The art and science of building a robust Portfolio- Osarcapital
The Art & Science of investing is all about good old common sense which unfortunately is not that common these days. Although hardcore investing is a fair mix of art and science, many folks believe that investing can be as cool as magic if they get profits at the speed of light — you see, everyone wants instant financial and non-financial gratification. I mean, in today’s nano-second universe of text-messaging and space travel, everyone is looking for quick results — maybe the day won’t be far off when a mother gives birth to a healthy baby in 9 days instead of 9 months — that would be God’s work and man’s wish, probably if that were to happen at all. But unfortunately such things never happen in the real world and it takes months, years and decades for good things to happen and that includes the long time it takes to generate multibagger returns from your investments. You see, a journey in the bygone era use to take a lot of time and even today it takes a good deal of time even to make it to your airplane seat — the traffic jams, the grueling security checks, Immigration checks, the inordinate delay in take-off and eventual delay in searching for your damn baggage at Arrivals! And sometimes your baggage may leave you to board another flight without your permission! Investing is also a journey with lots of shocks and surprises, sudden changes in interest rates, volatility of stock markets, changes in tax rates, banks going bust etc. My dear friend, even if you havn’t nas yet started your Investment journey, not to worry — just do these 3 things and you are good to go:
Make a decision to change your financial life for the better, today
Take responsibility for all the facets of your financial life and when in doubt consult the consultants
Take action today to kick-start your Investment & Wealth creation journey
We all live on a very strange Planet where you spend the better part of your teens and the prime of life enjoying all the good things of life including getting married, producing kids, going to work and returning from work only to watch Football or your favorite TV soap opera. But you are not alone in religiously following this regimen — your friends, your colleagues, your neighbor and your in-laws are all into all this drudgery until one fine day you wake up with a nice hard jolt realizing that one fine day you may lose your job or just retire without much financial backing to support you and your wife — here we presume that your kids would be just fending for themselves, thanks to inflation and the Kalyug syndrome! Maybe you haven’t thought much about Investment and nobody has ever advised you to start investing early in life in order to meet your short and long term financial goals but you do not hesitate to randomly rush to buy a car and a house by taking bank loans and repaying the high EMI’s until it kills all your joy and happiness. And don’t blame your neighbor for this misery of yours just because they bought a car and house before you. Maybe your neighbor was a smart investor who accumulated a nice big bundle by periodically investing in stocks, bonds, gold whilst parking small amount every month in bank Recurring Deposits and Post Office schemes. You see, you can accumulate 50% cost of a 2BHK by saving just Rs.14000/= every month in a 10 year Recurring Deposit @7.5 per cent. And the earlier you start , the better for you. The balance 50% could probably have come by investing just Rs.1 lakh in Page Industries in range of Rs..250–500 about 7 years back — today the stock trades at Rs14000 per share! [ 1lakh divided by 500 x 13000 = Rs.26 lakhs ] Yes, my friend you got it right — a cool 26 lakhs in just 1 stock — that’s the mighty power of Equities. What is very disturbing though is that most mortals on Planet Earth are comfortable swimming in their pool of financial misery and anguish for a major part of their lives. What’s even worse, is they don’t even know it. Of course there are salaried class folks who do save in lousy investment schemes only to save taxes — that’s it. You see, you need to be brutally honest about your current financial strength and what’s you plan to create enormous wealth over the long haul — the sooner you realize the magnitude and complexity of creating long term wealth, the better for you. And not to worry about getting started on this wealth creation journey because there’s always Osar Capital to guide you all along till you reach the shores of wealth, joy and happiness.
Before we even discuss about various Investment avenues, let us take a good quick look at what Investment precisely means: the most simple and basic definition of Investment is this:
An investment is an asset intended to produce income or capital gain.
Stocks and bonds can give you both income and capital gains as well. Real estate if purchased can be rented out generating a steady stream of income even as its underlying value increases over time, hopefully. Gold appreciates depending on various macro factors. Of course, at the end of the day nothing is guaranteed except taxes and death.
You see investing is not an easy game and making big money is not at all easy and that’s why you’ll find millions of stupid people betting on “ the man, the myth, the legend’ and pray for outperformance. To cut a long story short, you’d be justified in laughing your guts out at the man or woman who buys Warren’Buffet’s Berkshire Hathway in the forthcoming week — Berkshire currently trades at USD 193000 per share! Closer home, many folks might have bought Reliance Industries way above 1000 bucks but the stock has been just languishing for years. Well some pessimist may frighten you by telling you that there is high inflation in US Stock Markets [ from 7000 to 18000, now 16000 ] and in the real estate sector and if these go south and the bubble bursts in the USA then all countries go south — maybe but such macro events are invariably short-lived and those who are Masters of the Markets are also the Visionaries of the Markets — these guys always think long term and give the short term micro and macro events a nice kick and so should you. Dare to be a Long Term Thinker and a Long Term Investor. Never be a high-roller Gambler and a Short Term Punter!
Now ask, why Invest a major portion of your savings into Equities NOW? Well, now that you have come to understand why it’s important to start investing early in life by parking little money in various investment avenues with a good portion of your savings been channelized into Direct Equities, you may further be interested in knowing what is so good about Equities now. You See the major reason we are telling clients to go on a shopping spree is primarily because the Sensex has already tanked by a whopping 4407.9 points from the intra-day peak of 30024.74 hit on 4 March 2015, a red letter day in the history of Indian Stock Markets — hence it makes sense to start picking up wonderful stocks which are still available at juicy valuations even as the Sensex is down by 14.68 per cent from its historic peak.
Then should you start buying stocks now for the short-term or for the long haul? Well, the answer is very straight forward — you need to start buying great stocks available at great valuations but only for the long term. You see, in the short term, volatility will fleece you such that you’ll buy high and sell low. But when you go long on stocks, you wouldn’t care much even if the Sensex cracks by 5000 points because you know well that the markets always recovers to re-start its north bound journey after languishing for a long time until the Bulls go into a coma. Notwithstanding the NPA mess in our banking sector, overall long-term macro indicators of the Indian Economy are good and with RBI reducing the repo rate today by 50 bps, Corporate India is likely to bounce back like a wounded Tiger and show the world its true strength and might. Here we are suggesting clients to go pick up those companies whose fundamental story is still intact. You see, the dynamics of the markets keep changing and you need to change your stock investing strategy accordingly — for example Aluminum prices are now at 6 year low and this is being very negatively reflected in the quarterly numbers of Hindalco. So, though Hindalco is a blue chip company in its own right, it would be dangerous to catch a falling knife and buying Hindalco now even as it is down by 60 per cent from 52 week high of Rs. 176/= because the turnaround in metals cannot be so easily predicted. It may take years for the cycle to revive which also means involvement of opportunity cost should you buy Hindalco now. Hope you get it. So what do you need to buy — that’s the billion dollar question. Well, what is Osar Capital there for? Just ask us and we’ll tell you precisely which stocks to buy and the allocation to be assigned to each stock.
And what should you do if you get nice profits in the short term? Presuming you have picked up a good company with strong moats and fundamentals having a competitive sustainable advantage then you should do absolutely NOTHING. And we mean it. What happens in real life is that in such cases Greed and Fear attacks the poor investor simultaneously by virtue of which the poor guy wonders what will happen if the markets crashes and so he greedily sells all his good shares getting a mere 2-bagger return instead of waiting for 10–15 years in order to get a 50–100 bagger return! Somebody who purchased just 100 shares in Wipro way back in 1980 and sold all his holdings of 96 lakhs shares [ bonus +stock split ] in 2010 would have got close to Rs. 500 crores! And such amazing returns are possible but only if you patiently hold on to your shares as your most prized possession.
Some of you folks may like to know whether you should go for Technical bets? Sure, technical analysis if interpreted correctly can give you a good idea about the overall sentiment and direction of the markets. This holds true for individual stocks too. For example the best time to sell a stock is close to its Resistance levels — but how many actually sold off their holding of Suzlon, Educomp, Jaiprakash industries at these levels? Not many because as usual, in an uptrend, you may be considering yourself smart by buying after 33% retracement so for instance if the stock peaked at 100 you go pick it up at Rs 67 and then Aug 24/Black Monday happens and the stock now trades at Rs.45, another 33% retracement from your buy price — you like technicals? Problem is not your technical view — problem is that you forgot to look at the Damocles Sword hanging over the head of the owners who borrowed to the hilt and pledged 75 % of their holding which the banks are now selling thus aggravating the fall in the stock price! Where are the technicals, my dear friend? So, you better mix technicals with fundamentals to get good results instead of just relying on one technique. After all, an apple plus a beet root is a better detox than just an apple! Add one carrot too, if you like to taste a Miracle Drink. Try it — you’ll thank Osar. Cheers to your good health, physical and financial too!
And finally, you would also like to know how to build an invincible Portfolio? Now, that’s pretty tough to answer because in the Stock Markets and to some extent in other markets and financial instruments nothing can be predicted — hardly anyone could accurately predict the stock market crashes that happened over the decades and even if they could, they subsequently could not predict the post-crash scenario — for instance hardly anyone in their wild dream thought that the sun would set on the bourses for 20 years in the Land of the rising sun. Japan’s bear market was called “Japan’s lost two decades” from 1988 to present.
In the US, in the last 113 years, from 1900 onwards till 2014, there have been 32 bear markets. Statistically they occur 1 in 3.5 years, and last an average of 367 days. The historical market crashes in US were as under:
In 1930’s the markets crashes by 86 % over 39 months
In 1970’s the markets dropped by 48% over 19 months
In 2007–09, the markets crashed 57% over 17 months
What happens during such bad times is that most investors including seasoned ones get frightened to death and sell all their stocks lock, stock and barrel at the bottom. Only the very brave swim against the tide and go buy some of the bleeding stocks which then become available at dirt-cheap valuations.
Closer home, some of the nerve-shattering crashes on Dalal Street were as under :
On 17 October 2007, Sensex bled profusely and crashed by a whopping 1743 points within minutes of opening resulting in suspension of trading for an hour
On 21 Jan 2008, Sensex crashed by over 2000 points
On 22 Jan 2008, Sensex cracked by another 2029 points
On 24 August 2014, Sensex crashed by 1624.15 points to close at 25741.56, thus falling by 14.26% from the Sensex’s historic intra-day peak of 30024.74
As a smart investor, you need to be the first one to pick up the phone and buy some good stocks which then become available at attractive valuations. And you should go the SIP way only during a prolonged bear market instead of doing a SIP during a bull market as most Experts suggest. Doing a SIP during bull phases means you get to buy lesser quantities at higher prices resulting in poor performance.
As concerns building an overall robust Investment Portfolio you just need to buy stocks when blood is running in the streets and do SIP as suggested above. Besides, let about 5 -10 good stocks represent 90 pc of your portfolio and balance can be invested in high-risk, high return type of stocks. And yes, do invest some money in gold and bonds. Buy real estate also but with money that isn’t borrowed, else you will get slaughtered by the EMI’s throughout your life.
And don’t forget that there could well be 8–10 recessions over next 50 years and don’t be shocked when they greet you. Stay cool, always. Because, after the storm there is always the calm. And don’t you worry since Osar capital will always be by your side whenever you feel that your financial boat is hitting an ice berg or is about to sink!
Team Osar Capital