Stocks for the long and short term portfolio

[blisscapital]

Firstly, what is your CAGR expectation when you use the term "decent money".

Secondly, Diversification is a very important concept, without which one won't survive the investing-game. Sure stocks get thrown out of the index. But, you may not have invested more than 3% in each. Then how much do you stand to lose? On the brighter side, several stocks get doubled almost every year. This time IT stocks have done exceedingly well, along with pharma and FMCG.

Finally, you won't make money every year. That is assured too.

Decent money is few percentage points above index return, for example if index has given 12% CAGR over a 10 year period then I would except atleast 14-15% CAGR from my portfolio.

In my earlier query I just gave you an example of aan investment in a matured stock. I did not mean that I will put all my money in one stock.
Let me give you an example.. suppose Infy was growing at 30% earlier and was commanding a PE of 30, so with an EPS of 100 the stock price would be 3000, now suppose growth comes down to 20%, now say EPS increases to 150, but now it commands a 20PE due to reduced growth, so stock price remains around 3000, now suppose the stock matures and grows at 10% and commands a PE of 15 with EPS of 200 so stock price remains at 3000. This is just a hypothetical example of stocks which are in a mature state. Of course stock price will also increase over time but slower than earlier. My doubt is that mature stocks may not give more than the index returns even when bought at low valuations.

On the other hand the index keeps growing over time as new stocks are brought into the index and old stocks go out of it. It seems people make more than decent money by buying stocks before they mature or just when their growth begins.

 

[jamit_05]

Decent money is few percentage points above index return, for example if index has given 12% CAGR over a 10 year period then I would except atleast 14-15% CAGR from my portfolio.

In my earlier query I just gave you an example of aan investment in a matured stock. I did not mean that I will put all my money in one stock.
Let me give you an example.. suppose Infy was growing at 30% earlier and was commanding a PE of 30, so with an EPS of 100 the stock price would be 3000, now suppose growth comes down to 20%, now say EPS increases to 150, but now it commands a 20PE due to reduced growth, so stock price remains around 3000, now suppose the stock matures and grows at 10% and commands a PE of 15 with EPS of 200 so stock price remains at 3000. This is just a hypothetical example of stocks which are in a mature state. Of course stock price will also increase over time but slower than earlier. My doubt is that mature stocks may not give more than the index returns even when bought at low valuations.

On the other hand the index keeps growing over time as new stocks are brought into the index and old stocks go out of it. It seems people make more than decent money by buying stocks before they mature or just when their growth begins.

Yes, early investors gain in several multiples. But, can I count on my resources/skills to land me such companies? I think everyone should really know their weaknesses and not play on them.

Basically, I think I cannot find big winners before they land themselves in the Index. That is not my strength.

But, surely, once I am given a well established company, I can know whether it is worth keeping in my portfolio and when its fundamentals are deteriorating. That is my strength.

Coming to your doubt:

"My doubt is that mature stocks may not give more than the index returns even when bought at low valuations."

Sure, big-wiggies like ONGC, Powergrid and Reliance could stagnate. But, not to the extent that they won't move 10 to 15% every year. 10% is very easy for Infy to move in a week, and is same for most stocks. Also, to counter this effect, Index also has high beta stocks like Bhel. You needn't lose faith in Index Investing because of this reason. There is plenty to spare.

If you employ the three pillars of Investing, viz:

1. Diversification
2. Buy good companies
3. Buy them a good price

Then, it will fulfill your target of 15%.

 

[Einstein]

As per my valuations with such growth and such company should be valued at approx 61,19,000 Cr. as current market cap is 32,907.98 Cr. this is a good deal. By the way, this quarter was not that bad, just 9.5 crores less PAT then last quarter.. I give it thumbs up..

BHEL: So far so good.!!

 

[jamit_05]

Value Investing meets Index Investing.

It is a cardinal sin to buy expensive. Period. I said to one. Pat came a giggle and a retort: "How do you define expensive".

Simply speaking. If a stock is trading at a high PE, it can be seen as expensive. And this implies all the more to Index stocks, which do not have significant PE upgradation on the cards.

With this logic I have generated the following numbers for the nations leading stocks. The "Ratio" column is: (Curr PE / Avg last 5 years PE)

Here I would like to point out, reassert, (this is for you Blisscapital) the core of Index Investing:

You will find, Tata Steel being most expensive of the lot. However, before the rally it was the cheapest

 

[Einstein]

Buffett is buying stocks trading at the height of their P/E.




Company Ticker Value On Dec 2013 No of Shares % of portfolio P/E ratio

COCA COLA CO ***(COM) KO 16,524,000,000 400,000,000 15.76% 21.76
AMERICAN EXPRESS CO ***(COM) AXP 13,755,639,000 151,610,700 13.12% 17.56
INTERNATIONAL BUSINESS MACHS ***(COM) IBM 12,777,641,000 68,121,984 12.18% 12.88
PROCTER & GAMBLE CO ***(COM) PG 4,297,885,000 52,793,078 4.09% 21.87
EXXON MOBIL CORP ***(COM) XOM 4,162,320,000 41,129,643 3.97% 13.83
WAL MART STORES INC ***(COM) WMT 3,893,875,000 49,483,733 3.71% 16.22
US BANCORP DEL ***(COM NEW) USB 3,204,565,000 79,320,901 3.05% 13.44
DIRECTV ***(COM) DTV 2,521,705,000 36,514,700 2.40% 16.41
DAVITA HEALTHCARE PARTNERS I ***(COM) DVA 2,310,552,000 36,461,294 2.20% 18.52
GOLDMAN SACHS GROUP INC ***(COM) GS 2,239,065,000 12,631,531 2.13% 10.49
PHILLIPS 66 ***(COM) PSX 2,095,153,000 27,163,918 1.99% 16.14
MOODYS CORP ***(COM) MCO 1,935,837,000 24,669,778 1.84% 22.05
GENERAL MTRS CO ***(COM) GM 1,634,800,000 40,000,000 1.55% 18.74
GRAHAM HLDGS CO ***(COM) GHC 1,146,062,000 1,727,765 1.09% 16.73
U S G CORP ***(COM NEW) USG 990,184,000 34,890,174 0.94% 40.66
BANK OF NEW YORK MELLON CORP ***(COM) BK 861,370,000 24,652,836 0.82% 13.44
CHICAGO BRIDGE & IRON CO N V ***(N Y REGISTRY SH) CBI 794,050,000 9,550,755 0.75% 17.1
CONOCOPHILLIPS ***(COM) COP 782,799,000 11,079,958 0.74% 12.07
LIBERTY MEDIA CORP DELAWARE ***(CL A) LMCA 775,347,000 5,300,000 0.73% 1.73
NATIONAL OILWELL VARCO INC ***(COM) NOV 706,226,000 8,880,000 0.67% 14.37
VIACOM INC NEW ***(CL B) VIA-B 664,412,000 7,607,200 0.63% 15.58
VERISIGN INC ***(COM) VRSN 655,280,000 10,961,520 0.62% 15.58
M & T BK CORP ***(COM) MTB 626,576,000 5,382,040 0.59% 15.35
PRECISION CASTPARTS CORP ***(COM) PCP 532,496,000 1,977,336 0.50% 21.54
COSTCO WHSL CORP NEW ***(COM) COST 515,757,000 4,333,363 0.49% 25.91
SUNCOR ENERGY INC NEW ***(COM) SU 455,650,000 13,000,000 0.43% 15.39
WABCO HLDGS INC ***(COM) WBC 380,770,000 4,076,325 0.36% 10.26
DEERE & CO ***(COM) DE 363,381,000 3,978,767 0.34% 9.92
VISA INC ***(COM CL A) V 346,370,000 1,555,459 0.33% 24.82
MASTERCARD INC ***(CL A) MA 338,361,000 405,000 0.32% 27.79
TORCHMARK CORP ***(COM) TMK 331,029,000 4,235,818 0.31% 2.69
GENERAL ELECTRIC CO ***(COM) GE 296,712,000 10,585,502 0.28% 18.79
LIBERTY GLOBAL PLC ***(SHS CL A) LBTYA 262,397,000 2,948,285 0.25%
SANOFI ***(SPONSORED ADR) SNY 209,472,000 3,905,875 0.19% 33
STARZ ***(LIBRTY CAP COM A) STRZA 132,804,000 4,541,881 0.12% 14.65
MEDIA GEN INC ***(CL A) MEG 105,005,000 4,646,220 0.10%
VERISK ANALYTICS INC ***(CL A) VRSK 102,749,000 1,563,434 0.09% 30.21
JOHNSON & JOHNSON ***(COM) JNJ 29,959,000 327,100 0.02% 19.29
MONDELEZ INTL INC ***(CL A) MDLZ 20,403,000 578,000 0.01% 29.24
KRAFT FOODS GROUP INC ***(COM) KRFT 10,387,000 192,666 0.00% 12.48
UNITED PARCEL SERVICE INC ***(CL B) UPS 6,242,000 59,400 0.00% 22.61
LEE ENTERPRISES INC ***(COM) LEE 308,000 88,863 0.00%

 

[jamit_05]

Einstein, again... Buffet is the God of Investing. He can study companies to the finest detail. He or his associates are on the board of most companies and they study their every move.

Can I do the same? No I do not posses such resources. Therefore, it is futile to try and ape someone. We have to take complete responsibility for our money, as we try and take sensible risks. Markets are unforgiving.

 

[Einstein]

hmm.. Agrees that hes the GOD.. by the way I was just checking my performance, Last year was good and this year I am in lead. Without P/E comparison.

 

[suvrotutul]

I have got a question regarding selling of a stock. How much time or quarter one should hold a stock when the same stock with past fundamental glory start performing badly in terms of declining sales ,net profit margin or increasing debt successively for a number of quarters Are there any thumb rule or cut off time limit to allow such companies for a turnaround.I believe in investing principle with minimum time frame of 5yrs, Opto circuits is one such stock.I would like to know from you people about your views in this regard.

 

[jamit_05]

I have got a question regarding selling of a stock. How much time or quarter one should hold a stock when the same stock with past fundamental glory start performing badly in terms of declining sales ,net profit margin or increasing debt successively for a number of quarters Are there any thumb rule or cut off time limit to allow such companies for a turnaround.I believe in investing principle with minimum time frame of 5yrs, Opto circuits is one such stock.I would like to know from you people about your views in this regard.

This depends on how the company was before you purchased it. Compare the current status with what it was. If you see that the reason for the purchase, is fading away or long gone then you must get out. It depends on a person's reading.

If you'd name the stock and period and reason for purchase, it'd be interesting.

 

[seetharamank]

jamit sir i think yes bank is such a stock a friend of mine normally book 10% return 5 to 6 times in a year trading yes bank this he is able to do for the past 5 years