I am asked the following questions very often:

-Will you advice me on Portfolio Management of Direct equities?
-Will you be my broker?
-Will you just tell us what you buy and sell?

I have said no to all this – and do it every week!! Let me tell you why.

Portfolio Management is an extremely skilled job, requires a lot of effort, a huge set up and a registration with SEBI. I have no intention of doing any of these – the rewards are just not enough unless there is at least a Rs. 1000 crore corpus, and I have no intention of creating such infrastructure again. That was in my previous birth.

Giving you ad hoc ‘tips’ time and again is completely useless, because it could harm you much more than help you. For example I recently did a post on NTPC. Now that is JUST anecdotal. I have NTPC in my portfolio bought at Rs. 84-5 I think almost 9 years ago. For me it was a simple dividend yield, boring, utility psu story. Held for a long time and sold some at the time of the Reliance Power issue (assuming that somebody would have held the price of NTPC high so that the RP issue goes through. This was LUCK, and a factor outside of NTPC. Sold at a price of about 220 – and sold some Tata Power too. However bought back NTPC at about 180 – thrilled that I had reduced the costs by Rs. 40. Then watched it drop. Again at Rs. 120 it looked attractive – the dividend yield at 5% was just too good to be ignored EVEN if it were a PSU. So bought some at Rs. 114.

I have said this in the past – I am anti PSU (by and large) but have no qualms taking a trading position even in shitty companies – psu, infra, Hyderabad – etc. Here clearly my tactics is at conflict with my strategy. HOWEVER, I know how much risk I should take, and how much I have taken. All this is IMPOSSIBLE TO write down and justify to clients ESPECIALLY WHEN THINGS GO WRONG. Nobody complains against profits – we had a client saying ‘You should have allocaed more money to that trade’.

Almost same story for a big portion of my portfolio. I do not think I have added anything new over the past 5-7 years. Maybe Sona Steering (original cost Rs. 7 – it is a Re 1 fv share), Shanti Gears, Liberty Phosphate, Sabero – but these are companies which i bought because the parentage changed.

Most of my portfolio is otherwise very old – and is dramatically at a lower cost because of the very many – Sale and Buy trades generated. For ex I have an Investment position and a trading position in Reliance, Ashok Leyland, – well almost the entire portfolio. Tata Steel zero trading position as of now, but have an investment position – these are just some examples. Tata Power – just loaded up very heavily in the recent rights issue, so only an investment position, and a recently built trading position.

Given the way I invest (and use the base for trading), it is almost impossible for YOU to replicate what I am doing. So a BASF which might give you a 14% CAGR over a 5 year period may give me a 24% CAGR because of my trades.

So I guess…u will have to shop elsewhere….sorry…

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  1. NTPC dividend yield works out last year (2012-13) as nearly 5% but not in the just concluded FY 2013-14. Because of CERC order, it took big hit in profit and declared divident only 50 paisa per share which works out less than 0.3% dividend yield on CMP. With regulator and court order ruling against preferential treatment to NTPC and its profits getting hit, I don’t think it makes sense to buy this stock.

    I know stockmarket works on future growth, but buying NTPC with Q4 netdown with peanuts DY is strict ‘no’ to me. More shocking is people dumping TCS stock to buy NTPC. For investors in NTPC, one might think it is a tide but watch out for Tsunami.

    PS: Not invested in TCS or NTPC

  2. EV

    An investing position has to fulfill far more strict criteria – EVA, RoE, FCF, DE ratio, and of course PE and top quality of management. Here I can go wrong ONLY WITH VALUATION, never with the stock. For e.g. I may have bought EiD parry at 160 and watched it go down to 119 – and averaged.

    Trading can happen even if some of these variables are out of whack AND IS CONTRADICTING one of my rules. Like taking a trading position in GMR is possible with a very strict stop loss. Made a disastarous mistake of buying GMR at 71, realised mistake and sold at 69 within 2 days. Bought again at 22 and sold at 28 in the recent infra boom.

  3. Krish,
    U r very right in CERC order. But NTPC declared 1.75 as final dividend in addition to interim Rs 4. Also last year one time profit 1600 cr boosted the Bottom line, hence it looks overall poor result this year comparatively. Otherwise i would say Results are almost close to Last year ( NPM got affected due to Interest cost and other). I am not telling NTPC is far better than TCS. But i am just pointing NTPC is also better.

  4. Thanks for you explanation Subra sir But my doubt was specific to your statement:

    “Tata Power – just loaded up very heavily in the recent rights issue, so only an investment position, and a recently built trading position.”

    How would you differentiate between an investment postion and trading position in the SAME stock?

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