My ideal portfolio size

Over the years I have tinkered with having many many stocks to owning less than handful of stocks. Through the last 3 to 4 years - I started buying small quantities of stocks I wanted to call as 'tracking stocks' - just enough to keep an eye on, but not big enough to pinch if it hurts.

Over the vacation time during Christmas and New-year - I started re-looking... if this strategy was really worth the 'buying'. Especially if the tracking portfolio portion starts creeping upwards of 80.. or 90.. with all the nice screener tools available online - the big question was: is it really worth the money to buy something for the sake of tracking..

I think it becomes painful to see small amounts of money get painfully low / out of sync... also especially if I have no further interest in doing any research on those companies. Even getting 5% of portfolio doing bad because of a stupid idea of 'tracking' seems to be a waste of good time over bad ideas..

Its good to have the best 3-4 stocks hold 80% of portfolio (obviously changing percentages over time) and rest 20% in 5-7 stocks. This seems to be the ideal sweet-spot for me. Usually I have seen that I am highly reluctant to change much on the 3-4 stocks if all's going well. The 5-7 stocks on the periphery are the ones to read more on... maybe learn more about the industry.. how they make money, how the best-in-class companies WW make their money.. read books about the industry.. some biographies.. autobiographies... and the like. I need to do more of this. The dilution which had creeped-in is doing more harm than good.

So.. my goal for the year is to think more deeply before jumping.. and to cut down on crap. Cut the crap.

Ciao till next time...Harsha

Oil crisis

Very interesting. I was still not sure about buying. But, this graph sort of gives me some historical perspective. Was searching for a 30 year trend on oil prices.. thought I share this with you.

Time for some action. Silent in stock market for upwards of a year now.

Ciao till next time...Harsha

My investment rules

I thought of penning down my rules for making a stock investment. Over the past year or two this has been revised and here's what it stands as currently:

1.       I am an investor and not a speculator. I am not as brave as the other people who are trying to get rich overnight.. I like to have a BIG margin of safety (bigger the better).. if I don’t think I am getting a $1 bill for 50-60 cent. I am happy to wait.

2.       I am a patient man. As long as fundamentals are good; I have no issues in holding the stock I invested in (as long as I have a dividend yield of 2.5% or higher and hopefully growing YoY).

3.       I like the Rip Van Winkle theory. If I can’t visualize that the company stays in 10 – 20 years.. I would be wary of buying the stock.

4.       I respect market cycles. I can’t and don’t predict the future. I just prepare for it.

5.       I am crazy about capital preservation. First of all – I am worried about return of my money than return on my money.

6.       I like my companies to grow at a decent pace – 10% YoY (sales growth) operating at a decent margin (varies by industry), with a ROE 20%+ employing either no debt or very low debt.

7.       I like monopolies that exist in very favorable circumstances. As long as the government does not try to lick into the honey-pot. Or – in private industries as long as the management stays honest.

8.       I want to concentrate on setting individual targets for the stocks I hold. I like absolute numbers. My favorite growth number is 26%. I have no interest in what the sensex or the index as a whole is doing. And I don’t really care as well.

9.       I like to get dividends. My thumb rule is 2.5% to start off when I invest and a nice 10% YoY dividend growth.

10.   I like to hold 10% of my wealth in cash. I am not clever enough to find a place to park all my cash. I never know when I will need it.

11.   I like to read. I want to read all the annual reports of my stocks. I may not understand everything that gets written in the reports (I am not a mind reader); but I like annual reports that don’t excessively use magic words..  Vision, mission, culture, commitment, system, integration, globalization (these are just a few.. you know what I mean, don’t you?).

12.   I like 26% for a reason. It’s a neat number – you double your money every 3 years and you grow 10 times every 10 years. A million grows into a billion in 30 years..

13.   I usually don’t like to sell my stocks. If they continue to grow 10% YoY and have 20%+ ROE and has a sensible management in place.

14.   I like sensible management. I don’t like it if the management salaries are excessive. Especially if they grow over 5% of profit the company makes. I also don’t like heroes – I like honest, simple and motivated people to run my company.

15.   My company. Yes, I like to call all companies where I hold stocks as ‘my’ company. I like to see myself as a part owner of the company. I am terribly angry if someone dilutes me.. I like companies that don’t dilute me.. better still if they reduce outstanding share count.

16.   I like to look at a long history.. usually 10 years. I like companies which know what they are selling. And stick to it. Not go after growth for the sake of it. I get mad if good money is spent after bad. Decent retained earnings are key.

17.   Finally, if my companies have more money than they need – I am happy to have more dividends coming in.

Ciao till next time...Harsha