Portfolio Review 2020

December 12 , 2020

This letter is intended to reflect the activities over the past 9 months since the pandemic caused

havoc in equity markets. In a way, this turned out to be a boon period enabling me to initiate

huge positions in deeply undervalued securities

These opportunities are very rare ( and sometimes take decades to show up). I was lucky

enough to be able to enter at right times, and take the benefits of some of these. While I was

unable to catch the bottoms , which is typically impossible for most of the investors, still I would

consider that a significant effort and learning over the past 9 months has enabled me to develop

a good portfolio , that should show benefits for many years ahead.

I must acknowledge that as my entry in equity markets coincided with the absolute bottom

levels, the initial results would show up to be stellar.

On the other hand, perhaps , I would not have been that active in this domain, if such

opportunity wouldn’t have shown up in the first place.

Even though a lot of companies in the portfolio have already shown up significant returns in less

than a year , I am very well aware that these are extra -ordinary circumstances that must not be forecasted into the future.

However, I feel confident that over the long run, they would produce wonderful results.

The extraordinary results in the form of securities appreciating in such a short period , is given

to increase the impatience and hopes of people to judge results in a short period of time.

However, one must not forget, that patience and the disciplined approach to investing is the

only way to success in the long-run. Bearing this in mind will keep me equanimous in thick and

thins and be patient for the results to show up

.

Below is a snapshot of the portfolio (as of close of December 11, 2020). There are a total of 30

businesses I hold , wherein top 5 positions comprise of 40% of the portfolio (CV- 33.5ls)

Top 10 Positions as listed in the table-

1. Edelweiss Financial Services: 13.89%

2. Tata Chemicals: 9.58%

3. Bajaj Holdings + Mahar Scooters: 7.55%

4. Tata Motors : 4.78%

5. ITC: 4.53%

6. Tata Power : 4.09%

7.Seritage Growth Properties: 3.91%

8.Kolte Patil Developers : 3.91%

9. NCC 3.76%

10. Bank of America 3.61%

The above positions are solid businesses with great management and well researched, wherein

I expect long-term compounding. While some of them have significantly increased in price since

I bought them, I feel a majority of them are still undervalued and have potential to multiply in

values going ahead. A common feature of all these businesses is a strong long track record,

wonderful management and good financial positions .

Exceptions in strong financial positions include Seritage Growth which was bought due to

significant discounts to NAV even in the worst case scenario (of liquidation) and huge upside;

Tata Motors where management (esp CEO Chandershekar) is hell bound on trimming the debt

and bringing the company back to track . Tata sons as well as CEO themselves have bought in

huge amounts of Tata Motors over the past one year.

And finally Edelweiss , even though it had a significant lending business (and hence was

leveraged), the business is well-diversified and provides significant diversification and safety of

capital and was bought only after the cleaning-up was done that positions the company for the

next phase of growth.

My test as a successful investor, would be to stay with them even if their valuations drop by

more than 30%, re-validate the thesis to retain confidence in my research , ignore Mr. Market’s

variations if it tries to tell me the valuation of the business and be patient .

Additionally, I have initiated minor positions in some other businesses to track them , and if

needed, increase the position sizing . These include Chico FAS, Delta corp, Nabor Industries,

Prozone Intu.

Besides these, there are some minor historical holdings including Coal India, ICICI Pru Life

Insurance, Care Ratings and Vodafone Idea. I don’t intend to buy more or sell these , unless I

am short of cash .

There are a few businesses , which are uncertain (e.g. Tejas Networks) and have sharply

increased in value. (2.5X of buying price) . Over this quarter, i would take a call whether to trim

the holdings, book some profits or let it continue to run.

Besides this, I am left with a cash holdings of approx 1 lakh (till the next tranch of money which

shows up in April 2021)

Since a lot of work and activity was done over this calender year, my focus over the next quarter

will be the following-

1. Trim/rotate some of the holdings and book profits on some businesses that are uncertain

and I don’t intend to hold for the long-run. It gets really difficult to track so many

companies , unless I have a quantitative measure of exiting as soon as valuation

doubles or triples. (Eg ideas include Trimming tejas networks, and putting proceeds in

some other existing holding)

2. Learn more about the compounders that I hold. Be smart to understand their business

models and moats. Develop Whitepaper on each of them. Add to them if their prices go

down significantly.

3. Increase business knowledge by reading letters of great value investors

Going forward, my principal investment approach would consist of holding the three categories-

1. The first , major portion , would be invested in wonderful high ROE long-term

compounders available at reasonable prices (or discounts to NAV) . I don’t expect them

to show up too often and my trigger should be fully loaded to pounce on them ,

whenever they show up. The aim would be to invest a minimum of 3-5% of portfolio in

each opportunity. This category will form around 75% of the total portfolio. Quality would

be a major determinant in these businesses and must not be compromised at any costs,

no matter how much the discount to fall in this category.

2. The second piece of my portfolio would consist of small positions in deeply undervalued

securities, aimed to be held for a short period of time and exit. They may include

net-nets or depressed cyclical businesses . Think of these as 8-10 holdings at a time ,

providing asymmetric payoff with a potential of minimum of 3X in 3-4 years. This

category can take upto 20% of the portfolio. Some of these businesses may end up bad,

but diversified portfolio should provide superior results. Deep value would be the primary

criteria, and mayn’t necessarily involve high quality businesses.

3. Thirdly, would be special situations, including spinoffs, or mergers . This would be

around upto 10% of the portfolio.

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