December 28, 2009

Annual portfolio review – 2009

I usually review my portfolio towards the end of the year and try to figure out what went right and where I goofed up. I disclosed my portfolio last year and the portfolio has remained more or less the same since then. I sold off some small positions such as India nippon, manugraph etc and have added to other ideas such as LMW, Ashok Leyland and other existing ideas, which I felt were cheap during the course of 2009. So how did it all turn out? well far better than I expected at the beginning of 2009. A summary of the results follows

Stock

% change

Gujarat gas

105%

Novartis

105%

Merck

91%

Balmer lawrie

124%

LMW

171%

BEL

143%

NIIT Tech

144%

Patni

254%

CRISIL

84%

Maruti

185%

Grindwell norton

80%

Honda siel

68%

Ashok Ley

222%

asian pts

99%

Concor

103%

Sulzer india

45%

ESAB india

111%

HTMT global

228%

Others

130%

Index – nifty

71%

nifty midcap

96%

I have compared the returns on the stocks with the nifty (large cap) index and the midcap index as several holdings in my portfolio are mid caps and hence it would appropriate to compare them with the midcap index.
The reason for comparing with the index is straightforward. If one has to pick stocks, then the picks in aggregate (not necessarily each) have to do better than then index, otherwise one is better off buying the index via index funds and not wasting time and energy on picking stocks.

So what grade do it get ?

I have given myself a B for picking stocks and a B+ for having the patience and confidence in buying and holding the picks during the terrible drop in the markets. The stock picks are not phenomenal picks in themselves. It was very easy to find undervalued stocks during the Oct 2008 – Mar 2009, but difficult to buy and hold them. As an analogy with cricket, my picks are like singles and doubles, occasional fours and a very rare six. I am unlikely to lose my wicket on a reckless shot, but watching me play would kill one with boredom :)

Reviewing the picks

A few picks standout in the above list – namely Merck, CRISIL, Grindwell Norton and Honda siel. ESAB india and sulzer don't count as they are fairly recent picks. These picks have done poorer than the index and hence are worthy of deeper attention.
I have written about merck earlier here. I still feel it is undervalued and plan to hold on to it. The main reason for the underperformance is that the fundamentals of the company have not improved as expected over the years and hence the stock market has not given it a decent valuation.

CRISIL has performed as expected. The company was not as undervalued as some other stocks last year and hence the gain has not been as high. Grindwell Norton and Honda siel have not perform as well as some of the other companies and hence the stock performance has not been as good as the index.

A few other picks such India Nippon, Manugraph were clear goofups bought during the bull market and exiting them was a necessary decision. I don't expect to have a 100% success rate in picking stocks and it should still work out fine as long as my mistakes are smaller than my successes. For the time being, that has been so.

Is an annual review sensible

I have continuously harped on the need to have a long term view. Is it sensible to evaluate a portfolio on an annual basis ?

I personally think that any outperformance or underperformance over a year is usually a matter of luck. However it still does not mean that one should not evaluate the picks atleast once a year and see what worked and what didn't

Conclusion

My conclusions for the year has been as follows

  • Majority of the returns for the year have happened as the market corrected the undervaluation of midcaps. This is unlikely to happen in 2010 as there are not as many undervalued stocks out there.
  • It is important to understand the difference between a cyclical drop in demand and permanent change in industry dynamics. 2008-2009 was a cyclical drop for several industries such as auto. The same is however not true for telecom which is undergoing a structural change.
  • It is important to bet big when the odds are in favor (price is low). It is also important to ignore the chatter in the media which is as best a distraction.
  • I was lucky in 2009. I don't expect to be as lucky in 2010 and will have to work harder to get decent returns.

So whats next ?

I really don't have a crystal ball for 2010. I have no clue whether the market will go up or down. My approach has remained the same for the last 10 years and will be the same in 2010 – buy when the stock is undervalued and sell at intrinsic value or higher – market forecasts be dammed.

That said, I expect it to be more difficult to generate good returns in 2010 and beat the market.

Final note : The above listing is not entirely indicative of my returns as all the holdings are not equal weighted in the portfolio. Some holdings such as LMW and ashok Leyland have a higher wieghtage than the others.

As I read somewhere – its better to be lucky than smart. Well, 2009 was a very lucky year.

26 comments:

Aniruddha said...

Well Done, Rohit,

Keep it up for 2010

cheers
Aniruddha

Manish Chauhan said...

Nice analysis .

Its good to see how to think about the portfolio at the end of the year ..

Personally I feel that market does not have much upside and its better to encash and wait for some correction now . No ?

Btw , how is your options trading going on :) ?

Manish

Anonymous said...

dear rohit,
same portfolio as yours
started investing only after ur portfolio was posted
uknow my returns would be more fabulous!!!
only regrets , if i had invested alittle more
just curious to know ur self assessment over last ten years.
simply put , have the stocks made u rich
i have been inmarket since 18 months

thanx and regards
happy new year to everyone in ur family

karthik said...

Hi Rohit,

Excellent and Honest analysis.. Appreciate it.

I have exited NIIT as I feel its near its IV. Still holding on to BEL though.

Any plans in 2010 to start your own consulting firm (Portfolio management + Financial consultancy)

All the best.

Vic said...

Hello Rohit,

Lovely post, excellent Year End Analysis or I should say Reflections..:-)

I think Qtrly and Annual reviews are important.

I liked your Cricket analogy..:-)

Need to add Sulzar and ESAB to my watchlist..:-) didn't know u had positions in these.

Thanks again for the wonderful analysis, hope to learn more next year from you.

Vikas

rehan said...

Dear Rohit ,
Thanks for sharing yr thots and for the sheer frankness . However, i notice that banks are being given a clean miss . Is there any special reason for excluding banks from yr portfolio ? In any case , an excellent job . Rg . Rihan Ahmad

Rohit Chauhan said...

Hi anirudha
thanks ..will need the luck for 2010

manish
i dont go by market levels. as my individual picks start getting overvalued i have started exiting them.
options trading is on halt - better not push my luck too much :)

rgds
rohit

Rohit Chauhan said...

Hi anon
so you are hitching your bandwagon to my portfolio ..hope you will not regret it.
no 10 years of investing has not made me rich enough to retire ..but yes it has been a very good 10 years. hopefully the next 10 will bring the fruits of all the effort
rgds
rohit

Rohit Chauhan said...

Hi karthik
yes , NIIT is close to intrinsic value and i may start exiting anytime now. taking care of other overvalued positions now ..though i may change my mind anytime

on the portfolio management - yes i am working on it and putting the infrastructure in place. are you going my first client :) ? just joking

rgds
rohit

Rohit Chauhan said...

Hi vikas
some ideas i keep in pocket :) ..those are not big positions yet ..valuations not attractive enough

cricket or baseball analogy - will swing at the easy ones only

rgds
rohit

Rohit Chauhan said...

Hi rehan
no special reason for avoiding bank. now that you mention i realise i dont have any ..maybe if something cheap comes up i will buy

rgds
rohit

karthik said...

Hi Rohit,

Absolutely..Hope would get a first customer special discount :)..

On more serious note. Would definetely like to be client..Reason is simple.. Most of us here have developed a comfort feeling and trust with you over the period of time, which is crucial for a financial consultant.

Sujith Marar said...

Hello


I need to know whether your portfolio is based on Jan 2009 to Dec 2009. Some firms like Balmer Lawrie , Gujarat Gas etc have at least given decent returns based on their valuations .Balmer Lawrie is still undervalued as per the current market value .Portfolio is good and i think your portfolio has given average 100% returns .It is better compared to other investing instruments . Merck has not given consistent earnings , that is the reason the stock price is not moving up, although it has cash in place .This year merck shud pick up as the earnings might be better than last year

Rohit Chauhan said...

Hi karthik
good to know that i have my first customer already. i am planning some sort of portfolio management service in a beta mode this year and will launch it via my blog. lets see how the response is

rgds
rohit

Rohit Chauhan said...

Hi sujith
the above returns are stock returns for jan-dec 2009. they do not coincide with the my portfolio returns for two reasons
- some picks are more than 1 year old so the average price is lower than jan 2009 price and in some cases higher
- second reason is that the picks do not have the same wieghts. so an niit is a much smaller position than a LMW or BEL or Ashok leyland.

my portfolio returns have been more than 100% for the year..however that has to be taken together with 2008 as i did my buying mainly from oct 2008 onwards.

in combination of 2008+2009, i think i have done fairly well by own standard - which is to beat the index by 5-8%.


rgds
rohit

Vic said...

Hello Rohit,

I thought I was your first customer for PM..:-)

Would it be possible for you to provide an update on what's really overvalued and worth selling? and which is not as Intrinsic value is increasing.

I see Asian Paints and CRISIL so far.

Thanks,

Vikas

Rohit Chauhan said...

Hi vic
well 2 there , 18 more to go.
in most cases the intrinsic value in the post has increased by 10-15%, so you are right apaints and crisil are already there. concor is also at intrinsic value

rgds
rohit

Ravi said...

Hi Rohit,

What I like in you blog is the candid way in which you look at your achievement as well as goof ups. Hey from you portfolio, I can see that you have a diversified portfolio (number of stocks) as oppossed to a focused one. I am not sure if this was an intentional decision or you intend to reduce the number of stocks in your portfolio? I know that its difficult to control the numbers when there are many opportunities like we had back in sep2008 to mar 2009. I just want to know if you have some broad principles for your portfolio. I am right now concentrating on bringing down the number of stocks in my portfolio.

Regards
Ravi

Rohit Chauhan said...

Hi ravi
i dont have a focussed portfolio for a reason and i have written about it in the past. its requires a different approach and higher level of confidence. i typically analyse using public documents,so i cannot risk too much on a single idea.

that said the number of stocks is high currently and i will end up trimming them. even now my top 5 ideas account for 60% of the portfolio

rgds
rohit

Vic said...

thanks much Rohit,

Appreciate your reply as always.

Vikas

Rathin Shah said...

client no. 3

of course, the PMS should be affordable especially in size...i guess or is it for "HNI's" only :) coin one new term for LNI / MNI..:)

Gian said...

Client #4
gRathee

Rohit Chauhan said...

Hi gian
thanks ..so 16 more clients to go !
btw let me first announce details before you sign up for it :)

rgds
rohit

KD said...

Hi Rohit,
Nice to go through the scorecard..you obviously have done a great job there. 2010 looks tough from stock pick point of view. I don't see any cement / major infra (big ones, not realty players)players in the list. Any view on these?
If I go by Buffetology, "coattailing" to your listing will certainly help, though at follower's own risk.
Happy investing in 2010, and best wishes to you and family.

Rohit Chauhan said...

Hi KD
a happy new year too. coattailing is not a bad idea ..but not so much at the current price

regards
rohit

KD said...

Hi Rohit,
I am tracking LMW for last couple of years and amazed how true comments are from Phil Fisher. As he has rightly said, do not sell the share just because it has appreciated much, look at its "revised" fundamentals / value and then decide..so true..
Whats your take on the value now? Seems it will reach its IV soon..do you really feel its IV has changed much beyond Rs.2300-2500?