Quick update: Mon 19th
I have been thinking of the paid service for sometime and thought of testing the waters by sneaking it in the post yesterday. I had expected a few responses at best considering the fact that I have never disclosed my returns openly and have rarely given any hot tips which can double overnight.
I have received way more emails than expected and will have to plan the next steps accordingly. I may not be able to respond immediately to the 100+ emails personally. I am still thinking of the next steps and will put up posts about the service in the coming months. I am sure some of you, who have expressed interest, will be able to make a better decision after getting more details.
Thanks to all of you who have written to me personally expressing interest in the service.
No easy money
The index seems to have stagnated at 17500-18000 levels and so it would appear that the market has gone nowhere in the last 6 months. However if you look beneath the surface, a lot of midcap and small cap stocks have done extremely well in the last six month. A lot of these stocks are now at an all time high and have even crossed the Jan 2008 peak.
In the years before 2008, there was always a pocket or sector which was undervalued. Pharma and IT were cheap in 2007 and then almost everything was cheap in 2008 and early 2009. No such luck now!
I have looked at scores of companies in the last few months and have found most of them to be fairly valued or undervalued by a small margin.
Nothing to buy?
If the above sounds to be a pessimistic situation, it is not so in the real sense. True, there are not too many cheap and easy stocks to pick. At the same time it does not mean that there are no undervalued stocks at all. It just means that it will require more time and effort to find that attractive idea which will make you good money.
I don’t think one can expect to find multi-baggers easily. At current valuations, if the underlying business does well, then the stock may give high returns in the next few years. However the days of 2-3X returns in a year are gone.
All this means, that one should now have diminished expectations going forward. In addition, it will require quite a bit of effort to get above average returns. I personally think that getting 20% return per annum over the next 3 years will be quite a stretch (though I would not mind being proven wrong on the upside on this)
What am I upto?
I have been making small changes to my stock evaluation process. I have not made any drastic changes, but tried to deepen the analysis and make it more detailed and comprehensive. Some of the changes are
- Analyze 10 yrs of history for a company – A 5 year history is less for most companies and may hide the performance of a company over a full business cycle. As a result I have now started evaluating each idea for a minimum of 10 years. If the company does not have 8-10 yrs of operating history, I give the company a pass
- Detailed sensitivity/ scenario analysis – I have now started calculating the fair value of each company with varying assumptions of profit margins and growth. That gives a better idea of the fair value of the company under varying economic conditions.
- Detailed checklist – I have recently finished the book – The checklist manifesto by atul gawande (I cannot recommend this book enough). This book has increased my appreciation for investing checklists and I have been working on making my own checklist more comprehensive and robust.
The net result of the above changes and more is that it now takes me 12-15 hrs of work to analyze a small company and 20+ hours to evaluate a complex one. The process is now more time consuming, but definitely more robust.
You can find the template here
I am also working on launching a paid service over the next couple of months. My plan is to launch a paid subscription service to an actively managed portfolio. This service is most likely to feature a model portfolio (almost mirroring my own portfolio) with clear buy and sell recommendations. In addition, I will also be adding a tracking list of attractive idea which may not be a part of the model portfolio, but may move into it if the price is right. In addition, I would provide detailed analysis behind each idea in the model portfolio and the tracking list.
Please drop me an email at email@example.com if you think you would be interested in such a service. I am working out the details, cost (which will be reasonable) and admin details for the service. I am likely to start the service in a beta mode, with around 10 subscribers. You can expect to hear more details on this in future posts.