WOW!!! What a year for the equity investors. Everyone, who was serious about equities, got rewarded substantially (most investment books tell us that a return in excess of 25% is substantial, but here I am talking about much higher returns). There are many portfolios with returns in triple digits. A search on money control website shows at least fifteen mutual funds with returns in excess of one hundred percent with the best among them "Sundaram select Micro cap fund- Series 1" returning close to 128% for the year.
Let us flash back a little bit and think about the start of the year. Then it appeared that stocks will give good returns for the year, but the returns achieved seem to have surpassed even the best estimates. Most investors have surpassed their own highly optimistic estimates. This reminds me of the proverb "Bhagwan jab bhi deta hai chappar phar ke deta hai".
Coming back to my own portfolio, the returns achieved are in excess of 145%. This is the best performance achieved ever by me in a single calendar year both in terms of absolute value as well as percentage. The important thing is that these returns have come on the back of 110% achieved in the last calendar year.
At the end of the last year, I decided to take some risks to improve my portfolio performance. For most part, it turned out extremely well. There were two parts to this strategy.
- Use of around 10% leverage.
- Invest 20% of the portfolio in not-so-good but cheap companies.
Investing in not-so-good but cheap companies worked out extremely well and almost all such companies returned more than 100%. RS Software with a return of 255% in just 10 months was the star performer among them. But others like Canfin homes with 200% returns in a year and VST Tillers with a 100% return in just 4-5 months did wonders to the portfolio. I have already exited RS Software and VST Tillers, but continue to hold Canfin homes as home finance companies are expected to do well even this year.
My old war horses like Ajanta Pharma, Cera Sanitaryware and Kaveri Seeds continue to perform extremely well. Cera is up roughly 160% for the year, while Ajanta is up around 145% and Kaveri is up 113% for the year. Kaveri is faltering off-late with promoter related issues, but I continue to hold as the business continues to do well. Interestingly enough, Ajanta shares bought in Feb 2012 are up by almost 20 times in last three years. Also, its returns this year are exactly mirroring my portfolio returns. This may be because it is the largest holding in my portfolio.
Several switches were made during the year. To start with, Astral was replaced with MindTree and Alembic Pharma. Both stocks are up by roughly 65%, thus surpassing the returns provided by Astral,which in itself has been a stellar performer. Selling portions of Ajanta to diversify into Shilpa Medicare has also worked well with Shilpa outperforming recently and surpassing Ajanta's returns from the point of purchase. Some recent switches like replacement of RS Software with CCL Products and PIIND with Bajaj Finance has also worked well.
Now its time to enumerate some mistakes and lessons for the year. First mistake came in the form of overstaying with HCL Tech. It cost me in terms of opportunity rather than money. The stock under performed in a raging bull market. Probably, I need to avoid large cap companies and concentrate on the smaller companies.
Second mistake is more noteworthy as it is directly related to psychology and human behavior under stressed conditions. It came in terms of two consecutive errors of judgement.As the markets continued to outperform, most of the quality names became costly. Selecting good bargains represented a problem of searching a needle in the haystack. Stocks with sub standard quality but with hard to spot deficiencies appeared cheap and anyone looking for a bargain could get trapped in them. My searches along with the pressure to find something quickly before it jumped heavily in prices led me to companies like Astra Microwave and Superhouse limited. Both companies appear cheap on all parameters, thus looking like a bargain, but Astra is completely dependent on govt defense orders, which are not flowing through currently and Superhouse was bought just before results which turned out to be poor. I sold Astra immediately after realizing the mistake but I am still holding Superhouse with a hope of recovery post this quarter's results.
After strong performance this year, a great performance in the next year looks very difficult. Quality names are becoming very very costly. Value is hardly available in any of the quality names. Unless poor quality companies start performing significantly better, market re-rating appears almost impossible. We need to be cautious as markets have a bad habit of making our senses numb towards high valuations before they take a deep dive. Every body starts thinking that this time it is different just before the inevitable crash. We need to make sure that we don't get trapped in this numbness. Books like "Fooled by Randomness" are a must read in these times as they try to restore some level of sanity by showing us the dangers of foolhardiness.
Still, we should get our glasses out and say three cheers to a great year with the hope of decent returns for the current year.
Disclaimer- The opinion presented above is not a recommendation to invest in the companies mentioned. These are just my observations and any decision to buy and sell should be taken only after sufficient due diligence. I am not a SEBI certified research analyst and expect readers to take that into account while making decisions.
