2013- The Year That Was!!!

As 2013 comes to a close, its time to review & analyze the year that is about to end. As 2013 ends, I finish my 3 years in Equity Investing!!!

So how good/bad have I done & how I want to move ahead? Here are my views on Equity Investing-

• Apart from contingency funds & tax saver funds, most of my net worth is in equities & I plan to maintain the same as I believe equity should do better than any other asset class over the long term. I still maintain my views of What, if not Equities? 

• Equities are & will always be volatile; so in optimistic times its better to have cash to keep portfolio Anti-fragile i.e having ability to profit from volatility. How to judge optimism/pessimism? Look at sell-side analysts view. If they seem optimistic, its better to be cautious & when they predict doomsday, just go out & shop. Currently, most are optimistic!! 

• The amount of money I have invested in these three years is much less than the amount of money I plan to invest in the next decade. So, I want bear markets rather than bull markets.

• Its better to buy Good Business than Cheap Business!!! In good businesses, Margin of Safety comes from the earnings growth, the ROCEs, the free cash flows, the increasing dividends and not Price paid. So, now I am OK to pay about 20 PEs provided I expect good growth at good ROEs. Though, still not comfortable enough to pay 40 times earnings for great businesses like Page. 

• Of-course, the best thing is buy a Good Business at a Good Price. How is that possible??????(1) When that good business & its potential is unknown to the market. Ex- Mayur Uni 2 years back. (2) When that good business gets into temporary issues & price falls due to those issues. Ex- VST Tillers last year after a bad Q2. 

• I am in the Diversified Portfolio Camp. I want to limit a position to a maximum of 10% of portfolio value as I want to save myself from Black Swan events as well as Illusion of Control. I neither meet the managements nor talk to customers, suppliers, competitors etc so to get a great deal of confidence to put 25-30% of money on one stock is tough. I am happy with my 10% limit rule till the time I start doing those things.

• I want to achieve 19% CAGR over the long term. Why 19%? Because- (1) 1.19^4= 2. So, portfolio doubles every 4 years at 19% CAGR. (2) Because both God & Guru have nearly similar CAGRs over the long term. See here and here. At 19% CAGR, I believe, I will be able to do better than most mutual funds and most other assets. In the first three years, I have done much better than my target rate. However, as my portfolio grows and as equity markets become less rewarding, I think, my return CAGR will fall. 

• The most hurting mistakes of 2013 are on the Selling side. I have sold a stock which then rallied 50% in the year, sold a stock on seeing margin pressures to see it go up 20% in a quarter, and have a few stocks in my portfolio which I don't know when to sell. So, clearly I need to work on getting selling right.  

• In 2013, my portfolio returned 31% CAGR thanks to some good work, good side-car investments alongside great investors and good movement in small & mid caps. I expect 2014 to be much tougher.

In the next post, I will pick my stock-picks for 2014!!!

HaPpY NeW YeAr 2014!!!