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Bangalore stock exchange session july 2015

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Presentation in Bangalore Stock exchange on 26th July 2015 on - "Investing under current market conditions".
I share my views on Definition of Rich and how to select Mutual funds and Stocks in Indian markets and when to exit an investment.

Published in: Economy & Finance

Bangalore stock exchange session july 2015

  1. 1. Investing under current market Scenario 26th July 2015
  2. 2. RichRich RetireRetire
  3. 3. Most of us don’tMost of us don’t get richget rich as we do not haveas we do not have a clear definitiona clear definition of the wordof the word “Rich”“Rich”
  4. 4. Robert Kiyosaki
  5. 5. You are richYou are rich when you canwhen you can maintain yourmaintain your lifestyle, even iflifestyle, even if you stopyou stop working for everworking for ever
  6. 6. Definition of “rich” YouMonthly Cash Inflow Cash outflow / Monthly expenses Savings = Assets Returns from assets Capital appreciation
  7. 7. Definition of “rich” YouMonthly Cash Inflow Cash outflow / Monthly expenses Savings = Assets You are “rich” when your monthly income from assets exceeds your monthly expenses Returns from assets Capital appreciation
  8. 8. The key to becoming rich – focus on ROI YouMonthly Cash Inflow Cash outflow / Monthly expenses Savings = Assets Capital appreciation You have to beat inflationYou have to beat inflation by a good marginby a good margin to become richto become rich ROIROI
  9. 9. The key to becoming rich – focus on ROI YouMonthly Cash Inflow Cash outflow / Monthly expenses Savings = Assets Capital appreciation If you can get a 15-20% ROIIf you can get a 15-20% ROI consistently, then you canconsistently, then you can get rich in 7-10 yearsget rich in 7-10 years ROIROI
  10. 10. PassivePassive incomeincome
  11. 11. Passive incomePassive income is incomeis income received on areceived on a regular basis,regular basis, with little effortwith little effort required torequired to maintain it.maintain it.
  12. 12. The secret ofThe secret of those who arethose who are rich:rich: they have multiplethey have multiple sources ofsources of passive incomespassive incomes
  13. 13. YouMonthly Cash Inflow Cash outflow / Monthly expenses Savings = Assets Passive incomes Capital appreciation The rich haveThe rich have multiple sources ofmultiple sources of passive incomespassive incomes
  14. 14. How doesHow does one getone get “rich”?“rich”?
  15. 15. The GET RICH planThe GET RICH plan • Between the ages of 20 and 30 – focus on building active income and saving. In this period –learn investing so that you can get a 15-20% ROI. • Between ages 30 and 40 – build up financial assets and focus on building passive income. Active income will also automatically grow. • By the age of 40 – you would have enough passive income to call yourself RICH and follow your passions.
  16. 16. Your definition of richYour definition of rich :: • By year ____ , I will haveBy year ____ , I will have assets worth Rs ____,assets worth Rs ____, • giving me a ROI of x% ,giving me a ROI of x% , • giving me capitalgiving me capital appreciation of Rs____ and aappreciation of Rs____ and a passive income of Rs_____passive income of Rs_____
  17. 17. What are theWhat are the financialfinancial assets I canassets I can build to getbuild to get rich?rich?
  18. 18. Various asset buildingVarious asset building optionsoptions • Debt based asset building options – when should I go for fixed deposits? • Insurance – which insurance I must buy and which scheme I must avoid? • Commodity based asset building options – Investing in Gold and Silver?
  19. 19. Various asset buildingVarious asset building optionsoptions • Real estate based asset building options – the various options and what should I do? • Equity based asset building options – Should I invest in stocks and if yes, how do I pick stocks? • Mutual funds based asset building options – the various kinds of MF’s and how to identify the MF that I must invest in?
  20. 20. Various asset buildingVarious asset building optionsoptions • Real estate based asset building options – the various options and what should I do? • Equity based asset building options – Should I invest in stocks and if yes, how do I pick stocks? • Mutual funds based asset building options – the various kinds of MF’s and how to identify the MF that I must invest in?
  21. 21. EQUITY BASED ASSET OPTIONS
  22. 22. Let me understand you better • How many of you invest in equity markets through direct stocks and equity MF’s • How many of you have more money invested in equity MF’s than direct stocks?
  23. 23. My stock portfolio performance as of 24th July 2015
  24. 24. My MF portfolio performance as of 24th July 2015
  25. 25. Today I will share the following • How do I select an equity Mutual fund? • How do I shortlist a stock - my checklist • At what price do I invest in the stock –some details will be discussed – more details are in my book • Decision on amount of money that I put in each stock • My views on exiting an investment ( Stocks or MF’s or even Real estate or Gold)
  26. 26. How do I select an equity Mutual Fund?
  27. 27. Mutual Fund OperationMutual Fund Operation Flow ChartFlow Chart
  28. 28. How do I select an equity Mutual fund? • My knowledge of MF market comes from Peter Lynch • Peter Lynch managed the Magellan Fund for Fidelity between 1977 and 1990 • His fund averaged a 29.2% annual returns and was the best performing Mutual fund • The Assets under management of his fund grew from $18 M to $14,000 M under his stewardship
  29. 29. How do I select an equity Mutual fund?
  30. 30. As per Peter Lynch • Most MF managers have to have a short term focus as investors measure them almost daily • The better the returns, the more thay are able to attract investor money • The more the money they manage, the higher their own ranking in the MF industry • Equity investing needs a 3 plus year timeframe – unfortunately MF fund managers look at monthly and quarterly ROI’s.
  31. 31. Kenneth Andrade – Chief Investment Officer at IDFC MF
  32. 32. Kenneth Andrade – Chief Investment Officer at IDFC MF • Kenneth is considered one of the best fund managers in India • Forbes called him the “mid cap Mogul” in 2011 • He managed IDFC Premier Equity fund and IDFC Equity opportunities fund – managing appx Rs 7700 crores of AUM • IDFC Premier Equity fund gave 19.33% annually for the past seven years vis a vis 8% of BSE 500
  33. 33. Kenneth Andrade – Chief Investment Officer at IDFC MF • He quit his role recently and this is what he told Forbes - – There is always pressure on the fund manager to beat the index – I wish that it was more about buying businesses than buying stocks. – Most investors stay with a mutual fund only for 18 month – Amongst the various options -he is also looking at venture capital / private equity space
  34. 34. How do I select an equity Mutual fund? • First filter - I look at the fund house – the larger the operation, the better.
  35. 35. The top ten fund houses as of 30/6/2015 (based on AUM)
  36. 36. How do I select an equity Mutual fund? • First filter - I look at the fund house – the larger the operation, the better. • Second filter – I decide which type of fund I want to invest. -- • Equity Vs Debt funds • Large cap vs Small and mid cap • Mix of equity and debt • Sector funds
  37. 37. Equity vs Debt funds • Equity funds are for long term, inflation beating, capital appreciation where as Debt funds are for short term parking of funds • Long term means 2 years and above
  38. 38. Large cap vs Small and mid cap HDFC Top 200 fund HDFC mid cap opportunities fund
  39. 39. Sector funds • Sector funds are available focussed on – Infra sector; – Banking sector; – FMCG sector; – Pharma Sector; – Technology sector; etc
  40. 40. Sector funds
  41. 41. Sector funds
  42. 42. Sector funds
  43. 43. How do I select an equity Mutual fund? • First filter - I look at the fund house – the larger the operation, the better. • Second filter – I decide which type of fund I want to invest. • Look at the top two funds (based on AUM) in the category that I want to invest • Decide based on the returns (more than one year), fund manager between these two funds
  44. 44. Selecting a mid cap fund
  45. 45. Investing through direct equities
  46. 46. Some basic learnings • Both long term and short term investment strategies work. • Levels of activity /inactivity and holding period depends on your style. • Chose what you are comfortable with and stick to it
  47. 47. Some basic learnings • I am a long term investor. • I buy and hold. • If I like the stock – I buy more in subsequent years and hold. • Long term for me, right now, is 5 years. • Ideally I would like to grow beyond this 5 years and go to ten or more years
  48. 48. Some basic learnings • In financial markets, money always flows from mediocre, under performing companies to stable, growing, high return on capital companies.
  49. 49. Some basic learnings • The best companies to invest in are companies with – high ROCE /ROE, – low debt, – high growth prospects and – which can reinvest it’s earnings and generate high returns on the money reinvested • These are what I search for – these are COMPOUND INTEREST MACHINES
  50. 50. Some basic learnings • We have to have clarity in what ROI we are aiming at. • I aim at a 20% per annum ROI. • I believe that as long as the company is growing its top line and bottom line at 20% CAGR - the share price will also go up by 20% CAGR (over a long term)
  51. 51. An example HDFC Bank – a compound interest machine
  52. 52. An example HDFC Bank – a compound interest machine Date HDFC share price 12 month ROI 10 July 2000 57 10 July 2001 42 -26.32% 10 July 2002 42 0.00% 10 July 2003 58 38.10% 10 July 2004 74 27.59% 10 July 2005 131 77.03% 10 July 2006 158 20.61% 10 July 2007 229 44.94% 10 July 2008 209 -8.73% 10 July 2009 276 32.06% 10 July 2010 391 41.67% 10 July 2011 498 27.37% 10 July 2012 581 16.67% 10 July 2013 672 15.66% 10 July 2014 826 22.92% 10 July 2015 1076 30.27% Average Annual ROI 23.99% CAGR of 21.63% per annum Data from Moneycontrol.com
  53. 53. How do I short list companies for study • Large caps and mid caps – I take up industries/ companies based on market news and I study them through public data available • Small caps – through my friends in the equity analyst industry and reports available through them • Small caps - Following well known investors through data from - http://rakesh- jhunjhunwala.in/ -----
  54. 54. My checklist as I study companies • I have broadly followed Warren Buffet’s checklist that is publicly available • Business – – Do you understand the business? – Does the company have consistent operating history? I look at operating margins for the past 10 years – Does the company have favourable long term prospects? I look at product lifecycle
  55. 55. My checklist as I study companies • Business – – Does the company have strong pricing power? As India has inflation around 10%, if Net profit margins are maintained over 10 years, it means it has pricing power – Does the company have moats? –I study as to how it manages it’s market share and grow it
  56. 56. My checklist as I study companies • Management – – Is the management trust worthy –I look at past 5 years chairman’s statement and Management discussion for action plans and see if they have followed up these with actions in subsequent years – Are the managers following extravagant and lavish lifestyles? Salary drawn, press reports about the CEO etc throws some light
  57. 57. My checklist as I study companies • Financials – – Does the company have high ROE and ROCE – Does the company have low or zero debt? – All these are available through financial statements
  58. 58. My checklist as I study companies • What price should I buy? – PE ratio – this should be high – as that denotes growth companies –ideally 20 or more – PEG Ratio –this should be close to 1 or less than 1 –the lesser the better – as that denotes that the market is undervaluing the company – For large and mid caps I forecast the share price based on past ten year financial data. – For small caps – I am flexible – as my exposure is also low.
  59. 59. My checklist as I study companies • Companies to avoid as per Warren Buffet – Commodity companies – eg TATA STEEL, STERLITE – Cash guzzling businesses -AIRLINES – Industries that I do not understand
  60. 60. My sources of Information • Company website • Moneycontrol.com • www.screener.in • Analyst contacts
  61. 61. My allocation approach • I use equity MF’s for parking funds till I find the right stock. • For large caps or high conviction mid caps – I allocate between 2% and 5% of my portfolio • For mid caps and high conviction small caps – I allocate between 1 and 3% of my portfolio • I do not add any new stock less than 1% of my portfolio
  62. 62. My allocation approach • I wait for 4 quarters once allocated to watch the company performance and whether my assumptions are right. • If I am more convinced about the company – I buy more stocks in that company in subsequent years • I typically get 4-5 new stocks per year at best.
  63. 63. My current portfolio • Around 20% of my portfolio is MF’s – HDFC top 200, HDFC Mid Cap opportunities fund and HDFC tax saver. • Around 52% of my portfolio is six shares (appx 9% each) - Gruh Finance, Page Industries, Asian Paints, Pidilite, Sundaram Finance and KRBL • Around 25% of my portfolio is seven stocks (appx 3% each) – Kitex, HDFC Bank, Igarashi Motors, Amrutanjan, Shriram Transport, Mahindra and Mahindra and Nandan Denims
  64. 64. Some of my compounding engines Company name Sales growth 10 yrs Profit growth 10 yrs PEG Gruh Finance 29.59% 28.62% 1.66 Page Ind 35.33% 37.31% 2.32 Pidilite 20.98% 22.76% 1.88 Sundaram Finance 18.28% 13.22% 1.19 KRBL 20.92% 40.27% 0.33 Asian Paints 18.74% 23.20% 3.98 Kitex 18.47% 41.15% 1.14 HDFC Bank 27.18% 31.47% 0.85 Shriram Transport 28.50% 27.20% 2.1 Nandan Denim 35.28% 40.02% 0.12 Shilpa medicare 33.82% 44.25% 1.15 THESE ARE RECOMMENDED FOR YOU TOO AT CURRENT PRICES
  65. 65. My views on exiting an investment Exiting an investment is only for three reasons: 1. You need the money 2. The company / stock price is not performing as per your forecast – for this you need to give it 3- 4 quarters 3. There is a better ROI investment available
  66. 66. You can reach me through my websiteYou can reach me through my website http://get-rich-and-retire-early.comhttp://get-rich-and-retire-early.com//
  67. 67. You can join my private mailing list forYou can join my private mailing list for equity - http://get-rich-and-retire-equity - http://get-rich-and-retire- early.com/equity/early.com/equity/
  68. 68. You can also get all updates throughYou can also get all updates through the FB pagethe FB page

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