Active TopicsActive Topics  Display List of Forum MembersMemberlist  CalendarCalendar  Search The ForumSearch  HelpHelp
  RegisterRegister  LoginLogin

Stock Synopsis
 The Equity Desk Forum :Investment Ideas - Creating winning portfolios! :Stock Synopsis
Message Icon Topic: My Investing Strategy Post Reply Post New Topic
Page  of 352 Next >>
Author Message
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Topic: My Investing Strategy
    Posted: 15/Aug/2006 at 9:16pm
 
continued from:
 
Thank you Vivek
 
I think that you have not been able to understand my strategy so let me repeat my investing strategy for you:

 

A) 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. That eliminates all the established blue chip from my portfolio. I am constantly in search for emerging blue chips and not the established ones. That is why I invest in small/midcap companies. I believe that you can get the next Infosys in a small cap only.

 

B) 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.

 
Since I hold concentrated portfolios 3 to 5 companies I forecast a best case scenario with only the target price of 2 to 4 companies assuming that one will go bust and get me a zero value in the defined time span. If still the overall result looks exciting I would invest taking the mathematical premise that errors will cancel out each other (I do not know which one will under deliver and by how much).Robert Hagstorm the author of a book on Warren Buffet did a study where he found that concentarted portfolios give out better returns
 
I have lost many 30% to 100% returns by missing on opportunities because those companies did not fit my style of investing. But I have no regret because the ones I hold have more or less made up for that.
 

It takes me hardly one hour to analyze a company but making up my mind (the second part of B above) takes a few days or a even a few weeks at times. This is so because I believe in concentration.

 

C) This is how I like to zero down on a company.

1)      I look at the management first. The management is the most important and lest talked about aspect of a company.

2)      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.

3)      I then look at the market cap. If it is below Rs 1000 crores I think we could pay a higher PE to that company

4)      I would then look at the RoE to see if the company is using its capital efficiently. RoCE is a better concept though because you could hike the RoE by using debt but not the RoCE

5)      I would then compare the PE with the growth and the RoE. If there is a big difference between RoE and growth then the company does not merit investments. This is so because for a company to grow at higher rates of growth compared to its RoE it would have to dilute capital. That hurts

6)      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.

 

D) 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.

 

Now I do not stop at step 1 of phase C above. I do look at steps 2,3,4 and 5 of phase C above but there is a difference in priority. That is all. For instance I like Financial technology. MCX could be HUGE but I am worried by valuations so each time I want to buy the stock I think in terms of phase B above and give it a pass.

 

 So it is just a matter of prioritizing the tools of analysis. No analysis is complete without putting all tools at work. In none of my reports will you find the valuation parameter missing because irrespective of the strategy you use the final objective is to make the stock price a slave of its earning. The question is which one are you more comfortable using when compared to the others i.e. prioritizing the tools.

 
And finally, I have made my 30 baggers this way so I have become used to investing in this fashion.

 

 



Edited by basant - 24/Mar/2007 at 10:00pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
Vivek Sukhani
Senior Member
Senior Member
Avatar

Joined: 23/Jul/2006
Online Status: Offline
Posts: 6675
Quote Vivek Sukhani Replybullet Posted: 15/Aug/2006 at 10:05pm
Gentleman, I am comfortable with this style. Its objective and hence has clarity. A model answer and I stand convinced.But I have got one question.I beleive you use tremndous amount of maths in ur analysus, so I dont understand your dislike for mathematicians?I admit, I take it more as a science than art, and value investing is something which has made wonderful returns for me. For instance, at this stage I am extremely bullish on tata coffee. I understand that coffee, is facing some problem on the robusta side.Vietnam is reporting less crop for exports this year.And I dont see major coffe plantations companies in the listed space. I will never touch Harrison Malayalam, so it leaves me with few players like tata coffe (Nestle, doesnt have its own plantation).I am comfortable with this PE and EPS.Its coming up with rights, which should be also seen as a good cause to enter.Any comments?
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 15/Aug/2006 at 10:15pm
I have an eye on Tata Coffee. WIth coffee we might see the same demand supply situation as we have with other commodities. China's Coffee consumption is rising and no one is talking of it. Sooner or later coffee prices will move far far ahead then what it used to be.Coffee is getting into the modern day culture and hence more demand. Supply constraints are temporary may be in one or two years things might change but the point is about demand and there lies the big  opportunity.Tata coffee could be a four digit stock.
 
I use maths never said I do not. But what I said was that  maths has to be used in conjunction with a lot of other things. I do not use maths in isolation.Also the priorities of using the various tools differ!


Edited by basant - 15/Aug/2006 at 10:16pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 15/Aug/2006 at 12:11pm

Coffee is the only commodity that has not moved much. The next few years could be very interesting for coffee producers.Jim Rogers owns a lot of coffee futures in his commodity fund.

'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
manishdave
Senior Member
Senior Member


Joined: 05/Aug/2006
Location: India
Online Status: Offline
Posts: 1371
Quote manishdave Replybullet Posted: 16/Aug/2006 at 5:30am
Basant,
Can you name names of 30 baggers and what did you see in them early? You dont have to answer if you dont feel comfortable.
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 16/Aug/2006 at 8:51am

Pantaloon retail - How I have managed to hold on from Rs 7(rights/split/dividend adjusted).

 

 
Manish:

You know I bought Pantaloon Retail at Rs 50. Today Rights adjusted I am getting Rs 1850 for that the journey between Rs 50 and Rs 1850 is listed below:

 

1)    Since I did not have enough money or expertise to start something on my own I wanted to buy the right company in the high growth sectors. Retailing as a sector was poised to grow so the question was getting into the right company in the sector.

2)      At that Pantaloon traded at a market cap of Rs 80 crores against a sale of Rs 450 crores and traded at a  PE of 7 times so it was a case of value with growth.

3)    In 2003 Kishore Biyani had declared that he would do a  sale of Rs 1000 crore in 2005 and I believed in what he said. In fact I always believe in the management’s projection unless they have failed in their previous targets.

4)      AT that time Trent sold for Rs 150 with Rs 60 on its balance sheet as cash, paid good dividend 2.5% yield and was backed by the Tata.

5)    Pantaloon had an inventory problem analysts said that there could be inventory write downs. I figured that could be about Rs 8 to 10 crores so while the issue was significant the amount was not. The problem remains till date

6)      I must confess that I was not aware that this stock could go that long this fast. I did write an article on value notes stating that this stock could go up 40 to 50 times but the time zone was 2010 and not 2006.

7)      The Management was not considered honest and trust worthy but I had no option. The retailers could only be played through pantaloon and Trent. Moreover the blemishes on the management were more subjective in nature. I saw that Kishor Biyani had mortgaged his personal property to take a secured loan for the company. Thought that he could not do any thing wrong intentionally – showed seriousness of the promoter.

8)      This is the most interesting of it: I used to stand outside the Pantaloon showroom for 30 minutes and count the number of people who walked out with Shopping bags from both Pantaloon and Westside .They are located adjacent to each other.

9)      Whenever I used to take a Taxi, I used o tell the driver to take me to Westside. He showed ignorance then I would tell him to take me to pantaloon and he would immediately respond. I knew people were going to pantaloon more often then Westside.

10)  I used to bite the head off the ladies in our family as to which store they shopped more from Pantaloon or Westside.

11)  I used to get excited when I saw a Pantaloons bag being carried by any of the commuters and I often remarked to a friend that one day when we see this bag all around this stock could be at Rs 2000+

12)  Was never worried about what happens Kolkata might not happen elsewhere. Rather I used to extract feedback from acquaintances in other cities.

 

Now these were the triggers for buying. How I managed to hold on is more interesting:

 

13)  When ever I met an analyst he would tell me 3 different reasons as to why pantaloon should be sold. I panicked at 3 price levels

14)                        When it hit Rs 250, Rs 500 and Rs 1200. I panicked because I had never made that much money from one stock and the chance of losing what I had earned was one of the  reasons to sell then anything else.

15)  At each point I used to evaluate my down side and upside potential. For instance I thought that if Trent could double in 3 years and Pantaloon go down by 50% I would not look that stupid. I constantly evaluate my portfolio as a basket of stocks since it is a high risk high reward game.

16)  Many times over the past three years the stock has got expensive but the sheer pace of growth is such that it kind of gets cheap a few months later. For this I must thank Fisher for his book “Common Stocks and Uncommon Profits”

17)  For instance last month it traded at a PE of 20 times FY 07. Today after having recovered 50% from that price it trades at a pE of 30 times Fy 07.

18)  I think once you have the downside levels in mind you can handle the situation much better.

19)  I never looked for an ultimate target on pantaloon. That is because the company was constantly evolving. I was prepared to sell at any price if the signals were discomforting.

20)  Even today I have no targets on pantaloon, just plan to take each year as it comes.

21)  All through out I used to look at the market cap. The size of the opportunity is even today 300 times the market cap. In the multiplex business it is only 3 times the market cap. By the size of opportunity I mean the total sector sales for a particular year. For instance the pantaloon, Big Bazaar Food bazaar brand could be sold at a certain percentage of their market cap and also the roll out of stores will make it an ideal acquisition target.

22)  There are talks of reliance getting into retail but then there are two ways to look at it.

a)      The market is huge so it could absorb another 3 to 4 reliance

b)      Try and see that if Pantaloon is marginalized the stock could come down to Rs 800 or Rs 1000 if they carry along at their pace then the upsides are open. So it is a question of risk & reward. I  do not believe that we will have a Kmart in India before 2011.

23)  Over the years the set up at Pantaloon has changed they had taken in a lot of new talent. People were leaving Rel Info and Bharti to join this company. I thought that may be these guys could not be foolish.

But there were several factors the biggest being the “Buy what you see” that made me buy and hold it the others were only supplementing.

 

PS: I exited Pantaloon Retail in Novemeber 2008 after making a 35 bagger!



Edited by basant - 26/Feb/2009 at 3:50pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
manishdave
Senior Member
Senior Member


Joined: 05/Aug/2006
Location: India
Online Status: Offline
Posts: 1371
Quote manishdave Replybullet Posted: 17/Aug/2006 at 10:27pm
Basant,
Thanks for sharing.
IP IP Logged
Ajith
Senior Member
Senior Member
Avatar

Joined: 06/Aug/2006
Location: India
Online Status: Offline
Posts: 1284
Quote Ajith Replybullet Posted: 17/Aug/2006 at 7:47am

 Your investment in Pantaloon was classic Peter Lynch-'How is the business faring?' That was the question throughout.I think the stock can be held on to patiently for a long time but to be watchful is very imortant.



Edited by Ajith - 17/Aug/2006 at 7:49am
IP IP Logged
Page  of 352 Next >>
Post Reply Post New Topic
Printable version Printable version

Forum Jump
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum



This page was generated in 0.207 seconds.
Bookmark this Page

Join Theequitydesk.com Today!

It’s easy to Join and it’s free.

Here's why members would love to be a part of theequitydesk.com

  • Equity Desk focuses on why to buy shares and invest in share rather than what to buy.
  • Live discussion forum wherein members can discuss the current Indian share Market trend, BSE Sensex or the Nifty Index.
  • Have huge cache of information on Indian and World Share Market.
  • Analysis of Indian stock market, Global events, Investing insights, portfolio management strategies and thoughts,
  • Meet investors from round the globe check their investing strategies share experiences and learn for their experiences on stocks and shares, evaluate opinions on investing in India.

Register now while it’s free!

Already a member? Close this window and log in.

Join Us           Close