The breather

hi friends,

i will start with an apology, duly aware that this update comes with a long gap. having voiced a rather positive outcome in the last few months, I felt like a gardener, who had sowed all seeds, watered the plants,  nurtured the sprouts and enjoyed the outcome of some rather beautiful flowers. Thus I went on literally an off writing break, basking under the sun and enjoying the breeze, till night stuck and I realized someone had to switch on the lights and plan ahead.

When you are bullish, invested and things go along, really there’s hardly anything to write on. You start liking songs, even singing them. You just enjoy the feel of it all and thank your stars for being positive in life, being a believer throughout and then count almighy blessings.

and then you sit back in a more sober mood, literally as if playing the role of an author asked to describe a bit of the journey. You realize songs and dances were good and had their moments of joy but surely in every story there are some learnings. May be just enough to map the next few steps.

the last few months have given me little to complain. Though I must admit getting used to returns like this could be nothing more than a mistake. Returns like these also impose a sense of complacency, some arrogance and a lot of confidence that edges on the risk of becoming over confidence.

While every accomplishment in life must be cherished and celebrated, a conscious effort must be made to identify what could have gone better or went wrong.

the last few months gave me a personal boost to my long existing belief in diversification. In hindsight one can debate things as black swans or unknown unknowns, but the fact of the matter is an event may be unknown or a black swan, it’s consequence can still be more controlled though not fully controlled.

Many investors have felt the pinch of owning concentrated portfolios with the likes of names such as ipca, marksans, Ricoh, Poddar developers, Kitex, Welspun, Aym syntex, keltron, Infosys, dr reddy, mandhana, pokarna, mahindra finance, Saregama, indigo, Spicejet, sun pharma, bharat forge, idea, aditya birla nuvo, Orbit exports, Niit technologies, Ramco, Gati, vrl logistics, Balaji telefilms and such others. I’m not suggesting these are not good companies or that they are good or bad investments  but the fact of the matter is many of such stocks dented portfolio gains.

some might argue and maybe rightfully so that investing is an ongoing activity so one erosion makes less difference but the fact is in a market that had far many winners than losers specially across mid caps and small caps, such statements are more akin to a batsmen getting clean bowled and then looking at his bat as a blame than his own stance. Investors are more prone to feeling the loss than gains and hence nothing can hide this pinch. In fact ask any successful fund manager to visit his clients after such an inning and try raising funds and he will share a lot why returns matter even though they may not be the best, they should not pain the portfolio.

in contrast, most diversified investors escaped one carnage or the other and found the best stories and returns came from the most unexpected counters. Stylam, Kiri dyes, King Fa, Bodal, apl Apollo, kalyani steel, Tata metallics, Bosch, biocon, bharat finance, ujjivan, satin credit, Rpg life, emmbi Ind, Sutlej,  v-guard, yes bank to name an illustrative few.

Some of the above names symbolized undiscovered stories till they got discovered and re-rated like Stylam or kalyani or Tata steel while others had peculiar problems ranging from the sale of a business (Bosch) to a massive disbelief by prominent investors and bloggers (micro finance). The truth of the matter to be is no one in his right frame of mind goes out and buys a name like some I named as a concentrated bet. Most of investing always has been and will continue to be a path of discovery, lead by unfolding of stories and scalability, blooming of first generation managements and a small base result becoming a habit till it gets noticed by many and has more risk in its price and higher bets on it than in its early years.

Another learning for me and I take this as the best one for the year has been becoming more selective of the people you deal with. Social media is a boon and a bane. It gives you lots of things to read, to interact with many people who you may not have even met, allows for public display of views, criticism and appreciation but rarely lets you do more than play to the masses.

along side come a battery of people who just can’t digest any one’s view and who constantly attempt to either push a vested agenda or a persistent view without facts. It’s best to ignore them and keep moving. Trust me you are priceless if you are headstrong and will find many good people if you eliminate just a few not so good ones. Read the art of tidying up- a fantastic book.

the most pertinent learning has been not to react to everything. Every day some event happens at the country level, international level, company level. You are not the karta of the world so best don’t try to be one who thinks he can measure the impact of everything and react. Just be the flowing water and even if you find some obstacles or set backs, you will flow if you believe  you can. Read Martin seligman’s great works on optimism and Michael csikszentmihalyi’s great book called Flow. For heaven s don’t read millions of tweets on what Buffett says or munger says. Very few people know their context and most feel it’s a chant even if you don’t know the God (context) for whom you are chanting.

It’s also important to find multiple sources of knowledge. We are in a path of distruptive innovation and value migration and for example believing in just 2-3 blogs including mine will take you either no where or only marginally ahead. The greatest wealth in the last year or more came from some rather unconventional companies  or the most obvious ones who most wrote off as either too expensive or too against. Asian paints, Kansai nerolac and Bosch being good examples.  Remember by its very nature distruptive innovation is not predictable so don’t stale mate on just some fixed thoughts. We are humans, we will err, some will learn and move on, some will still lurk in hope.

finally, I personally feel investing is getting tougher. One due to complacency- too many believe they know it all, few will survive either a stock on slaught or greed or fear. While it is heartening to read global cash levels are the highest and more people talk of corrections than finding ideas, the fact is the bull run is far more selective in its behavior than being widespread and many have missed the run or having made money lost it inane attempt to juggle too much.

There are sectors showing some great results and one just needs to keep eyes and ears open and invest regularly. Every step counts and even when you are tired you know to reach your destination, you need to keep walking.

on this note, I conclude this mid night update. With the assurance that another update to reflect the sectors that to me hold promise will follow very shortly.

till then, do anything, but don’t “bear” with me  for I am more of a perpectual believer and “bull”.

 

Cheers.

 

Disc: articles written with passion don’t have spell checks. They are just a flow and will always be. I am not an investment advisor or Sebi regd consultant and the views expressed are my own. They may not work for others but they do reflect an intent of truth and integrity.

 

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12 thoughts on “The breather

  1. Dr Onkar Singh says:

    Welcome back! You were missed! Sane voice ,after knowledge comes wisdom.keep writing.

  2. Pranav Gulabani says:

    Super!

  3. Dinesh says:

    Nice article ,i think you dumbed your portfolio in recents days

    • safirpicks says:

      I have no clue what makes you think so. For someone totally invested and with returns that I’m grateful for to some randomness, I don’t need to keep striking matches.

  4. daya555 says:

    Great write up, Safirbhai!
    Do you think you have sighted selective stocks to boost your argument for diversified portfolio? Isn’t it confirmation bias?
    Even I can sight an example where I invested 25% of the portfolio in Crompton Greaves before demerger when it dropped Rs 125. That doesn’t support an argument for concentrated portfolio. Does it ?
    I may be wrong, but IMHO, one should follow what suits one’s temperament. Thanks..

    • safirpicks says:

      hi,mi merely cited examples. I can add many more. Interviews of concentrated investors make a mark when successful. Few succeed. Many blow up as one stock can ruin their financials. No one really knows enough and certainly not more on one than the other.

  5. Venkatesh says:

    Why do you include Poddar Housing in your list of stocks which have failed? Sure the stock price has corrected, but there is no fundamental issue like Ipca or Ricoh?

    • safirpicks says:

      Hi, I stated the examples do not reflect things wrong. They show perils of concentration. The stock is off from 1700 to 1000 odd. Personally I find it valued too rich for comfort. My view could however be wrong. The point anyways was concentration can hurt at low base,no one knows enough and high and discovered levels can pain.

  6. Amit Aggarwal says:

    Very thoughtful! I could relate myself to few points. As my investment style, I am a firm believer in diversification. However I always wonder what could be the right diversification without compromising on portfolio returns ? Would like to know your views, do you keep a cap on total number of stocks or a sector allocation etc ? Also how do you manage surplus cash if don’t find an investment idea, do you keep it in liquid/debt funds ?
    Thanks for sharing your views.

    • safirpicks says:

      Hi Amit, portfolio returns are pegged to….? For me any money invested is pegged to its best alternative. If that’s a bank deposit then all I need with that money is to beat deposit rate post tax. If u get this, a lot will make sense. Cheers

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