This is the 9th report card of the portfolio that we are sharing with you for the education purpose. The intention of this exercise is to realise investors (retail investors) how to overcome their emotions and take decisions rationally. As soon as any stock from the portfolio shatters, my inbox and all my connections to social media gets flooded with emails and messages to find out my opinion. In such panic situations how to remain calm and take rational decision?

Let me share why I don’t panic. I do not panic like others is because I know something that most investors unwittingly ignore to that information which I will be sharing with you today. We have seen tough times with our returns compare to market returns so far in this journey. Quarter two earnings of our stocks in the portfolio were soft and investors had overreacted by pulling its stock price down. We will talk about all of those stocks a bit in detail on this blog later, but before that here is the report card for the month of October.

NSE 500 1.82%
Portfolio 1 -0.27%
Portfolio 2 1.55%
Portfolio 3 2.01%

 

Portfolio 3 returns had beaten the market as well as other portfolio returns. This was because of the Kitex Garment stocks purchased at Rs 412 per share in the late September month. Here is how the Portfolio 3 looks as of 3rd November 2016.

Name Quantity Purchase Price Current Price Total money invested Current Position Standing
Axis Bank 497 INR 432.58 INR 475.85 INR 214,992.26 INR 236,497.45 10.00%
Indiabulls housing Finance 286 INR 686.26 INR 802.00 INR 196,270.36 INR 229,372.00 16.87%
Coal India 742 INR 305.55 INR 327.00 INR 226,718.10 INR 242,634.00 7.02%
TCS 101 INR 2,320.04 INR 2,319.45 INR 234,324.04 INR 234,264.45 -0.03%
Kitex Garment 464 INR 412.00 INR 427.85 INR 191,168.00 INR 198,522.40 3.85%
cash -63475.66 INR 3,000.40
Total INR 999,997.10 INR 1,144,290.70 14.43%
NSE 500 INR 5,833.40 INR 7,344.10 25.90%

 

Portfolio 2 returns underperformed because of fall in the Kitex Garment stocks as well as Axis Bank and TCS stocks. We shared our view on the Kitex Garment Q2 results yesterday, and we do not see any permanent damage done to its business model or any threat to its business. Axis bank lower profit numbers and higher NPA figures had signalled warning bells that the pain of NPA’s is not just about public sector but also emerging within private sector banks.

This is how Portfolio 2 looks as of 3rd November 2016.

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 515 INR 428.38 INR 475.85 INR 220,615.70 INR 245,062.75 11.08%
Kitex Garment 485 INR 430.10 INR 427.85 INR 208,598.50 INR 207,507.25 -0.52%
Indiabulls housing 298 INR 686.44 INR 802.00 INR 204,559.12 INR 238,996.00 16.83%
TCS 105 INR 2,316.45 INR 2,319.45 INR 243,227.25 INR 243,542.25 0.13%
coal India 773 INR 306.24 INR 327.00 INR 236,723.52 INR 252,771.00 6.78%
cash -113726.99 INR 4,797.90
Total INR 999,997.10 INR 1,192,677.15 19.27%
NSE 500 INR 5,833.40 INR 7,344.10 25.90%

 

Portfolio 1 had given worse returns this month because of the JK bank. Well, we replaced that stock with Kitex Garment and that too had plunged down this month! This resulted in negative returns for this month. Here is how Portfolio 1 looks as of 3rd November 2016.

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 511 INR 391.10 INR 475.85 INR 199,852.10 INR 243,159.35 21.67%
Kitex garment 552 INR 430.10 INR 427.85 INR 237,415.20 INR 236,173.20 -0.52%
Castrol 533 INR 375.00 INR 433.50 INR 199,875.00 INR 231,055.50 15.60%
TCS 90 INR 2,226.60 INR 2,319.45 INR 200,394.00 INR 208,750.50 4.17%
coal India 660 INR 302.85 INR 327.00 INR 199,881.00 INR 215,820.00 7.97%
cash -37420.2 INR 19,344.30
Total INR 999,997.10 INR 1,154,302.85 15.43%
NSE 500 INR 5,833.40 INR 7,344.10 25.90%

 

We know that all of these stocks are quality grade business. If I ask a question, “What won’t change in the next 10 years?” Then, all the stocks that represent in all of our portfolios will survive for next 10 years. But there is always a good chance of facing ‘black swan’ moment in the market and see a massive erosion of wealth from our portfolio.

With the help of valuation spectrum we can figure out what to expect from portfolio if market crashes. Also you can find out which stock is the most vulnerable in such high volatility period. Let me give you a glance of how our portfolios will react to those crashes and how they will look if that crash happens tomorrow.

Portfolio 1

Name Quantity Purchase Price Crash price Total money invested Current position Standing
Axis Bank 511 INR 391.10 INR 139.00 INR 199,852.10 INR 71,029.00 -64.46%
Kitex garment 552 INR 430.10 INR 317.00 INR 237,415.20 INR 174,984.00 -26.30%
Castrol 533 INR 375.00 INR 309.00 INR 199,875.00 INR 164,697.00 -17.60%
TCS 90 INR 2,226.60 INR 1,814.00 INR 200,394.00 INR 163,260.00 -18.53%
coal India 660 INR 302.85 INR 147.00 INR 199,881.00 INR 97,020.00 -51.46%
cash -37420.2 INR 19,344.30
Total INR 999,997.10 INR 690,334.30 -30.97%

 

Portfolio 2

Name Quantity Purchase Price Crash Price Total money invested Current position Standing
Axis Bank 515 INR 428.38 INR 139.00 INR 220,615.70 INR 71,585.00 -67.55%
Kitex Garment 485 INR 430.10 INR 317.00 INR 208,598.50 INR 153,745.00 -26.30%
Indiabulls housing 298 INR 686.44 INR 918.00 INR 204,559.12 INR 273,564.00 33.73%
TCS 105 INR 2,316.45 INR 1,814.00 INR 243,227.25 INR 190,470.00 -21.69%
coal India 773 INR 306.24 INR 147.00 INR 236,723.52 INR 113,631.00 -52.00%
cash -113726.99 INR 4,797.90
Total INR 999,997.10 INR 807,792.90 -19.22%

 

Portfolio 3

Name Quantity Purchase Price Crash Price Total money invested Current Position Standing
Axis Bank 497 INR 432.58 INR 139.00 INR 214,992.26 INR 69,083.00 -67.87%
Indiabulls housing Finance 286 INR 686.26 INR 918.00 INR 196,270.36 INR 262,548.00 33.77%
Coal India 742 INR 305.55 INR 147.00 INR 226,718.10 INR 109,074.00 -51.89%
TCS 101 INR 2,320.04 INR 1,814.00 INR 234,324.04 INR 183,214.00 -21.81%
Kitex Garment 464 INR 412.00 INR 317.00 INR 191,168.00 INR 147,088.00 -23.06%
cash -63475.66 INR 3,000.40
Total INR 999,997.10 INR 774,007.40 -22.60%

 

We calculated this by multiplying lowest band of 2018 intrinsic values of those following stocks. We found that Axis Bank and Coal India are the most risky stocks in our portfolios. Imagine you had 20% cash in your portfolios on that crash day. Your portfolio would had hit least and you also poses cash to accumulate those quality stocks at cheap prices. This is our investment mantra and today we are sitting on almost 30% in cash.

If you know what worse can happen to your portfolio (what we mean is the closest to what to expect) it is easy to stay calm when such small events of correction takes place in your portfolio.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.