I usually review my portfolio towards the end of the year and try to figure out what went right and where I goofed up. I disclosed my portfolio last year and the portfolio has remained more or less the same since then. I sold off some small positions such as India nippon, manugraph etc and have added to other ideas such as LMW, Ashok Leyland and other existing ideas, which I felt were cheap during the course of 2009.
So how did it all turn out? well far better than I expected at the beginning of 2009. A summary of the results follows 

Stock % change
Gujarat gas

105%

Novartis

105%

Merck

91%

Balmer lawrie

124%

LMW

171%

BEL

143%

NIIT Tech

144%

Patni

254%

CRISIL

84%

Maruti

185%

Grindwell norton

80%

Honda siel

68%

Ashok Ley

222%

asian pts

99%

Concor

103%

Sulzer india

45%

ESAB india

111%

HTMT global

228%

Others

130%

Index – nifty

71%

nifty midcap

96%

I have compared the returns on the stocks with the nifty (large cap) index and the midcap index as several holdings in my portfolio are mid caps and hence it would appropriate to compare them with the midcap index.

The reason for comparing with the index is straightforward. If one has to pick stocks, then the picks in aggregate (not necessarily each) have to do better than then index, otherwise one is better off buying the index via index funds and not wasting time and energy on picking stocks.

So what grade do it get ?
I have given myself a B for picking  stocks and a B+ for having the patience and confidence in buying and holding the picks during the terrible drop in the markets. The stock picks are not phenomenal picks in themselves. It was very easy to find undervalued stocks during the Oct 2008 – Mar 2009, but difficult to buy and hold them. As an analogy with cricket, my picks are like singles and doubles, occasional fours and a very rare six. I am unlikely to lose my wicket on a reckless shot, but watching me play would kill one with boredom 🙂

Reviewing the picks
A few picks standout in the above list – namely Merck, CRISIL, Grindwell Norton and Honda siel. ESAB india and sulzer don’t count as they are fairly recent picks. These picks have done poorer than the index and hence are worthy of deeper attention.

I have written about merck earlier here. I still feel it is undervalued and plan to hold on to it. The main reason for the underperformance is that the fundamentals of the company have not improved as expected over the years and hence the stock market has not given it a decent valuation.

CRISIL has performed as expected. The company was not as undervalued as some other stocks last year and hence the gain has not been as high. Grindwell Norton and Honda siel have not perform as well as some of the other companies and hence the stock performance has not been as good as the index.

A few other picks such India Nippon, Manugraph were clear goofups bought during the bull market and exiting them was a necessary decision. I don’t expect to have a 100% success rate in picking stocks and it should still work out fine as long as my mistakes are smaller than my successes. For the time being, that has been so.

Is an annual review sensible
I have continuously harped on the need to have a long term view. Is it sensible to evaluate a portfolio on an annual basis ?

I personally think that any outperformance or underperformance over a year is usually a matter of luck. However it still does not mean that one should not evaluate the picks atleast once a year and see what worked and what didn’t

Conclusion
My conclusions for the year has been as follows

  • Majority of the returns for the year have happened as the market corrected the undervaluation of midcaps. This is unlikely to happen in 2010 as there are not as many undervalued stocks out there.
  • It is important to understand the difference between a cyclical drop in demand and permanent change in industry dynamics. 2008-2009 was a cyclical drop for several industries such as auto. The same is however not true for telecom which is undergoing a structural change.
  • It is important to bet big when the odds are in favor (price is low). It is also important to ignore the chatter in the media which is as best a distraction.
  • I was lucky in 2009. I don’t expect to be as lucky in 2010 and will have to work harder to get decent returns.

So whats next ?
I really don’t have a crystal ball for 2010. I have no clue whether the market will go up or down. My approach has remained the same for the last 10 years and will be the same in 2010 – buy when the stock  is undervalued and sell at intrinsic value or higher – market forecasts be dammed.

That said, I expect it to be more difficult to generate good returns in 2010 and beat the market.

Final note : The above listing is not entirely indicative of my returns as all the holdings are not equal weighted in the portfolio. Some holdings such as LMW and ashok Leyland have a higher wieghtage than the others.

As I read somewhere – its better to be lucky than smart. Well, 2009 was a very lucky year.

6 Comments

  1. anurag says:

    Dear Sir,

    Wish you and your family my advanced greeting for a very happy and prosperous New Year

    Regards
    Anurag Awasthi

  2. Securemoney says:

    Hi Rohit,
    I have been an avid reader of your blog and havev subscribed to your RSS feed for a long time now. Thanks for sharing your ideas and your thought process behind this. I think you do not have any bank stocks in your portfolio but I was curious to know what do you think about City Union Bank. It is a private bank based out of TamilNadu and is growing rapidly in seven states in India. (Maharashtra, TN, Andhra, Karnataka….) It sports one of the best ROA in the industry….on last check it was above 1.56%…..and decent NPAs. Also the bank seems to be increasing its book size at a decent clip and has a loan portfolio that is widely diversified to prevent losses from any specific sector. I have owned this stock over the last 2 years and have received satisfactory returns (capital returns + div)……..My definition of satisfactory returns is about 28% growth per annum…….If you get some time….kindly review the annual reports and let me know what you think….I think the bank is pretty conservative in its operations……Let me know what you think……

  3. venkat says:

    Hi Rohit,

    Best wishes for the new year.

    Do count me in as and when you launch the PMS. definitely looking forward to it.

    regards
    venkat

  4. admin says:

    Hi anurag
    A happy and prosperous New Year
    to you and your family too
    rgds
    rohit

  5. admin says:

    Hi securemoney
    Its interesting that you make this comment. I have recieved a similar comment on the absence of any banks. no specific reason ..for some reason i just did not look at banks .
    i will look at the bank you mention and let u know

  6. admin says:

    Hi venkat
    Best wishes and a prosperous New Year to you too.
    I plan to start some sort of PMS service this year and will announce it on the blog when i do so. so i will looking forward to hearing from you at that time

    rgds
    rohit

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