I Love It

Hi,

I start this monthly post with Icona Pop’s inspired title- I Love it, I don’t care.

Let me explain. “I love it” emphasises my passion on equities. “I don’t care” symbolizes a bet on where the nifty or bse will head.

 

In the life of every investor what matters is what he feels from within. Whether his intuitive, logical or deductive sense makes him believe better times are around and then whether his analysis allows him to identify stocks that he can live through amidst volatility.

 

The definition of living through could be very subjective right from a flirt caused by temporary mispricing that renders an opportunity for a stock to be bought or sold, a live in relationship that allows an assessment of initial compatibility (things panning out as forecasted) or a wedding where adjustments will be made as you live along and where things will last as long as the partner does not turn sour. 

 

While the flirt is exciting and adventurous, it has the risk of a heart break, sometimes even of one making a fool of himself, even more so, in times of an uncertain or unknown environment. Some of the best movies show fears of two people on a date getting locked up in a mall at night or a museum or stranded in the sea or forest with lots of uncertainty. 

 

Right now there remains a consensus divide in the markets on whether the rally has lots of steam ahead or will sizzle out post election results.

Market men talk of a possible huge volatility on the 16th of May, so much so that there is media talk of a possible extending of market hours on 16th itself or even an opening of the market on a Saturday, the 17th of May to tide over. 

For all you know the markets may zoom on 16th or even 17th (if open).

If that scenario spans out, I would be happy with the ride as I have a pre-paid ticket. The portfolio is well stocked of companies I like notwithstanding any event most of which were bought over the last year or so at reasonable valuations. 

In other words, if we see a rally, the portfolio should do ok with our stock focus. It may well be that some other stocks with higher beta such as Infra, Real Estate etc outperform on a comparative basis but then in a class where a student does well every year you take him as a better job prospect than a guy at the end of the class who suddenly gets inspired by a Complan ad and thinks that that itself will take care of his life.

 

It may well be that the election results don’t live up to market bullishness or even if they do people don’t have the x factor to make a further bet on and book profits. Thus if it transpires that the markets fall, I would be happy to consider each stock idea stand alone ie depending on its fall and relative future prospects and valuation. Also depending on how severe the fall is and what the new govt looks like, I will evaluate what winners fit into my 4 seater car and those that may need a public transport.. For all, I make just take a breather and allow some health gains through pranayam at the cost of a momentary paper loss of profits.  

 

In my personal experience, some of the success for an investor lies in just a mindset. In context to investing, you need to be convinced but not blinded that your path and process is good. A journey has its moments of excellent scenery (akin to green on screen) and some unexpected speed breakers or even bumps, some of which do justice to a higher alert or speed control or play aid memoir to the remembrance of god.

 

As every successful man has some elements of madness in him, faking some of such success in me but more inspired by the sense of inculcating some madness to be successful,  I have infused an insane but placebo belief that having resisted from booking profits on most of my ideas the portfolio looks somewhat insured from a major set back.

 

This is sponsored by zero tax and not a god father.

 

 To explain, when an investor sells stocks in less than 1 year he pays capital gain taxes.

We have crossed one year of ownership of core ideas with a decent upmove and zero penalty (tax).

If I had sold some shares a tax of 15% would have gone from my wealth, effectively to the govt which it did not.

 I have thus mentally alerted myself of this 15% insurance/saving of wealth.

 

Theoretically one can argue that the 15% is on gains and after deducting purchase price but my ideology is more towards rewards than risks and the finer maths can follow adjusted for dividends earned, capital saved (and not spent) and the fun that I had in the investment selection, verification and execution process (there is a price for even a ride in an amusement park, even a long queue and sometimes even a travel to it. This was better).

 Going ahead, I remain bullish on stocks. The fact that I am still finding it worthwhile to search for ideas and am getting some good ones (atleast so I believe even if I am actually getting conned by luck or sheer market wake up from slumber) makes me want to believe in a rally than a fall. Trust me the ideas are coming even when I am fully engrossed at work and not at the cost of unemployment where any dream will do.

 

The questions that come to mind are: where will I generate money from to buy new ideas and what if markets fall or better co are available cheaper?

The first is a non issue as if you find good companies and invest at decent prices or at decent phases of growth, some propellers usually trickle in to guide you. Sometimes the weightage of a stock becomes duly high and allows some trimming more like a hair cut to avoid an unruly look while at other times unexpected events bless you. Of late these have includes extra ordinary dividends and even buy backs by companies such as Astra Zeneca, GSK Pharma, GSK Consumer, Ricoh India and now recently in the announced buy back and delisting of Fulford India. Also I have a source of Income outside the markets (which is a good advise, the first good one in this update whether by professional income, savings or rental income) so in the true sense I am in fact deploying surplus and investible funds unlike a 100% all or nothing situation.

 

Secondly I remain a diversified investor and on any day can pick something to sell to save the rest in case liquidity is a constrained, just as I can buy what looks good due to the mood of mr. market.

 

This freedom binds those who concentrate and go all invested and thus they are forced to either sell a core position or resist a new idea for want of funds. Or get confused between which road to take.

 

In many debates including those some of you my friends and guiding forces have had with me  and based on my own reading of books, forum, blogs, etc there is too much debate and expression of views on concentration vs diversification. This is not a WWE wresting bout or a one for all fit situation.

 

In the midst of empirical evidence that both can work and both can be a bane, I personally think the issue is a non issue and depends much on every individual.

 

Most comments on this front are one sided (sometimes life too is) and suffers from a lack of interaction on:

 

a) What is the investible corpus of the concerned person;

b) what is his competence in picking stocks;

c) what is his time horizon. There is much difference between stock peaking and portfolio peaking. I have known many investors who having diversified sold a concentrated position only to find a continuous upscale of returns. Or who got fatigued by a concentrated position pulling down overall returns to find the stock outperform many times over post selling;

d) I find it amusing that if I have a concentrated portfolio and find a new stock idea which looks extremely promising I should ban the stock from an inclusion because it would dilute my concentration. Even a connoisseur of the finest scotch adds water and many of the concentrates need a partner add on to make a perfect drink.

e) To err is human and to allow a concentrated err to ruin your returns is a set back.

f) The word diluted holding is very subjective. What good investing requires is to avoid portfolio holdings that would make no difference if the results were favourable. Even Peter Lynch in his returns at 29% odd pa was registering more than Warren Buffet at 18% odd pa just that Warren Buffett made up big time by the additional no of years he spent in the market and in the concept of compounding. Ironically Warren Buffett now holds over 90 stocks and many argue that this is fine given his portfolio size. Man you got to think big and about your own self and there are no free and one way tickets in life even from well wishers.

g) most investors buy in tranches throughout their lives. That means in a sense SIP into either funds or stocks. Which means they buy stocks not at pre set but varying prices. I find it crazy to buy a stock at a high price just to concentrate whereas better options on other stocks may be available to me when additional funds are deployed.

h) It is true that in every bull run there has been a new sector. And its also true very few people have lived to encash the best sectors in every bull run by maximum results. Its like saying the player in NBA who hits max home runs may burn out while the most consistent player may last several tournaments. Stocks revert to mean over time unless issues of bad management, stock price rigging etc set in.

A diversified portfolio works well for me and I am happy that most of the core stocks discussed in this blog have given spectacular returns without any pains. My mother calls it skill as also my pet believes so. My deterrents call it luck. It does not matter, We buy what works and junks what doesn’t.

 

I) Times have changed, There was a time you could own a Colgate or HUL or similar and had to do nothing as compounding and operational efficiency with growth would do the best for you. I would like to ask you all, I’m sure you heard stories of some person in your office or neighbourhood who got a new house or marriage sponsored by simply owning xyz shares of xyz co. Many of such people were simple and just disciplined. Not chasing momentum, not ill advised by information overkill and yet too savvy to even understand what they owned in terms of q1, q2, eps, PAT growth, EBIDTA etc. The world was simpler with less knowledge of undue gains by promoters, less impacted by globalization and its destructive impact, no WTO or dumping or anti dumping duties, no USFDA, no fno, no margin funding etc.

These reasons in themselves are enough for me to believe I should be diversified, have meaningful but not overkill bets and yet enjoy the fact of discovering new ideas.

 

Back to stock talk.

In my last posts, I identified a couple of mis-priced opportunities here. Tata DVR,  HCL Info, KRBL have done reasonably well.

I have maintained my holdings in all these.

Archies had a sudden spurt from 15 to 20 with a very large volume at or over 20 rs. I decided to prune the Archies position a little to do with the need totake home the 30 percent plus profit and a little to coincide with the fact that in the famous comic ARCHIES, the character is being put to death. I don’t want some pan eating rich investor to dump my stock on reading ARCHIES dies and is now being shut.  In markets we deal with them all.

My sale was triggered by better conviction in a few new ones.

PTC Financial Services is a new idea added to the portfolio.  At an almost zero NPA, a decent loan order book size, a dividend in place, a new business head and better prospects from the power lending space with a cheap valuation seem triggers. In most election interviews, economic agendas, trade association papers (FICCI, ASSOCHAM) etc there is a huge talk of how roads and power supply have to be improved to take the economy forward. The order book of capital good companies that cater to power sector is also looking up. I remain averse on power companies directly given their huge capex, issues with states on pricing and leakages but it seems that the space lending to Power and related projects will see an uptrend. A stable asset base with lower cost of funds should enhance both margin growth and volume growth.

 

Fulford India. Actually my writing on this has become redundant for those reading the blog now but the rationale to buy Fulford remains some common sense and some herd thinking. In the last month odd, Pfizer and Wyeth consolidated big time and doled out huge dividends. GSK pharma did a massive buy back at 3100 rs. Astra Zeneca took board approval to delist. Fulford is a subsidiary of MSD a world giant in pharma that was showing better results in last 2 qtrs. and yet ignored by markets. Looking at the issues of even huge dividend payouts by some MNC cos lately, I was hoping for one of the following: a) better growth, hence better valuation b) newer launches and hence focus c) buy out or d) capital infusion by parent as was done in Astra Zeneca to strengthen India arm.

 

Multibase India; Its rare to find a subsidiary of two Fortune gaints, Dow Chemicals and Corning with 75% holding trade at market cap of 60 odd crores. MNC Ceos the world over are measured by market cap and in any good book on the subject you will read how CEO train their heads on increasing market caps usually by takeovers. Similarly non core businesses are demerged to unlock capital to divert in more focussed areas. Seamec recently announced a sell out by its 75% parent to another co as the Indian business was found to be too small to concentrate on. Multibase also conserves its profits with no dividend to its parent or shareholders which means the owners have no reward either in terms of market cap or dividend. At 2 times book value and a PE of around 12, no debt, a good product line including air bags and with improving financials for 2012, 2013 (trailing) and now increased focus in car segment and safety by majors, the stock looks cheap.

I am currently exploring two more ideas. One where the market cap is less than liquid investments. Mind you liquid investments here are not in group companies that cannot be liquidated or are strategic. The stock in fact even does well in its primary business and has this bonus of a good investment surplus. just working on some data before taking a significant weightage in the portfolio.

 

The other idea worth looking at is MT educare. I will be writing on that soon.

 

As I conclude, I wish all of you a good election result. May our country get a stable govt that leads us towards exciting times. Sometimes the best opportunities are just around and sometimes it’s all about just being lucky to be in the right place at the relevant time.

Advertisements

9 thoughts on “I Love It

  1. Bhaskar says:

    Seems PPFAS Value Fund got into MT Educare as seen in their March portfolio activity. I remain adverse to this sector though.

  2. pramod says:

    Dear safir thanks for u r writing and new ideas.can u post updated core ideas names.

  3. Sam says:

    Good post, Safir.

  4. K C Pradhan says:

    Just for the sake of knowledge, i have a question. I buy upon your view on power sectors given their problems stated in the post but don’t you think PTC will also not being able to garner collections from them as the power sector companies in India are managed in a bad way. So, while there will be growth in B.V per se, income will not grow symmetrically which might deter its value.

    Pardon me if this seems a bogus question. But i seek your valuable inputs.

    Thank you

  5. RK says:

    Nice write up Safir. The journey has all the fun !!

    Welcome to PTC 🙂

  6. nv says:

    sir what expect about election event. and elcetion base any stock for investing . range market do u expect.

  7. Amit Arora says:

    Great post with wide breadth of ideas Safir

    I am convinced a 5-7 stock portfolio is a bad option, unless it is 5% of ones net worth. There is more to life than milking stocks to last rupee 🙂

    All the best

    Amit Arora

  8. I think this is among the most important info for me. And i am glad reading your article.
    But should remark on few general things, The website style is wonderful, the articles is really nice :
    D. Good job, cheers

  9. It’s difficult to find knowledgeable people on this topic, however, you sound like
    you know what you’re talking about! Thanks

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: