my passion towards them.

 

cheers.

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Corrigenda

Hi,

 

just to correct a fact I got wrong in my previous post. Thank you RK for your correction. I bought accelya at 550 not 650.

 

cheers

Happy New Year and may a great year lie ahead

Dear friends,

Its been a great year for investing. 

its very rare to experience a situation where almost all of the stocks in the portfolio edged to contribute. This of course could be attributed to the under valued state of the markets but also to a crazy conviction of belief. While I held on to a divided mindset with some core positions which will hopefully continue for years, the induction of non core positions afforded me the opportunity to read more, discover several companies and their competence and generally added that “item number” to the movie. 

 

What was heartening was that the non core stocks did so well in terms of their business and strengthened in the economic slowdown that the weightage of some of them went up with price up scaling and a few even entered core. To explain, I follow a weightage system in addition to a secular investing call and when a co does well and it’s pricE goes up to a certain threshold limit, a scrip deserves an entry into core. That forces we to remove some existing core positions which I may do either by exiting the same or by transferring in to non core. That depends on my liquidity position. Thankfully that remained well balanced due to the portfolio performance.

 

While I relish the performance, a greater challenge lies ahead. The intent of balancing risk of a market sway from election outcomes to tapering to RBI concerns on banking. As a natural consequence and looking at the overall heartening portfolio performance, I reduced some weights on banks. Again this is possible in two ways, one by selling some positions or reducing them or by increasing allocations to non banking stocks by fresh capital infusion. I chose a mix.

There are certain sectors which appeared to be better braced that others. While most of you who read regularly have been aware of my belief in cera and Kajaria ceramics for a long while and I still feel the sector is a many year story, I took a larger focus to the unfolding of the generic space in USA. 400 billion dollar of drugs are going off patent this year and with Obamacare and the dollar strength, it seemed ok. Thus the portfolio saw an addition of several pharma names and increased allocation to some of the existing names. These include aurobindo pharma and divi with Biocon continuing. Ajanta pharma has had a great run and due to that entered core. Please be aware that ajanta has been a multi bagger and even though I reduced a bit to mitigate risk, it continues to do exceedingly well.

 

Rural india theme played out well. The explosion of land prices, more transparent dealing in agri commodities through better dissemination of information and a more savvy farmer were some causes. Rural india continues to make pucca houses as also demand better seeds, fertilizers, equipment, motorcycles, cars, paints etc. Vst tillers has shown a remarkable performance in tiller segment along with swaraj engines. Bayer and Kaveri seeds continue to do well. 

 

The micro to medium housing segment continues to do well. Given that home is the first point of purchase as an investment decision for self use and that dispute interest rate increases the smaller loan segment remains more robust to demand as net interest impact is smaller and beyond a certain point a house price cannot fall lower saw companies like gruh, repco outperform. To generate cash for reallocating hdfc was reduced by a small margin.

The market continues to have a huge divide. there is an interesting segment called auction where a crazy rule has reduced liquidity of even good companies. Some of the companies have decades of business existence and good track record in most accepted ratios. It is now learnt that sebi would be re examining this segment. If you recall I had written on my investing in acrysil two posts back. The stock has done remarkably well. I identified some more small caps in this segment and am reading up on many. Some stocks have been added like intec capital where motilal oswal took a stake too. Also added were oriental carbon, mirza tanneries.

 

I have been bullish on information technology all of late 2012 and 2013. Tech m, Hcl tech, mindtree continue to be investments. I added accelya at 650 odd as a non core position but as luck would have it the stock has zoomed and I need to evaluate, 

 

The arbitrage opportunity in one of my early picks, pvr and Cinemax continues. Cinemax was added a few days back but again has jumped up. No intent to add further at cmp less pvr moves up when the margin of safety would again arise. 

 

as I conclude some caveats:

 

1. Stock investing is risky

2. Every person has a different temperament

3. I am not an advisor. Neither have intent to advise. I write with my free will on my personal thoughts and actions, I may be wrong in my thinking and bear my own consequences 

4. Buying anything based on what I do may not be smart. 

5. portfolio management is a function of risk mitigation.  Greed is a sure way to say good bye to yourself even if a Hollywood movie shows gordon geeko says otherwise.

6. I am passionate about investing as it drives me to read, to learn and know more. You may not have these criteria and thus may be fixated on other issues. I enjoy the process and the journey and don’t bother too much of the outcome except to ensure in my ride I carry a spare tyre, good music and good company.

 

enjoy investing  and more than anything life. 

 

Cheers.

 

 

 

 

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