My Rock garden…

Among the various rocks turned over by me this year to try emulate Peter Lynch were some offbeat companies which I would never have read about in my usual sources for finding interesting stocks. Stocks like DFM Foods, Thangamayil Jewellery, Indag Rubber, Solar Industries, Carborundum, Tube Investments, Mayur Uniquoters & Setco Auto came from Online blogs, forums, little known investing sites or just my own snooping around quarterly results. I think these stocks along with other smallcap/midcap growth stories gleaned from research reports like Kajaria Ceramics, Dewan Housing, ING Vysya & Kaveri Seeds still have potential to give market beating returns.

Over the course of last 2 years I’ve mostly depended on research reports partly because in 2008-2009 high quality, discovered companies were dirt cheap and also since the 2008 meltdown did make me seek safer stocks. In hindsight that was exactly the wrong thing to do. There were 10-30 baggers available in smallcaps while I sought refuge in the safety of 4-5 baggers in better run midcaps/large caps. As we had entered a bearish patch from start of 2011, I was conscious to avoid getting too pessimistic and trying my best to find the same spirit of independence and curiosity that had led me to the Areva, Ratnamani Metals, Champagne Indage, Havells & Sanghvi Movers of the last bull market.  My investing resume while having no bad eggs only had TTK Prestige & Hawkins as big multibaggers from the 2009-2010 period which exemplifies my misplaced caution.

I suppose the big returns from my pack of growth stocks could only be realised if the market itself reverses and enters a bullish phase again. And that seems to be at least 6-8 months away when rates are cut and inflation cools down a bit. That still leaves me with ample time to keep digging more gems or simply add to these stocks as more conviction builds in. Not bad from a portfolio perspective though I’ll be glad when the slog put in this year gets over…

My portfolio just got Lynched…

Going through some of my old investment books recently – starting with Peter Lynch. After being engaged full-time in the stock markets for 7 years you would think that I’ve inculcated most of the wonderful insights Peter Lynch shared in his 2 bestsellers – One up on Wall Street, Beating the Street. But I was wrong. It seems that I’ve picked up my fair share of bad investment habits. My portfolio almost resembles a Mutual fund these days. So I guess the mild out-performance over the BSE 500 in the last 1 yr should not be a surprise. I used to take far more chances, dig out stocks on my own, depend a lot less on research reports when I first started out. I also more or less didn’t spend much time on trying to guess the market direction or worrying over macroeconomic conditions. But the collapse in 2008 seems to have made me play a lot safer & hence suffer from somewhat underwhelming portfolio performance… at least relative to what I did between 2004-2007.

So I’ve been busy in the last 4-5 months overhauling my portfolio – introducing some smaller growth companies, sniffing out some value stocks and taking some calculated bets on turnarounds and cyclicals. Since I tend to stay fully invested some of my defensives had to be pared down. I’ve also exited the power equipment space since it seems on the verge of overcapacity. I’ve also sold most of my construction stocks at the start of the year since I figured interest rates will stay high and government lethargy has led to very little projects being awarded in the past 12 months. I’ve also exited many of the high-flying consumer stocks since they all trade at 35+ p/e. Some of these stocks have gone on to take out new highs but I guess one has to stay disciplined and exit when not comfortable with valuations. I’m reasonably confident that my newly revamped portfolio should outperform these consumer stocks over a 2-3 yr time-frame.

After Lynch inspired so many dramatic changes now it’s time to re-read Phil Fisher & Warren Buffett. I actually expect there to be less impact on my portfolio but we’ll see…

Back to the roots…

“Well you’re in your little room
And you’re working on something good
But if it’s really good
You’re gonna need a bigger room
And when you’re in the bigger room
You might not know what to do
You might have to think of
How you got started in your little room “

- White Stripes, Little Room, White Blood Cells