Goodbye 2013!

So, it’s that day of the year where everybody looks at the year gone by – some with happiness, some with wistfulness and some others with a tinge of sadness. Nevertheless, everyone except for the greatest of cynics look forward to the new year with hope, enthusiasm and happiness.

So, here’s wishing all of you a fantastic happy new year 2014!

From an investing standpoint, I wanted to jot down some notes for posterity –

a) Performance: At the beginning of this year, I started deploying most of my capital towards equities. Right now, except for emergency funds (and gold and real estate of the old), most of it is in equities. Maybe it’s a sign that the market top is here and it’s all downhill from here 🙂 My portfolio’s return over the past 5 years is now 30.4% CAGR, helped massively by some decent investments I have made over the last year. 25% of my portfolio has been invested in HDFC Bank and that has returned 0% over the past 1 year. If I remove the best performing stock in my portfolio (which gives a slight indication of whether the portfolio is robust enough, and that you weren’t just ‘lucky’), the returns fall to about 22% CAGR. 8% CAGR difference is massive if you consider a long enough timeline – but for now, the portfolio seems robust enough, although there is a long way to go in terms of a perfect portfolio.

b) HDFC Bank: As I said above, it constitutes 25% of the entire portfolio and has returned 0% over the past 1 year.  I have an idea of what to do with most of the stocks in my portfolio except this one. This is probably the bluest of the blue chips and has been with me for the longest time (esops) and has compounded extremely well. I do understand (and have read) that the stocks don’t know you own them and you need to be un-emotional about stocks etc., but this one is slightly special. Many a time, I have come mighty close to selling a portion (or all of it) to invest in other opportunities, but have held myself back so far. Other good friends of mine have suggested to take the option of LAS (loan against securities) against this. Somehow, I am slightly averse to leverage. Anyway, this stock has been my biggest dilemma of 2013. Behavioral science is that much more tougher to implement when one stock is a runaway success.

c) Friends: To begin with, they were just acquaintances who used to interact regularly on investing forums like valuepickr and whatsapp groups. Slowly, over many conversations, and on everything under the sun, this year has been amazing in terms of getting to-gether with like-minded friends and learning a lot from them. It is my belief that incremental CAGR will come, not just by reading and working on your own but also consulting with like-minded friends who can teach you a lot about investing much faster and point out behavioral flaws in the nicest manner. This easily has been my biggest benefit of 2013 and hope to continue in 2014 and beyond.

d) Mistakes of Omission: Well, I would not call them mistakes because I had consciously avoided them after reading up  on their businesses. These businesses have gone on to becomes doublers in about 6 months or less. One of the changes that I have noticed over the past year is that I no longer feel the need to ‘catch-up’ or ‘missing out’ on a stock. Stocks like PI Industries, Acrysil, MPS etc. have doubled in the last 6 months. I had read about them but didn’t invest in them. The reasons are many – I either didn’t understand the business completely or didn’t like the management or didn’t understand the competitive landscape well and hence didn’t invest in them. I maintain a 7-10 stock portfolio most of the time and I can’t afford not understanding a business/not understanding the triggers for growth/not able to track more details on the company. I am not really too worried about mistakes of omission (and I honestly think nobody should unless their capital is massive).

e) Mistakes of Commission: This one gets my goat. Thankfully, there have not been too many of them this year. However, I did lose 0.5% of my portfolio capital on one single stock – CP labs this year. In fact, I sold the stock at a 20% loss and the stock has promptly moved up 50% from the time I sold – talk about wonderful timing 🙂 This stock had all the wonderful influences of psychology while buying it and also while selling it. A story for another day perhaps. Other than that, lost tiny bits of money on APW President delisting and Cravatex (I kick myself for this investment – as it was on a whim, a bias for action than anything else). The takeaway for me from this year is to not invest on a whim and not get taken by the influences of psychology. Both are of course extremely tough to do, but that’s the challenge, ain’t it?

f) Unsatisfactory Profits: This is a strange case where I made some good profits, but am still unhappy to have take then decision to buy (and then sell). The stock case in point is Avanti Feeds. I saw massive value when the stock declared its Q1 results this year and bought quite a bit in my portfolio (at around Rs.170). The price kept increasing from then on, but I was on tenterhooks all the time – especially because there were so many variables to track. Inspite of all the assurances from various forums, I was really not comfortable holding the stock and tracking the stock on a daily basis (can’t do because of my day job). So, I sold – in the range of Rs.240-Rs.265. Decent profits but not satisfactory. I really want to get into a system of investing in stocks with not too many variables in 2014 and beyond, especially the ones that don’t keep me on tenterhooks every day.

g) Special Situations: As you would have noticed over the past year, I have not written about special situations on this blog (or actually, written on hardly anything at all). I have stopped analyzing them for multitude of reasons – a) I have realized that they are very intellectually stimulating but not very monetarily stimulating, considering effort vs return b) They don’t end up giving me the comfort of compounding and am exposed to reinvestment risks c) Too much competition chasing too few special situations, resulting in hardly any arbitrage. I may invest in special situations in the future, but they are going to be very few in number.

Hope to blog more in 2014. And wish you a very happy and prosperous new year.

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  1. #1 by Bhaskar on December 31, 2013 - 3:33 AM

    Congrats on a good performance and all the best for the new year. Could you please recommend some good, low noise whatsapp / email group for serious value-oriented investors?

  2. #2 by rajapandaaja on December 31, 2013 - 6:10 PM

    Lovely Post Kiran.
    Mistakes of Omission are bound to happen with everyone 🙂 unless of course we want to construct a zoo. I too avoided Acrysil & MPS and few more for not being able to understand the business.

    On error of commission – I think cravatex lured many of us . I was invested since early 2012 and was adding at 600 plus too 🙂 The fact that FILA brand is doing so well in markets like Taiwan made it even more difficult to resist. But then started selling towards end of 2013 at 435. In hindsight it was good riddance.

    Loved the point on looking for simpler stories, business simpler to understand and lesser number of variables to track. Avanti just had way too many variables for my liking too. Always had insignificant allocation and exited with a small profit.

    Last and most important point on friends, What can i say!! lucky to find so many friends so generous with sharing their ideas and learning’s .Happy New Year!!

    • #3 by Ramakrishna on December 31, 2013 - 8:49 PM

      Hi Kiran,

      Excellent post. I have been lucky in making some excellent friends in 2013 including you. All of you have been instrumental in refining my thinking and helping me grow!!

      Thanks and regards

  3. #4 by Praveen on December 31, 2013 - 6:19 PM

    whats wrong with Cravatex?

  4. #5 by Kiran on January 3, 2014 - 12:05 AM

    @Bhaskar – Thanks. Whatsapp groups by nature have a lot of noise built in 🙂 If you are not already, I highly suggest you follow Valuepickr. It’s an amazing forum with very experienced investors.

    @Raja – Thanks Raja. Am still not sure why I went ahead with the trigger of Cravatex. Such a stupid decision. Friends made in 2013 – nothing like it man 🙂

    @RK – Thanks dude! The feeling is mutual.

    @Praveen – Severe management issues (integrity and capability) has been my read. I may well be wrong and this may turn out to be a multibagger. Not taking any chances though.

  5. #6 by nasirkhambatta on January 3, 2014 - 2:19 AM

    Kiran, why do you use the username kdaaku? Reminds me of Gabbar Singh.

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