Quality At Any Price Vs Quality At Reasonable Price - Year 4 Update

It has been four years since we started this comparison exercise.  The previous update is here  There has been huge difference between the two folio despite the last year correction affecting both of them. As of them it is clear than quality portfolio outperforms in reasonable time frame.While it is easy to jump to conclusions, these need to be judged over longer time periods.  In the recent past anything that is quality has been given sky high valuations and they continue to have those valuations despite earnings growth being tepid.  We need to see if this would continue in the days the come

However, I am getting convinced now that it is better to target only high quality business even if it is coming at slight high valuations.  Reason for this is that, in the quality portfolio only one company (La Opala) under performed and remained flattish on a 4 year period due to PE correction.  Rest of the scrips performed very well.  To the contrary, in the reasonable price portfolio two scrips (Munjal and Kaveri) lost money and others performed just okay barring few aberrations.

In hindsight, it also is becoming clear that some of the candidates initially chosen were not even high quality to begin with.  The high quality tag was given to them based on their ROE (Return to Equity) numbers being high for decent period of time.  Just having high ROE does not mean high quality.  Market always rewards only those companies that can grow with high ROE.  If the company has high ROE but disappointing growth, market punishes them and that is evident in this case.  The out performance as of now makes it loud and clear that pure quality with sustainable growth wins. 

Starting price has been adjusted based on Bonus/Splits to arrive at returns.

Portfolio 1

Portfolio Annualised Return - 25%

Stock	Year 1			Year2
	Price	PE	Invested Amount	Price	PE	Current Value
Jubiliant Foodwords	670	76	10000	1320	55	19701
Page Industries	10743	68	10000	23610	66	21977
Symphony	954	62	10000	1185	64	12421
La Opala	205	62	10000	204	31	9951
Berger Paints *	126	53	10000	300	60	23810
Britannia Industries	896	52	10000	3108	66	34688
Pidilite Industries	484	50	10000	1126	61	23264
Astral PolyTechnik	420	46	10000	1142	68	27190
GSK Consumer Healthcare	5807	45	10000	7560	37	13019
Dabur India	239	43	10000	450	54	18828

Portfolio 2

Portfolio Annualised Return - 7%

Stock	Year 1			Year2
	Price	PE	Amount	Price	PE	Current Value
Munjal Auto Industries	56	11	10000	54	16	9643
Zensar Technologies	120	11	10000	217	16	18083
VST Tillers	1349	13	10000	1486	19	11016
eClerx Services	897	15	10000	1004	16	11193
Wipro	278	16	10000	373	20	13417
Swaraj Engines	934	16	10000	1344	20	14390
VST Industries	1912	17	10000	3201	22	16742
Kaveri Seed Company	782	18	10000	535	16	6841
Suven LifeSciences	210	18	10000	236	20	11238
Tech Mahindra	653	21	10000	809	18	12389

Quality At Any Price Vs Quality At Reasonable Price - Year 2 Update

It has been two years since we started this comparison exercise.  The previous year update is here There has been correction in both portfolios since last year, but the quality portfolio has had some significant correction compared to quality at reasonable price one.  This has led to the return gap being reduced considerably between the two folios. The high PE folio continues to remain high in most of the cases.  We will review it next year and check how these portfolios have performed.  For those that are interested in the details, the portfolio valuation and returns as it stands today is given below.  Those stocks with an asterix (*)  mean that the price has been adjusted for bonus and splits.

Portfolio 1

Portfolio Annualized Return:  7.6%

Stock	Price	PE	Investment	Price	PE	Value
Jubiliant Foodwords	1340	76	10000	833	54	6216
Page Industries	10743	68	10000	13674	62	12728
Symphony *	954	62	10000	1210	51	12683
La Opala	410	62	10000	505	44	12317
Berger Paints *	148	53	10000	200	44	13514
Britannia Industries	1793	52	10000	2941	42	16403
Pidilite Industries	484	50	10000	613	37	12665
Astral PolyTechnik	420	46	10000	397	56	9452
GSK Consumer Healthcare	5807	45	10000	5007	32	8622
Dabur India	239	43	10000	275	37	11506

Portfolio 2

Portfolio Annualized Return:  4.8%

Stock	Price	PE	Investment	Price	PE	Value
Munjal Auto Industries	113	11	10000	95	17	8407
Zensar Technologies	596	11	10000	1023	15	17164
VST Tillers	1349	13	10000	1777	20	13173
eClerx Services *	897	15	10000	1434	16	15987
Wipro	557	16	10000	466	13	8366
Swaraj Engines	934	16	10000	1353	29	14486
VST Industries	1912	17	10000	2250	20	11768
Kaveri Seed Company	782	18	10000	392	16	5013
Suven LifeSciences	210	18	10000	175	19	8333
Tech Mahindra *	653	21	10000	476	15	7289