I started serious investing around March 2014. The main reason for shifting from being a speculator to an investor was because of the once in a lifetime opportunity Indian stocks offered at that time. The benchmark #Nifty was breaking into all time highs after 7 wasted years.
I had heard legends how people had converted a few thousands into millions just by buying the right stock and staying invested in it for significant periods of time during previous bull runs. The time was perfect to try my luck.
Now that we are at the end of FY16, it is perfect time to take stock of what investments have worked for me and what haven’t.So in today’s post i will be listing few of my best and worst investments along with the reasons for their success/failure.
Some of my top performers-
- Yes Bank & Aurobindo Pharma- Two stocks that have thrived on the hate and contempt some analysts have for them. Because of this, these two stocks have seen bouts of sharp volatility, but have eventually recovered to post fresh highs. The volatility provides good opportunity to trade/invest in these stocks. Add to that, both of them have delivered industry leading growth in recent times.
- Ajanta Pharma & Indusind Bank- On the other hand are considered gold standard of corporate governance and promoter integrity. These businesses are doing extremely well and have delivered strong growth over past several years. These stocks fall rarely and trade at premium valuations. Patient investors, who have bought the dips and stayed put for long periods of time have made good returns in these stocks.
- Emami- This stock was a classic case of value investing for me. The company with a proven track record of two decades was trading at inexpensive valuations in May’14 when i first bought its stock. The company was growing at around 20% but the stock was under performing just because the markets were fancying other sectors at that time. Things turned around in a few months and the stock rallied from 450 to 1300 in just a year.
And now even more important lessons from investments that didn’t work out-
- PFS & Bharat Forge- Two decent companies with great promise of future growth. Still the stocks have done horribly in last 1 year. Bharat Forge is currently down approx 40% from all time highs it hit last year. Similarly PFS is down more than 50%.In FY15 these companies reported excellent growth. This led to prices and valuations soaring to astronomical levels. However last 12 months have been difficult for these two stocks. Bharat Forge has seen its growth come to a halt. As a results, P/E multiples which were once closing onto 50 are now sub 30X. On the other hand PFS too has seen its valuations tumble because of unprecedented rise in bad loans and fell to its book value last month. Important lesson here is that no matter how great a company, your investment returns will still depend on price you pay for it. Hence it is best to stay conservative while making assumptions for future growth and not over pay for any stock because of great expectations.
- United Spirits & IDFC– Miracles don’t happen overnight. Two quality stocks with a troubled past but great expectations for the future. Bringing a global giant as new promoter or getting an elusive banking license is not an instant rags-to riches story which i discovered to my horrors. The truth is always different form hype. Giant companies don’t turn around overnight. It needs several years of hard work to do so. Things are definitely getting better by the day for these two. However the stock prices are down significantly from the highs achieved in times of exuberance and may take years to get to previous highs.
- RECLTD- This stock has been my worst performing investment. A case of how even a great business model can be a horrible investment if execution is poor. This is a govt owned NBFC which boasts of the lowest costs of funds and has very low fixed costs. Armed with these great advantages over its private sector peers, this company has grown its loan book and ‘REPORTED’profits at a very good pace. Still the stock has done nothing for the past decade. This is because most people refuse to believe the low bad loans that the company reports. It is widely believed that one day the chickens will come to roost and bad loans will spike heavily even though NPAs are up almost 7X in past 3 yrs. However the Modi govt has taken on the mess in the power sector mess head-on. Only time will tell how successful or not these measures will be. The stock currently trades at half of its book value and under 3 times its reported TTM profits. What if bad loans again grow 7X in next 3 yrs? But what if they halve and market perception changes and stock goes on to hit 15-20X P/E multiples?
As of today, I am holding on to IDFC, REC and Bharat Forge as i believe in the future potential of these companies. Sold off USL & PFS long time back and cut my losses.
The last two years have been fun, exciting and profitable. Even a novice like me managed to outperform the Nifty by a factor of more than 2X. With time, my investment process has evolved and systems have become better and filters stronger. As a result i am hopeful that i will manage even better returns because of my evolved process driven approach.Stay tuned for my next post where i will discuss more about process driven investing.