December 7, 2006

Evaluating past performance

I have been doing an analysis of my past stock picks and comparing my notes with how the stock picks have turned out over time.

I have been able to divide my picks into broadly three groups

Group A – The multibaggers. These were picks like concor, marico , asian paints, blue star etc. I had no inkling that these companies would do so well and the stock price would appreciate multiple times over the last few years when I first analysed and purchased the stocks. However on deeper analysis I found that the key reason the pick turned out well was due to a double dip I received. First the gap between the intrinsic value and the stock price closed. At the same time, these companies have been able to increase their intrinsic value through some great perfromance in the last couple of years. As a result of these two happy occurences, I have been able to get good profits

Group B – Good return stocks. These were picks like kothari products, macmillan, KVB bank etc. In case of these picks there was a narrowing of the gap between stock price and intrinsic value. As a result I was able to get decent returns as a whole. However in some cases where I was late in selling the stock, the eventual returns were lower.

Group C – The dogs. These were picks like Larsen and tubro (ouch !! see here), SSI, arvind mills etc. Each pick had its own reason for going wrong from over paying for the stock, poor performance of the business, sloppy analysis etc.

The above analysis is definitely not earth shattering and I have known it vauguely for some time. But after almost 8-9 years of buying, selling and analysing stocks, I thought of doing some analysis so as to improve my future performance.

Ofcourse the logical conclusion would be to always buy stocks in group A. However most of the stocks in that group seem to be fairly or over priced. I am finding more picks in group B. Not too exicted about it, but beats overpaying for quality stocks or picking dogs. Key point for me to remember would be to sell these stocks in time if they do not show promise of improvement in intrinsic value


Prem Sagar said...

Hi Rohit,
Good to see ur performance. I have a few q's.
1. Stocks like Asian paints were at some point or other selling at high prices with price running ahead of value. Did u not feel compelled to sell? I did. And some became expensive, then very expensive and then more expensive.(in my short period of 2 yrs) HOw do you decide on the conviction to hold onto a stock when its price is high..but in the very long run, it still is cheap??

Rising tide floats all. (Very true in my case, where I have had easy multibaggers with lousy analysis). Did you discount that factor? (If I discount that factor, I think my performance would be pretty much nothing )

And container corp.. do you still hold it? With Rail freight being opened to private players, its monopoly is lost. (But its network and pan india presence is impenetrable for atleast 5-7 yrs) And Rail container traffic is 5% of total freight handled in India. Containerization in India is at 15% as against 60% globally. Room for growth and margins are high. But is this is a case of a sector being very attractive to attract several players finally making it a bloodbath for all? So many players have applied for the license to run coaches. (Coaches delivery is stiff, making it hard for them though). Dont u think in 3 yrs Cont corp will no longer be attractive?

Rohit said...

Hi prem
i started investing around 2000 and before. so majority of my purchases were from 2000 to 2003. actually i have not invested heavily after 2004, only held onto to my stocks since then.
i have gone through a period of a serious bear market and it is no fun.
in addition my method of assesing performance is to compare total portfolio return with the index returns. so according to me a decent performance is when my portfolio returns are more than index returns.
in case of asian paints i invested in 2000 and have held on to it since then. also i have personal relationship with that company , in that i worked for almost 3years with them and know their culture and their business very well. as a result my confidence on their management and competitive advantage is fairly high.
i agree with your points on concor to some extent and feel concor is almost fairly valued. at same time i feel although there is competition in the sector (due to the high profits), i am not sure if concor would lose its strong competitive position soon. it still has exclusive relationship with railways, large scale which takes a lot of time to build especially around JNPT. so over time it may weaken from a strong monopoly to maybe a good business with fair returns.

Prem Sagar said...

Thx for replying Rohit.
Sometimes I feel it would be good if I were to go through a bear mkt first. That would help keep my common sense in place.
Though I know long term holding is the key to riches, sometimes I feel compelled to sell when a stock runs away...and u sell and it runs even further.
What I really meant was this..would u sell a fantastic co when it sells at/above fair value..during the lifeterm of a great co, there ought to be times when U feel its too heated to hold it anymore..

I feel peeved when ppl quote HDFC bank and Infosys to showcase the potential of long term many ppl had the nerves to hold it at sky high PEs in 99-2000..and how many had the guts to hold it through the fall later?

Take Bharti tele..from 35 when it went to 200, ppl cried 'sell', 'overvalued', 'expensive', etc... and it went to 350 and ppl cried very expensive (during some periods before the performance caught up with price)and if u had the nerve to hold it all the way through.. u had a 20 bagger..(my friend did..)

Seeing ur holding.. u have managed to hold the few stocks u mentioned all through the bull run so far without selling...didnt u feel that at some periods, the stocks were overpriced and time to sell?