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.