Happy New Year

Wish everyone a very happy and prosperous 2015
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2014 Goals Review

At the beginning of the year, I set portfolio goals for the year 2014 which were to be reviewed at the end of the calendar year.  It is time now to review now my performance against the stated policy goals.  There were five goals which were set.  Not all of them were SMART goals.  Some of them were broad policy goals.  I think I did good in some of the goals set whereas not so good in others.  Market has given some handsome returns but none of the goals were tied to what returns the portfolio generated.  These are tied to the process discipline.  Once we take care of the process discipline, the returns would take care of themselves.  Okay this how I performed against the goals.

Goal # 1 : Evaluate only business performance and not price performance

In both the annual report review and the quarterly report reviews, I have been reviewing only the business income and not the prices. However, I have provided only quarterly updates consolidated based on industry grouping.  So, I would give myself a 'B' against this goal.

Goal # 2 : Reduce the number of businesses to 20 or below.

At the beginning of 2014, I had around 24 stocks.  We closed this year with same number.  There were about 7 stocks that were added new this year and around 7 sold.  While the quality of the portfolio got better, the number could not be brought down.  So, I think i failed against this goal. I would rate myself a 'D' against this goal.  Hopefully, i get there next year.

Goal # 3:  Improve quality of businesses

Key reason for the number of portfolios remaining the same and not reducing was that in most of the cases, cyclical businesses that I no longer wanted to hold were sold and replaced now with better businesses and the overall portfolio quality has definitely got better.  There is a lot of scope for improving this and making it better.  I will give a rating of 'B' on this goal.

Goal # 4: Bet big on high conviction businesses

I have increased the bet size but due to the quick run up of the stock market I could not accumulate enough. Since July there has hardly been any investment done.  Purely from reaching the goal set standpoint, I will rate myself a 'B' against this as well.

Goal # 5:  Do not lose money

I have not lost money in any of the investments that I invested this year or the ones that I exited.  I will give myself a 'A' on this one.  

Overall it was okay performance with some scope for improvement.  Next year I will work in improving my portfolio quality while at the same time reducing the number of stocks to 20 or below.

Quality At Any Price Vs Quality At Reasonable Price

Image Courtesy: Freedigitalphotos.net/mapic hai

Recently I have been reading a lot of arguments by some renowned investors and professors that buying quality business is always advisable even if you pay up as they would never be available at cheaper prices.  While their argument looks credible, I am unable to accept it completely.  When we say pay up, my question is how much and how much is reasonable?  We cannot pay any price for a quality business.  It has to be available at or below its calculated intrinsic value.  Calculation of intrinsic value is an exercise which is very subjective and no two people come up with same estimates.  Also, we can justify any price if you tweak your discount rate and or growth rate.

Annual Report Highlights FY 13-14 - REC

Company’s financial history suggests that companies source of funding has changed in the last 10 years.  Company has become less dependent on government and more on the bond market and foreign currency.  Others like commercial paper, short term demand loans and term loans from banks fluctuate based on the need.  Exposure to foreign currency borrowing could increase currency fluctuation risk. Of the 17,621 crores foreign currency borrowing 11948 cr (67%) has been hedged and the remaining remains unhedged. Any wild currency swings will have considerable impact on the company earnings.

Annual Report Highlights FY 13-14 - Kovai Medical

Company has successfully performed liver transplant and heart transplant this year.  They are looking to perform lung transplant very soon.  Company intends to increase bed capacity and also expand in areas other than Coimbatore for which they have sought approval of borrowing limits of 1000cr.  Though demand for health care is likely to rise at above average levels, health care is a capital intensive business where the infrastructure needs constant upgradation which would mean lower free cash flows on average. Hospital is adding 150 beds 75 each for emergency and patient care.  It is also modernizing the Erode and city center facility and the total capex planned is at 80 cr.  Company also plans to open a new set up with 300 beds in Chennai at a cost of 300 cr. .  Funding is planned to be done with internal accrual, debt and equity .  Around 56% of the revenue came from Inpatients followed by almost equal contribution of 20% each from Outpatients and Pharmacy. Rest is from the dietary sales which is a meagre percentage.

Annual Report Highlights FY 13-14 - Zensar Technologies

On a consolidated basis, your Company has maintained steady growth with Total income of ` 2361.10 Crore.  The Consolidated Profit after Taxation was ` 237.53 Crore reflecting an increase of 36%. Global outsourcing market grew by 8.5% and the company grew by 9.5%.  Profitability was more due to increased profit margins 

Companies  vertical focus is in  Manufacturing, Retail, Banking, Financial Services and Insurance. Company has restructured verticals very recently to provide end to end solutions of the vertical and also to gain domain knowledge.

Annual Report Highlights FY 13-14 - HDFC BANK

Net Profit increased by 26% compared to previous year and was at 8478 cr. Total Deposits increased by  24% and advances by 26%. CAR was at 16%.  Gross NPA was at 0.98% of the advances.  At the end of FY total branches were at 3403 and ATMs at 11256.  Bank was available  at 2171 towns. Net Interest Margins were steady at 4.4% and RONW at 20%.  POS terminals installed was lower than last year and currently at 2.16 lacs. The debit cards numbers rose to 174 lacs however the credit card numbers came down to 51.4 lacs.  Around 65% or revenue is from interest income folowed by investments at 18% and then income through fees and comissions at 12%.

Annual Report Highlights FY 13-14 - HDFC

Individual loan approvals and disbursements grew by 16% and 21% respectively during the year. Average loan size was around 22lacs.  Individual loan book grew by 26% and the total loan book grew by 20%.  Of the total loan book, individual loans comprised of 71% of the portfolio. Company raised USD 300 million as external commercial borrowing for funding the low cost affordable housing projects. The principal amount of the loan has been hedged. Company also

Annual Report Highlights FY 13-14 - Axis Bank

Bank crossed the USD 1Billion mark (6217 cr) this year in net profits. 455 branches were opened this year in which 298 were in unbanked areas. Deposits grew by 11% and advances grew by 16%.  Net profit grew by 27%.  However the EPS growth was muted at 11% due to dilution of shares.  ROE stood at 18% which is lower than the average in the past 4 years. This again could be attributed to the equity dilution.  ROA stood healthy at 1.78%. Total number of branches and extensions stands at 2402 and the ATM were at 12922.  Bank is adequately capitalized BASEL III capital Adequacy Ratio (CAR) at 16% and Tier 1 CAR at 12%.

Annual Report Highlights FY 13-14 - Ajanta Pharma

It is currently ranked 39th in Indian formulations market concentrate in specialty formulations. Position improved from # 45 in 2013 to #39 this year. Company strategy is to manufacture value added products in niche therapy spaces addressing unmet patient needs.  It Improved its NPM from 8% in 2010 to 19% in 2014, ROCE from 14% in 2010 to 47% in 2010.  Currently company is 5th, 13th and 24th in the ophthalmological, dermatological and cardiological segments respectively in India

Evaluating Stock Investing Performance

ICICI Direct has a very good tool for you to analyze how you perform with your stock investing.  While we constantly engage in the buys and sells, in our mind we over weigh our profits and ignore and try to forget our losses thereby making us overconfident on our abilities.  Having such a tool helps you to sit back and take notice of whether the activity you engage in is a fruitful one or you would have been better off if you invested in Fixed Deposit or give it to some professional money manager.  My goal is to make a decent return of over 15% per annum over long term. 

Warning Signs To Look For In Annual Reports

freedigitalphotos.net/David Castillo Dominici

Warning Signs serve a very important role in our lives.  They caution is in advance about the imminent dangers if we do not follow the guidelines or rules. We come across warning signs everywhere and they provide the information through signs so you immediately recognize them and take appropriate precautions.  So, what does this have to do anything with investing?  Just like any other activity investing is also filled with lot of dangers for the reckless investor.
Corporate governance is still a big concern in India and it is found to be lacking in both small as well as large companies.

Untangling Skill and Luck - Michael Mauboussin

This is great presentation by Mike Mauboussin on  Skill and Luck.  He explains where luck and skill apply and how they work together.  Very interesting and informative video.  This touches a bit on the behavioral aspects of our mind as well.

Time To Get Cautious

Markets are up and midcaps are doing pretty well. Even though the retail participation is still less, there is some cheer in the market with the current rally. I am sure most of you would be happy now that most of our investments (specially mid caps) are doing good. Market is in a cheerful mood and right from TV anchors to analysts are saying that nifty next target is 6700 and so on and so forth. When market starts going up it catches lot of attention and it becomes main news thereby attracting lot of people who stayed out for most of the time as the market was not giving any returns.

For those that are thinking of making an entry into stock market right now I would like to caution them about timing their entry.If you see the reasons for market rally, it is primarily based on the factors given below

Portfolio Quarterly Updates - Dec 2013 (Q3)

Review And Outlook:

Third quarter has been mixed quarter of sorts as far as corporate earnings were concerned.  While the economy continues to drag with high inflation and low growth, Mr. Market is in a very happy mood as he thinks that Mr. Modi will will the next elections and he would be able to bring in positive changes to the economy.  His enthusiasm has started pushing many midcaps into limelight.  Midcaps made handsome gains in price terms due to this general happiness of Mr. Market.

While the market is generally not over valued yet, the current valuation is high compared to the current inflation and the economic cycle.  Most of the businesses continue to be overvalued with very low expected returns in the future.  In some cases, the prices have increased substantially while the net profit of the company has shown degrowth.

When the market is in a cheerful mood, it becomes difficult for us to hunt for bargains.  If the current mood persists, we will have lot of difficulty in finding any new ideas with adequate expected future return and margin of safety. Most of the businesses in our portfolio has grown handsomely since Mar13 qtr.  On portfolio level, our business market value grew by around 34% while the sensex growth was at 8%.  Most of this is attributed to valuation growth by the market.  In pure intrinsic or networth growth terms, our business business grew by 20% which is great.

Performance Goals for 2014

Goal setting is very important for anyone to ensure progress.  This is applicable in aspect of life be it personal, career or finance.  Goals puts in motion the continuous improvement process which is what we should seek in our like.  As part of my investing journey, I wanted to set some clearly defined investment process goals which I want to achieve.  If we take care of the process the outcomes will take of themselves. Business performance goals for the calendar year 2014 are given below.  At the end of the year, I would like to review the goals.

How The Economic Machine Works

This is an informative video on how the economic machine works as explained by great hedge fund manager Ray Dalio.  This will give us an understanding on the economic cycles and productivity.  There is something for us all to learn

Learning from 2013

End of any year is time to introspect and identify any mistakes committed and make a mental note to avoid those mistakes in the future. That is what we do as normal human beings in our real world.  However, when it comes to investing, it is different and we tend to repeat our mistakes.  If we do not observe, learn and change it becomes a habit which is very difficult to change.  In view of the above, I intend to document some of the learnings and observations I have had in the last year so I do not make those mistakes again.  Some of these learnings may find its way to the check list thereby making it a continuous improvement process.