July 2, 2008

Wish I sold off my entire portfolio in Jan !!

No, I have not been wishing that or whining about it. I have heard several of my friends wish that they had done that. Short of knowing the future, it would have been impossible to time the market that well.

I too have losses due to the market drop. However I am not dissapointed or wishing otherwise. It has nothing to do with being brave and more to do with being rational based on my approach.

This is how I construct my portfolio. I typically start buying at or below prices, which are 50% of conservatively calculated intrinsic value. Ofcourse at the peak in Jan, most my holdings had gone up (in some cases too fast) . However they were still trading at a discount to their intrinsic value. Hence I saw no reason to sell my stocks. However as they were above 50% discount levels, I was not doing any major buying too. As a result, after creating a small position in some stocks, I was doing nothing and just twidling thumbs.

Now with the market crash several of my holdings are below the 50% discount mark. There are quite a few new opportunities coming up too. So I have now started accumulating stocks which I had analysed in the past, but the price was not attractive enough.

So the point is this – If you felt the stocks in your portfolio in jan were not overvalued enough to be sold then, they should even more attractive now. If you did not sell then, thinking that they were not overpriced, you should buying more now. Ofcourse this assumes that the fundamentals have not deterioated suddenly.

If however you are pessimistic about the stock after a 30-40% drop, then you need to do some honest thinking. Either your analysis was wrong or the current pessimism is getting to you.

15 comments:

Mumbai Journo said...

Hi Rohit,

What do you think of the following scrips for long term investment:

Punj Lloyd
Voltas
Amararaja Batteries
Venus Remedies
Kamat Hotels
ICSA (India)
Axis Bank
Yes Bank

Rohit Chauhan said...

Hi mumbai jurno
i have not analysed most of these companies. one reason could be that when i ran the filters, these companies would not have come through due to higher valuations

Of these, i have seen read about yes bank briefly. i found the bank to be decent with good fundamentals. however the valuation was high (around 6 times book) when had a look at it.

most likely i never came around to analysing these companies due to their valuation. i will check and let u know

regards
rohit

hardtoget said...

Hi Rohit,
how do you define a small position as an individual investor.How much is small, mid or large, i know the capital at hand decides this. But would still like to know what according to you would comprise a small position.

Thanks & Regards
Harold

hardtoget said...

Hi Again,

What do you think about Alok Industries, thanks

Anonymous said...

Hi Rohit,
Sorry to bug you with questions.I was checking the your NIIT valuation sheet.
Can you please exaplain me the Valuation formula that you have used :- 300 + (PAT of 2010 * 14) - 30
Also sales figures on moneycontrol site are very different than what is mentioned in the xls?

Amit

Mahendra Naik said...

Hi Rohit,

Your discipline in not getting into hot stocks based on your valuation matrices is admirable. However very few investors have that kind of mindset. This is reflected in the current scenario where investors are afraid of their own shadows and are waiting forever for lower levels to invest. My own thinking is that if one has a 12-18 month horizon, current valuations are mouthwatering. BTW thanks for the link.

Vivek Sukhani said...

Hi Rohit,

Whats your opinion on the following.....

1.Balmer Lawrie
2.Berger Paints
3.Tata Tea
4.Glaxo Consumer
5.Castrol
6.Hindustan Sanitaryware

Most of them are quite a household brands....and I believe, at such prices like these, we dont have too much of a downside. When I say too much of a downside, i mean they are not likely to shed more than 50 p.c. from here.

I am eagerly waiting for your response.

Hope you can recall that we have had interaction in the past as well on another investment forum...

Regards,

Vivek Sukhani

tejbir said...

hi
i'd like to know how u go about calculating the intrinsic value? If u use DCF, then haven't the same intrinsic values fallen too due to higher discount rates, lower ploughback ratios, lower cashflows given the inflation rate which should be on the high side for atleast next 6 to 9 months?

Rohit Chauhan said...

Hi hardtoget
For me a small position is 2-3% of capital. A full position is around 10% of total portfolio. Nothing scientific about this percentage. My diversification is limited to 10-12 stocks. I also hold very small token positions in some stocks which i am tracking. will post on alok industries soon.

amit - the valuation is a back of the envelope calculation. 300 crs is extra cash on the books. this was overoptimistic. i corrected it to a lower number later on. 14 PE is taken from the valuation template. i have posted earlier on how i come up with this PE. i will guide you to the post on it. can you tell me what sales numbers are you seeing a mismatch ?

Mahendra - i try to be disciplined, but i am not always. i have had my share of hot stocks in the past. hopefully i will not make the same mistake but make newer ones :)

Rohit Chauhan said...

vivek
good to see you hear. ofcourse i remember interacting with you. i visit TED regularly and follow you, kulman and few others. it is a good site, and a good indicator of hot stocks. hotter the stock ,more the responses :)

I have already posted on balmer lawrie and glaxo consumer in the past and hold them. on the rest i will post separately.

regards
rohit

Rohit Chauhan said...

Hi tejbir

i have posted on how to calculate instrinsic value in the post - http://valueinvestorindia.blogspot.com/2008/04/what-is-intrinsic-value.html.

You are right that instrinsic values can get impacted. However the extent of the impact depends on the nature of the business, its competitive advantage etc. discount rates have gone , but we need to see if the long terms rates will also reset upwards which impact the discount rates more than short term rates.

DCF computations for instrinsic value involve the next 7-9 years. So unless the inflation has a long term impact on the busines, the hit to the intrinsic value should not be too high

regards
rohit

Rohit Chauhan said...

Hi tejbir

i have posted on how to calculate instrinsic value in the post - http://valueinvestorindia.blogspot.com/2008/04/what-is-intrinsic-value.html.

You are right that instrinsic values can get impacted. However the extent of the impact depends on the nature of the business, its competitive advantage etc. discount rates have gone , but we need to see if the long terms rates will also reset upwards which impact the discount rates more than short term rates.

DCF computations for instrinsic value involve the next 7-9 years. So unless the inflation has a long term impact on the busines, the hit to the intrinsic value should not be too high

regards
rohit

Amit said...

Hi Rohit,
As per moneycontrol, sales of NIIT technologies for Financial Year 2006-07 were 297.16 crores and for financial year 2005-06 were 220.09 crores. But as per your sheet, sales for 2006-07 are 900 crores and for 2005-06 are 611 crores. So there is huge mismatch. Have you done any adjustments?

Amit

Rohit Chauhan said...

Hi amit
i think moneycontrol numbers are standalone numbers. i have taken the numbers from the company's annual report and have not done any adjustments

regards
rohit

Anonymous said...

Hi Rohit,

Wondering what you did with your mutual fund investment(I guess you hold diversified equity funds) during Dec 07 / Jan 08 when valuations were sky high? A friend of mine informed me in Dec, 07 that he is swapping all equity funds to debt / balance funds. I ignored the info and thought SIP would take care of any correction. At the peak, gains were around 60% on the total money invested (during SIP of 1-1/2 years - infact I invested extra money in MF during all corrections) and now around -8%. Actually I was not tracking the market and was taking care of monthly SIP money only.

Now looking at current situation, I think I missed the opportunity. I should have done the same as my friend did. Lesson Learned – at a very high cost!!!

Regards
Prashant