Last Updated : 23-Julay-2021

“Bulls make money, bears make money, pigs get slaughtered” – Old Wall Street Saying

From April-2018 till 31-Mar-2021, I have been exactly that – a pig, getting slaughtered in the stock markets.

So my goal for FY 2021-2022 is simple : Don’t be a pig.

And I am hoping, writing stuff down will help be get a little better at investing/trading which I consider to be the biggest, baddest and the most rewarding game ever created.

Trade Journal

Current Holdings (Last Updated : 23-Jul-2021)

Date	Action	Stock	Comments
01-Apr-2021	Add	RPSG Ventures	Was liking price action so added a wee bit to existing position
09-Apr-2021	Add	Bajaj Consumer	Bought Bajaj Consumer on breakout over recent high of 284.70 on decent volumes. Felt like an idiot buying 10% higher but buying breakouts on stocks I like, is a new skill I am trying to acquire. CANSLIM methodology of William O Neil basically. Here is the book which describes the system: How to make Money in Stocks by William O Neil
12-Apr-2021	Add	Piramal Enterprises	Added about 10% to existing position as I have good conviction on the stock. It has multiple triggers in next few months both negative and positive which can come in any order. I am expecting a price of above 2000 in under a year. Bad news on DHFL, NPA rising could take the stock lower but volatility in this stock has always been very high.
13-Apr-2021	Reduce	RPSG Ventures	An indicator I follow from a paid subscription indicated a market downtrend. I have planned to cut exposure however little when the indicator goes south hence sold off RPSG Ventures as I felt it was giving a decent exit point
13-Apr-2021	Entry	KEI Industries	Good growth company derailed by pandemic a little. Good support around 505 so bought a little today. Weekly MA (10-40) also giving a buy but will be confirmed on weekly close. Business wise cash generation seems a bit of an issue
19-Apr-2021	Add	KEI Industries	Added a bit to position. My good till cancelled orders for buys at 489 and 479 got triggered. I have started putting these orders to avoid second guessing myself when price actually drops and waiting for still lower prices.
22-Apr-2021	Add	Sanghvi Movers	126 was the breakout point. So bought on retest around that as it went to 144 and retraced. My brain was screaming why did you not buy at 100 and why buying at 126.55 but I still pulled the trigger as I need to learn to buy on the way up
22-Apr-2021	Entry	Mastek Limited	Came in annual growth screen, quarterly growth screen and near breakout. Cheat entry as breakout did not happen but something seems to be changing in company plus i was keen to increase exposure to IT
23-Apr-2021	Entry	Indus Tower	Came in some growth screener I was testing
23-Apr-2021	Reduce	Tv18 Broadcast	Had failed breakout. Overstayed welcome. Good results giving exit near break even. Taking it
26-Apr-2021	Add	Sanghvi Movers	Adding to position
29-Apr-2021	Reduce	Tv18 Broadcast	Had failed breakout. Overstayed welcome. Good results giving exit near break even. Taking it
30-Apr-2021	Exit	Tv18 Broadcast	Had failed breakout. Overstayed welcome. Good results giving exit near break even. Taking it
30-Apr-2021	Reduce	RPSG Ventures	Losing patience. Other ideas looking more tempting so trying to create a bit of cash
30-Apr-2021	New Entry	Ashiana Housing	Been studying this for a long time. Today announcement of new project land acquisition. Took small entry
30-Apr-2021	Exit	Indus Tower	Discovered some errors in screener. No longer makes the cut. Exited trade
04-May-2021	Reduce	RPSG Ventures	Reduced position in 379-389 range. Several sharp retracements from these levels in past so thought better to take some money off the table
06-May-2021	Bajaj Consumer	Exit	Stop loss of 7% hit. Looked okay but stuck to discipline of taking loss as decided and not shifting goalposts mid way (a very slippery slope indeed)
10-May-2021	Reduce	RPSG Ventures	Reduced position at 399. Several sharp retracements from these levels in past so thought better to take some money off the table
10-May-2021	Reduce	Sanghvi Movers	Reduced position. Pure need to book some green. Nothing indicated weakness. Maybe infleunced by old painful loss in same stock 3-4 years back.
11-May-2021	Add	RPSG Ventures	New ground for me. Added after recent exit at lower price. Great price action on heavy volume. new 52 wk high hit. Try for buy high sell higher here. Stop loss already placed in the system
14-MAy-2021	Exit	Mastek	Ran up quite a bit quite. Had put a stop protecting 80% of open profits. Got taken out
18-May-2021	New Entry	Rain Industries	Recommended by a service I follow and was suggested earlier by a friend who is very astute investor too a few days back. Two signals so took the plunge
19-May-2021	Reduce	Sanghvi Movers	Reduced position. Large moves looking like climax run. Nearing book value too and margin of safety in trade reducing
19-May-2021	Reduce	KEI Industries	Reduced position. Large moves looking like climax run. Cash flows also not very good. Think better opportunities exist.
20-May-2021	New Entry	Acrysil	Ashish Kacholia pick. Also in my growth screeener
24-May-2021	Exit	Acrysil	Too fast a move. Exited. Probably too early.
27-May-2021	Add	Sanghvi Movers	Looks like a breakout on charts so added even though I just reduced a few days back
27-May-2021	New Entry	Rubfila International	Came in growth screener. Looks good. Niche biz, growing steadily. Capacity Expansion
01-Jun-2021	Add	Rubfila International	Came in growth screener. Looks good. Niche biz, growing steadily. Capacity Expansion
04-Jun-2021	Reduce	PEL	Again selling too early I think but position size getting uncomfortable, hence the reduce
04-Jun-2021	Reduce	Sanghvi Movers	Fearing a sharp drop, irrationally. Old wounds of losing a lot in this so desperate to end in green on this one
08-Jun-2021	New Entry	HIL	MarketSmith Recco. In our screens too
08-Jun-2021	Reduce	RPSG Ventures	Looks a good run. Taking money off the table. Sinks like an anchor when it does so not waiting for that. Again might be too early
08-Jun-2021	Reduce	Raymond	Pre planned exit at 20% profit
08-Jun-2021	Reduce	Sanghvi Movers	Fearing a sharp drop, irrationally. Old wounds of losing a lot in this so desperate to end in green on this one
08-Jun-2021	Reduce	PEL	Again selling too early I think but position size getting uncomfortable, hence the reduce
09-Jun-2021	Add	Rubfila International	Came in growth screener. Looks good. Niche biz, growing steadily. Capacity Expansion
09-Jun-2021	Reduce	RPSG Ventures	Looks a good run. Taking money off the table. Sinks like an anchor when it does so not waiting for that. Again might be too early
10-Jun-2021	Reduce	RPSG Ventures	Looks a good run. Taking money off the table. Sinks like an anchor when it does so not waiting for that. Again might be too early
11-Jun-2021	Reduce	RPSG Ventures	Looks a good run. Taking money off the table. Sinks like an anchor when it does so not waiting for that. Again might be too early
11-Jun-2021	Exit	HIL	Read Concall Transcript. Growth out look not too rosy. Too many moving parts in biz. Called it a day
11-Jun-2021	Add	Rubfila International	Came in growth screener. Looks good. Niche biz, growing steadily. Capacity Expansion
14-Jun-2021	Exit	Sanghvi Movers	Fearing a sharp drop, irrationally. Old wounds of losing a lot in this so desperate to end in green on this one
15-Jun-2021	Exit	Navneet Education	Original thesis broken. Was hanging on hope. Buyback giving me chance to exit with minor injury
15-Jun-2021	Add	Ashiana Housing	Liking price action so adding a little
17-Jun-2021	New Entry	Agarwal Industrial	Came in screener, low PE. Taking a punt
18-Jun-2021	Exit	RPSG Ventures	Sharp drop from 575. Probably to shake out scaredy cats like me and they succeeded. I am out of this one
21-Jun-2021	New Entry	Excel Industries	Came in screener. Looks good. Checks boxes though very volatile. Let us see how it goes
22-Jun-2021	Add	Excel Industries	Came in screener. Looks good. Checks boxes though very volatile. Let us see how it goes
22-Jun-2021	Reduce	Raymond	Pre planned exit at 20% profit
23-Jun-2021	Reduce	PEL	Again selling too early I think but position size getting uncomfortable, hence the reduce
23-Jun-2021	Add	Excel Industries	Came in screener. Looks good. Checks boxes though very volatile. Let us see how it goes
24-Jun-2021	Add	Excel Industries	Came in screener. Looks good. Checks boxes though very volatile. Let us see how it goes
30-Jun-2021	New Entry	Zensar Technologies	Came in some random screener I was testing and same day recommended by somone on CNBC. Took it as a sign and took entry
05-Jul-2021	Reduce	Agarwal Industrial	Too volatile for my liking. Booking profit to avoid pop corn trade
07-Jul-2021	New Entry	Kirloskar Ferrous	MarketSmith reccomendation. Ferrous metals so took it as was looking for a play in that space
08-Jul-2021	Reduce	Agarwal Industrial	Too volatile for my liking. Booking profit to avoid pop corn trade
12-Jul-2021	Exit	Agarwal Industrial	Too volatile for my liking. Booking profit to avoid pop corn trade
23-Jul-2021	New Entry	Manapurram	Came in screener of Steady Compounders. Breakout above 194.80. Text book entry at 194.90 albeit on correction as I forgot to put the order earlier

#	Stock
1	Hemisphere Properties
2	Piramal Enterprises
3	Raymond Ltd
5	Take Solutions
6	Ashiana Housing
7	Rubfila International
8	Ganesh Ecosphere Limited
9	Zensar Technologies
10	Kirloskar Ferrous
11	Rain Industries
12	Excel Industries
13

While my investing errors are far too many and too painful to recount, I will summarise them under a few headings:

Going on tilt – This is a common well known behavioural trait when you go a bit crazy trying to get back from a losing position. In my case it usually meant averaging losing positions like a maniac in the hope of a turn. Needless to say the turn did not come while I had the position was open. I have had two painful episodes of this in the last five months. One a short bet on the market after Trump lost hoping he would do something crazy and a BAnk Nifty Short early feb at 31000. Yes I know there is something called “stop loss” but nothing matters when you are on TILT.

According to Wikipedia, Tilt originated as a poker term for a state of mental or emotional confusion or frustration  in which a player adopts a less than optimal strategy, usually resulting in the player becoming over-aggressive. 

Betting too large – Sometimes one bets too large a position which clouds your thinking and messes with your decision making. I had an outsized position in NIIT in Feb 2020 at about 93 which I panic closed at about 83 after seeing it dip to 67.40 on 20-March-2020. For those who have not followed NIIT, it went up to 202. In hindsight, it was the position size that did me in, as I have held to some other stocks through the panic sell off and recovery because the position size was not large enough to create unmanageable stress.

Disclosure: Though I am pretty certain no one will be idiotic enough to buy or sell shares based on what is written on a blog, nevertheless this does not constitute financial advice or recommendations of any kind. This is just a personal account of my attempt to avoid getting slaughtered in the stock markets.

Over time I have asked myself a lot of questions about stock market investing and here I am trying to pen my thoughts down in Q&A format.

Q. Why invest in stock markets?

A. Investing in businesses is a proven wealth creating mantra. The stock markets provide a convenient and easy way to hitch your fortunes to a company or entrepreneur your choice. Investing is also one of the rare economic activities which reward you well for doing nothing, i.e., patiently holding investments made wisely. My inherent laziness has found this attribute of investing particulary attractive.

Q. Why not invest in mutual funds instead of picking stocks directly?

A. Personally, I have chosen to go with direct stock picking over mutual funds for the following reasons in no particular order:

• I enjoy the learning. Trying to identify opportunities and putting your money where your mouth is, is enjoyable. One pays tuition fees by the losses one makes
• I enjoy the idea of being pitted against the best and have chance at beating them at their own game
• In funds, others actions (namely subscription and redemptions) affect my returns. Something I really don’t like. How this happens is a topic for another post and is fairly nuanced.
• Very few fund managers have a view of risk as I view it hence I feel safer managing my own money
• Fund managers’ incentives are too aligned to short term objectives which is very detrimental to long term investment returns.

Q. What is your basic return expectations from the stock market. 

A. I am looking at a 2x to 2.5x return over the government 10 year yield over a 10 year period which translates to about 16% -20% CAGR over the next decade. I am quite happy with this return and hopefully will not increase risk profile in search of greater returns. (Everyone advised to read the chapter on “Reasonable Expectations” in Howard Marks’ “The most important thing illuminated” for a brilliant explanation)

Q. How do you view riskiness of investment?

A. I fall back on the oft quoted “permanent loss of capital” as the definition of riskiness of investments. Having said that there are certain other risks I am unwilling to take. I am not willing to take a chance with known issues of management integrity/corporate governance no matter how attractive the price. In this regard I clearly do not belong to the “everything is a good investment at a price” camp. I am more of the “Somethings are not worth the risk no matter how attractive the price”. This thinking is based on the “there is never a single cockroach in the cupboard”. Also it is discipline I try to maintain to avoid getting into bad habits. My investment process has management integrity, corporate governance and Outside Passive Minority Interest (OPMI) friendliness as a GO-NO GO criterion

Q. What are your criteria for investing in a company?

A. The following are my criteria for looking at an investment opportunity

1. Management/Promoter Integrity, Corporate Governance an OPMI FriendlinessI am convinced that managements and promoters who dont genuinely beleive in sharing the the fruits with minority shareholders are not worth the risk. Hence I use this as first strike. Any past actions or red flags make it a NO-GO. Once this scan gives a GO, i move to my other evaluations. A sample list of red flags:-Warrants to promoters
   -Excessive insider buying and selling
   -Pledging of promoter shares in excess of 10% of promoter holding
   -Excessive related party transaction  (e.g. royalty to promoters to use of brand)
   -Auditor not auditing any other listed company
   -Excessive remuneration to promoters/managements
   -Litigation to detriment of minority shareholders
   -Strong political connections
   -Any feedback from scuttlebutt

   Here I try to satisfy myself to the answer of one question “Am I comfortable holding this investment if it stopped trading for 10 years or possibly delisted? Will promoters treat me fairly even then?”

2. Runway of opportunity: Here the most important question is “Is the market opportunity large enough to allow company for many years of growth going forward?” This is a personal preference and I try to avoid too small opportunities even if priced cheap. Here I am reminded of a quote by Bharat Shah “Without growth a stock is a bond”
3. Business quality : Business quality includes worthwhile margins and decent ROE, ROCE preferably in excess of return expectations. I am far less less tolerant to sales growth faltering than I am to profit growth faltering.  Sales growth faltering is usually indicates problems of product-market fit, supply constraints and demand slow down, all of which are inherently more difficult to fix and take more time to get resolved
4. Industry structure : I try to see if industry structure is healthy ( few companies at least doing well), there is no dumb competition/hyper competition and not excessive regulation.
5. Capital allocation skills : This involves checking dividend policy, past acquisitions and diversifications to get an idea
6. Leverage : Very moderate leverage at best is what i look for. The quote “Leverage is like driving a car with a dagger tied to the steering wheel; one bad bump can get you killed” by Warren Buffet summarises by thoughts on leverage beautifully
7. X factor : This is a very difficult to quantify factor. It is a combination of hunger to make it big and the ability to go where the puck is going to go in ice hockey parlance. Lots of companies simply seem to have lost hunger for growth and usually end up as value traps. Piramal and Marico stand out as examples of companies with uncanity to go where the puck is going to go instead of where it is today
8. Price : Finally if an investment seems worth investment I try to estimate at what price I will make my expected returns. If in range, I start buying it.

 While all criteria are important, the first is GO-NO GO while all others are kind of scaled responses

Q. How do you value companies?

A. First I decide the parameter I am choosing to value a particular company, PE ratio, Price to Book, Price to free cash flows. Having done that I choose an expected return I expect from this investment and a period of time. the i reverse calculate what growth in business (increase in book value, earnings, free cash flow) will give me that at the current multiple. At the other extreme I see what re rating in market multiple gives me my expected returns. If combination of business growth and re rating looks likely to give me the return, then price seems right for investment or I calculate at what price it becomes attractive. To give you an example if stock trades at Rs. 100 with a PE of 10 and I want 18% return over 4 years. This implies a four year forward price of Rs. 200. Now this can be achieved by either earnings growing at 18% with PE remaining at 10 or earnings remaining same and PE becoming 20. This framework forces me to know before hand if I am expecting  business growth  to give me returns or the  multiple of the same. Needless to say I prefer opportunities where bulk of returns are based on business growth rather than re rating of market multiple.

Q. How do you find stock ideas?

A. Over time I have developed a list of companies i find good and clean. I try to understand businesses on that list and try to put levels where they would become aa buy. I also have a few fellow investors I knock heads with and exchange ideas. But currently discovering ideas relies more on serendipity than any process. I need to improve majorly in this area by following sites and fund managers like more closely

Q. When do you sell a stock?

A. Selling is where most of errors have happened. Selling too early and selling too late are two mistakes that are hard to avoid. The most important reason to sell has to be when initial assumptions while making investment violated. I have learnt the hard way to exit such positions ASAP rather than trying to find new reasons to hold on to positions. I have also learnt at great cost to avoid letting “capital gains tax” affect my selling decision. One of the most frequent reasons I have sold stock is when I find myself thinking too much about a stock or just feel uncomfortable. I quickly intend to sell down such positions to a comfortable sleeping position. I really like Prof. Sanjay Bakshi’s of returns per unit of stress. Some returns are just not worth the stress. I also intend to sell when I find myself fully invested and find opportunities better than those invested in but I have yet reach that position as I’ve never been fully invested yet since April 2012 when I started my investment journey in right earnest. Having said that selling is undoubtedly is the harder part of investing as even most super investors admit. Selling remains an under studied and researched part of investing. I have found only one book dedicated to selling stocks “It’s when you sell that counts” by Donald Cassidy. Monish Pabrai in “Dhandho Investor” also has a great chapter on selling likening it to Abhimanyu and the Chakrayuh. He says you should have exit strategy clear before you enter.

Q. What are your views on position sizing and concentration?

A. this is very much work in progress but I am veering towards a concentrated portfolio. I would like a stock to be at a minimum 5% position in my portfolio. Having said that I also try to by a minimum 2% straight away. This helps me avid being too trigger happy and building too many small positions which require regular pruning. Generally I find investment worthy ideas very had to find  so I do not intend to hold more than 10-12 stocks at any time. In a fully invested portfolio I would like to have at least 7-8 stocks. On maximum single stock exposure I am okay with it running up to 35% of my portfolio at which point i intend to sell it down. This limit is my only protection against overconfidence and  error in judgement. I do not expect to have such a large position usually, only in the rarest of cases when all the ducks line up.

Q. Where do you stand with respect to holding cash?

A. While a lot has been said on concentrating entirely on individual stocks and ignoring the general market sentiment and macros, I am not entirely comfortable with this approach. Neither am I comfortable with a quant based approach to asset allocation. I believe asset allocation contributes as much if not more to returns as does stock selection. I am still trying to find a method to do asset allocation. I am trying to see if I can develop something on Howard Mark’s checking the “temperature”of the market checklist. For the most part I intend to let stock picking dictate asset allocation except in times of times of euphoria or excessive over valuation. As of now I plan to be at least 25% in stocks at all times though I’m not sure how I will take exposure if I find everything overvalued. Maybe then i will be 100% cash. As you can see I am yet to make up my mind on this.

Please send in your comments and questions to help me refine my thoughts

 

 

 

 

 

 

 

For wealth creation, doing  a business or as it is more fashionable to call it these days, being an entrepreneur is undoubtedly the best route. And it is the best by a wide margin.

In the pecking order of wealth creation, investing in businesses comes second. While investments could be in listed and unlisted companies, the listed entities which comprise the stock market have a special charm. The stock market to my mind is meritocracy at its best. It offers a platform where you are on level terms with everyone else, big or small. The liquidity ensures for most parts that you can enter and exit businesses at very little transaction and impact costs. As in every successful meritocracy, it is easy to see who did well and who did not. It is all there in the annualised returns. A simple transparent measure.

The stock market offers you the opportunity to choose your partner in business. For example, if I buy shares of  any company, I stand to make the same  percentage returns on my invested amount as the promoter of the company  will make on his shareholding. Is this not tremendously exciting? Where else in the world can you hitch your fortunes to the best businessmen in the country for as little as even Rs. 5000. Think about it. It is truly amazing. The liquidity and no capital gains tax are merely the icing on the cake

So, what are you waiting for, go and get into business with the best. Mukesh Ambani, Azim Premji, Ajay Piramal or someone lesser known today, the choice is yours.

I accidentally discovered the deep rooted bias most of us have against sales. My five year old son asked our neighbour for some biscuits she had given him some days  back and the neighbour dint have them right then, so she said sorry and my son was fine too. But my mother who accompanied my son to the neighbour, was far from okay. She said she felt bad that my son had to ask someone else for something. She told me why he should ask someone else when we could get him stuff ourselves….Aha..the penny dropped…So since childhood we are told that asking anyone for anything is not a polite or nice thing to do,..And SALES, by the way is just asking perfect strangers for all sorts of things: some time to talk ,  a meeting, request to see demo, all leading up to finally asking him to buy your product. No wonder most of us instinctively dislike sales. Blame it on our parents 🙂

P.S.: I have met a number of MBAs wanting to do a “marketing” job but not a “sales” job