This is stupid! How could I have sold the best performer in my portfolio, when I knew it's a healthy business, growing well, and I had bought it so cheap. Yes, I started buying EMAMILTD at Rs 327 in early January 2012, and I had accumulated ~5% of my portfolio in this stock for an average price less than Rs 400, by April.
However, then I did a stupid mistake. Can't remember which one, but I sold off EMAMI at ~Rs 500 because I thought I had better opportunities and EMAMI would not rise further.
In retrospect, I realize the hard way, that sell decision should be taken extremely carefully. Unless you have reasons, very strong reasons, you should not sell. And I sold possibly the best stock to re-allocate. i should have sold the worst stock in my portfolio.
However, still happy to have committed this mistake and learnt the hard way. Now, I'll formalize a mechanism to take sell decisions, and also create a checklist that I must fill up before selling, and only if checklist says so.
Wednesday, November 14, 2012
Assimilate the learning
Here we go! Its Diwali night and I'm beginning the next phase of journey, after having frozen my portfolio to ride on the 'mother of bull run' as Mr. Rakesh Jhunjhunwala advocates...
I'll now try my best to learn more and more, continue and resume reading so many books and articles and assimilate the knowledge. Since there's so much to do, I try to list down the order in which I'll read, and prioritize and organize it all...here's the list
Note that I've kept the items A and B at top since they form a foundation which can then be used to build the knowledge further.
A. The Checklist Manifesto. I've started believing, both based on experience at work, as well as reading about investing and from people like Vishal, that creating checklists and using them to 'filter' things is a great way to keep in discipline. My target is to finish reading this book and gain more insight into checklists. This is on top of the list since thereafter, I'll extract some checklist points from learning assimilated from each further step, and grow my eventual checklist for finding great investment opportunities.
B. I'll next read writings from Nasim Taleb, especially, 'The Black Swan' and 'Fooled by Randomness', which give a different perspective on how to handle uncertainties in life, and this topic is very important in investing.
Thereafter, I'll focus on following, ongoing activities, and as time permits, explore the points starting from 1:
a) This one will continue along with other items. I've not been able to follow up of late, but will now dedicate time to analyze Buffet letters to shareholders and participate in nice discussions on SN forum.
b) Another series has started is to assimilate learning from what Munger has said. I'll also pick up and get to speed on this yet another interesting discussion series. Of course, as I participate in this, I've also read 'Psychology of human misjudgement'
c) I'll continue reading Prof. Sanjay Bakshi's blog posts and gather learning from him. After all, he's one from whom we learnt about the idea of vicarious learning :-)
1. Complete reviewing 'One Up on Wall Street' and then create a 'Peter Lynch Investing style checklist'. One's already at the end of the book, but we need to sanitize it in current times and Indian context.
One of the major questions to answer is - while Mr. Lynch always tells to invest in boring business that're ignored by wall street, we need to think about how to avoid stories that'll remain undervalued since major players in market will always keep ignoring them. This is one big question that keeps worrying me, and I've tried to find answer to this one here and here, but still need to refine and get a conclusive 'checklist' to find crisp answers.
2. That's what my next exploration would be - to find the good take away from Mr Lynch style. Understandably, we can't blindly follow what worked 20 or 50 or 70 years back, and need to refine the philosophies...
Next step is to complete reading the following books:
3. Common stocks and Uncommon profits. This will give me insight into Fisher style, and importance of finding scuttlebutt...
4. Based on several discussions, and some real life experiences, I've learnt that business moat is a huge thing, and one must pay very big attention to it while analyzing businesses. Pat Dorsy's 'Little book that builds wealth' is known to be a good book talking about business moats, and I plan to read this book, at least the review of this book written by Sanjeev to assimilate and then extend my idea of moat valuation to make it more practical.
5. Security Analysis. I've read part of this book, but need to complete it and learn about various quantitative methods Graham has taught us, and then categorize them into their application in various situations.
6. Next is to focus on portfolio allocation, i.e. that of equity portion, and to choose various styles and selection approaches, while staying within circle of competence and learning from my own mistakes, like this, and create some 'elimination checklists' to keep a healthy composition of portfolio.
Its a lot of work, let's see how much time can I take out from the busy schedule of next 6 months in my life...wishing myself all the best :-)
I'll now try my best to learn more and more, continue and resume reading so many books and articles and assimilate the knowledge. Since there's so much to do, I try to list down the order in which I'll read, and prioritize and organize it all...here's the list
Note that I've kept the items A and B at top since they form a foundation which can then be used to build the knowledge further.
A. The Checklist Manifesto. I've started believing, both based on experience at work, as well as reading about investing and from people like Vishal, that creating checklists and using them to 'filter' things is a great way to keep in discipline. My target is to finish reading this book and gain more insight into checklists. This is on top of the list since thereafter, I'll extract some checklist points from learning assimilated from each further step, and grow my eventual checklist for finding great investment opportunities.
B. I'll next read writings from Nasim Taleb, especially, 'The Black Swan' and 'Fooled by Randomness', which give a different perspective on how to handle uncertainties in life, and this topic is very important in investing.
Thereafter, I'll focus on following, ongoing activities, and as time permits, explore the points starting from 1:
a) This one will continue along with other items. I've not been able to follow up of late, but will now dedicate time to analyze Buffet letters to shareholders and participate in nice discussions on SN forum.
b) Another series has started is to assimilate learning from what Munger has said. I'll also pick up and get to speed on this yet another interesting discussion series. Of course, as I participate in this, I've also read 'Psychology of human misjudgement'
c) I'll continue reading Prof. Sanjay Bakshi's blog posts and gather learning from him. After all, he's one from whom we learnt about the idea of vicarious learning :-)
1. Complete reviewing 'One Up on Wall Street' and then create a 'Peter Lynch Investing style checklist'. One's already at the end of the book, but we need to sanitize it in current times and Indian context.
One of the major questions to answer is - while Mr. Lynch always tells to invest in boring business that're ignored by wall street, we need to think about how to avoid stories that'll remain undervalued since major players in market will always keep ignoring them. This is one big question that keeps worrying me, and I've tried to find answer to this one here and here, but still need to refine and get a conclusive 'checklist' to find crisp answers.
2. That's what my next exploration would be - to find the good take away from Mr Lynch style. Understandably, we can't blindly follow what worked 20 or 50 or 70 years back, and need to refine the philosophies...
Next step is to complete reading the following books:
3. Common stocks and Uncommon profits. This will give me insight into Fisher style, and importance of finding scuttlebutt...
4. Based on several discussions, and some real life experiences, I've learnt that business moat is a huge thing, and one must pay very big attention to it while analyzing businesses. Pat Dorsy's 'Little book that builds wealth' is known to be a good book talking about business moats, and I plan to read this book, at least the review of this book written by Sanjeev to assimilate and then extend my idea of moat valuation to make it more practical.
5. Security Analysis. I've read part of this book, but need to complete it and learn about various quantitative methods Graham has taught us, and then categorize them into their application in various situations.
6. Next is to focus on portfolio allocation, i.e. that of equity portion, and to choose various styles and selection approaches, while staying within circle of competence and learning from my own mistakes, like this, and create some 'elimination checklists' to keep a healthy composition of portfolio.
Its a lot of work, let's see how much time can I take out from the busy schedule of next 6 months in my life...wishing myself all the best :-)
Monday, November 12, 2012
My Big Investment Mistake :-(
Just trying to dump my emotions...I got interested in UNITED SPIRITS in early March 2012 when it came crashing to Rs 500 a piece. I bought more and more as it ride up, and by end of May, I had about 105 of my portfolio invested in this stock for an average cost of ~Rs 600.
Then, a thought came to me - am I buying the stock of a company which is owned by an egoist, and possibly cruel leader, who would not deal well with employees of his airlines, yet take away the profits from his liquor business...is he ethical...am I ethical in investing in UB group companies...
And then, I sold all UB group stocks I had at a loss! And decided never to invest in a company whose management is not ethical.
Come Diageo deal, and in retrospection, I tend to think of the following:
- I bought USL in the hope that a mjor stake sale will have to occur to keep the group afloat
- I forgot that, when stake is sold, it'll no longer remain a 'King of good times' company!!! How could I miss this simple point.
Then, if it had occured to me, I could have even analyzed the company as a turnaround - the management will change, and it'll become part of the world leader in liquor industry, was that not a great deal then to hold a part of global, successful business at such throw away prices?
If this had occured to me, I'd have analyzed Diageo and its business and management, etc etc, but would have held on to USL stock.
Yes, I'm losing almost 15% on my portfolio! The stock is close to 2.5 times my average purchase price, not to mention the further potential loss in years to come if Diageo can make it an even better business, and when Mr. Mallya loses almost all controlling stake in the company.
Anyways, I'll take this as a learning and analyze the big picture next time when I think of staying away from a stock because of ethical reasons. Also, a great practical example to delve into the world of turnarounds :-)
Then, a thought came to me - am I buying the stock of a company which is owned by an egoist, and possibly cruel leader, who would not deal well with employees of his airlines, yet take away the profits from his liquor business...is he ethical...am I ethical in investing in UB group companies...
And then, I sold all UB group stocks I had at a loss! And decided never to invest in a company whose management is not ethical.
Come Diageo deal, and in retrospection, I tend to think of the following:
- I bought USL in the hope that a mjor stake sale will have to occur to keep the group afloat
- I forgot that, when stake is sold, it'll no longer remain a 'King of good times' company!!! How could I miss this simple point.
Then, if it had occured to me, I could have even analyzed the company as a turnaround - the management will change, and it'll become part of the world leader in liquor industry, was that not a great deal then to hold a part of global, successful business at such throw away prices?
If this had occured to me, I'd have analyzed Diageo and its business and management, etc etc, but would have held on to USL stock.
Yes, I'm losing almost 15% on my portfolio! The stock is close to 2.5 times my average purchase price, not to mention the further potential loss in years to come if Diageo can make it an even better business, and when Mr. Mallya loses almost all controlling stake in the company.
Anyways, I'll take this as a learning and analyze the big picture next time when I think of staying away from a stock because of ethical reasons. Also, a great practical example to delve into the world of turnarounds :-)
Wednesday, November 07, 2012
Re-allocated
While I tried hard to control and stick to the plan, something inside me told me to act fast...and I decided to:
- Buy MAZDA around Rs 110, higher than my target of Rs 98. I was sensing MAZDA will move and possibly never come back to sub 100 levels for a long time now
- Sell SRF around 225, below my target of Rs 235. I was fearing that it'll possibly have many more poor quarters, and due to dividend, will never come back to Rs 235 in next few months.
So, I acted and reduced my holding in SRF by ~45% and increased by holding in MAZDA by ~80%, so that now both are nearly 4-5% of my portfolio. I did not get enough chance to catch MAZDA below Rs 110 since it has run away in last 3 days. But I'll now wait for it to cool down a bit before making my final trance of purchase.
Additionally, I made another purchase. After CROMPGREAV fell ~10% post results, I made about 55% of my original holding and increased stake in CROMPGREAV. The rationale is
- Losses have been due to ongoing restructuring in EU
- The stock will easily move back to 125+ levels in next few weeks
- I can buy low and sell high and reduce my average cost for holding it for long term.
I know, this is not the best rule, but I had surplus funds, and no other opportunity, and a very strong conviction that in the current environment, CROMPGREAV will easily more up to 125-130 levels when next leg of rally comes, and I'll trim back my holding to 10% of portfolio level. The plan is next to use the rally to trim back CROMPGREAV & BHEL to 10% level, and possibly also exit PNB completely at around Rs 130, Rs 260 and Rs 830 levels. Yes, they might move even higher, but I won't be greedy. I can use this cash proceed to pay off some short term debt that'll soon enter my balance sheet, or otherwise re-allocate in some other opportunity I spot that's better to help my portfolio diversity (about which I'll soon write...)
Next, I'll write about the following topics:
- Portfolio allocation
- Market valuation gap, trying to analyze Amara Raja batteries from a different perspective. This is another stock that has run over 20%+ in last 3 days.
- Buy MAZDA around Rs 110, higher than my target of Rs 98. I was sensing MAZDA will move and possibly never come back to sub 100 levels for a long time now
- Sell SRF around 225, below my target of Rs 235. I was fearing that it'll possibly have many more poor quarters, and due to dividend, will never come back to Rs 235 in next few months.
So, I acted and reduced my holding in SRF by ~45% and increased by holding in MAZDA by ~80%, so that now both are nearly 4-5% of my portfolio. I did not get enough chance to catch MAZDA below Rs 110 since it has run away in last 3 days. But I'll now wait for it to cool down a bit before making my final trance of purchase.
Additionally, I made another purchase. After CROMPGREAV fell ~10% post results, I made about 55% of my original holding and increased stake in CROMPGREAV. The rationale is
- Losses have been due to ongoing restructuring in EU
- The stock will easily move back to 125+ levels in next few weeks
- I can buy low and sell high and reduce my average cost for holding it for long term.
I know, this is not the best rule, but I had surplus funds, and no other opportunity, and a very strong conviction that in the current environment, CROMPGREAV will easily more up to 125-130 levels when next leg of rally comes, and I'll trim back my holding to 10% of portfolio level. The plan is next to use the rally to trim back CROMPGREAV & BHEL to 10% level, and possibly also exit PNB completely at around Rs 130, Rs 260 and Rs 830 levels. Yes, they might move even higher, but I won't be greedy. I can use this cash proceed to pay off some short term debt that'll soon enter my balance sheet, or otherwise re-allocate in some other opportunity I spot that's better to help my portfolio diversity (about which I'll soon write...)
Next, I'll write about the following topics:
- Portfolio allocation
- Market valuation gap, trying to analyze Amara Raja batteries from a different perspective. This is another stock that has run over 20%+ in last 3 days.
Sunday, November 04, 2012
Re-allocation within small caps
I was waiting for results of SRF and MAZDA, and here're they are:
- SRF has declining sales and profit for last few quarters, and there's risk to lower revenues due to carbon credit benefit expiring next year.
- While I believe in SRF, but as I mentioned in recent post, I want to reduce my exposure in an individual small cap until I learn more, and to reduce risk of being into value trap.
- SRF has reduced half-yearly dividend from Rs 7 a share to Rs 5 a share, which brings down my yield to < 5%
Now, MAZDA
- MAZDA has shown superb growth in both sales and profits yet again
- It has a better outlook compared to SRF
- Expect to get better dividends due to better profits
Hence, without too much deliberation, I'm deciding to sell ~50% stake in SRF and re-allocate that money into MAZDA. This will even out and make the contribution of both these stocks at 5% each in my portfolio.
However, since on Monday, both these stocks will have a result reaction, I'll wait and watch. I plan to place orders to sell SRF above Rs 235 and by MAZDA below Rs 98, but if they don't trade, I'll wait so that market digests news of results, and hopefully in about a month, they'll again trade at reasonable prices.
Since I have some cash, I won't mind buying additional 3% stake of MAZDA before cash proceeds from SRF come in. I can wait to sell SRF at reasonable price, and also because I've learnt that SRF makes highs just before the result and crashes thereafter...
- SRF has declining sales and profit for last few quarters, and there's risk to lower revenues due to carbon credit benefit expiring next year.
- While I believe in SRF, but as I mentioned in recent post, I want to reduce my exposure in an individual small cap until I learn more, and to reduce risk of being into value trap.
- SRF has reduced half-yearly dividend from Rs 7 a share to Rs 5 a share, which brings down my yield to < 5%
Now, MAZDA
- MAZDA has shown superb growth in both sales and profits yet again
- It has a better outlook compared to SRF
- Expect to get better dividends due to better profits
Hence, without too much deliberation, I'm deciding to sell ~50% stake in SRF and re-allocate that money into MAZDA. This will even out and make the contribution of both these stocks at 5% each in my portfolio.
However, since on Monday, both these stocks will have a result reaction, I'll wait and watch. I plan to place orders to sell SRF above Rs 235 and by MAZDA below Rs 98, but if they don't trade, I'll wait so that market digests news of results, and hopefully in about a month, they'll again trade at reasonable prices.
Since I have some cash, I won't mind buying additional 3% stake of MAZDA before cash proceeds from SRF come in. I can wait to sell SRF at reasonable price, and also because I've learnt that SRF makes highs just before the result and crashes thereafter...
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