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The LongTerm MultiCap Portfolio Revamped


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The last few weeks have been…interesting. (I heard there’s an understatement of the year award up for grabs). For the world in general, and the tiny percentage of that world that cares about financial markets.

For that second set, if you’ve been able to grit through the pain of portfolio drawdowns, there are incredible lessons to be learned, that will have a bearing on your future returns.

At Capitalmind, we have been hard at work doing nothing. Well, nothing apart from absorbing, understanding, analyzing the picture from afar, up close and upside down, and synthesizing into the wee hours, what it means for the next 12-18-24 months.

Making sense of what has happened

The initial debate about how this correction compared to the 2008 financial crisis is still open but there are a couple of reasons why this one feels like the end of the world.

While a few of the worst past corrections felt “like being made to sit on top of an ant-hill” (quoting one of our premium members), this one so far has felt like being hit by a sledgehammer. [Why March 2020 feels so bad and should you buy yet? ]

And since there were so many “Should we BTFD?” questions, we did a podcast that answered just that.

‘If you were to think of yourself as not as risk averse and you can do a 50-50 allocation and you’re currently at 90:10 then take the remaining out of the debt markets over a period of time and invest over the next year rather than just now. Because if you were to time things then SIP wise this is a great time to start. You’re starting at a valuation that’s much lower than 2 months ago – in fact, much lower than probably 2017. Today you are getting prices of 2017, yesterday morning you briefly got prices of 2014. You get 6 years of economic growth without really having to pay for it.’ [How do you invest through a panic? Podcast]

We wrote of the need to pause to consider not just the first but the potential second and third-order effects of the pandemic and the recession it has triggered in almost every country.

Once the system runs through the impact, and this could take two or three months, we’ll see a renewed interest build up. People forget quickly, so eating out will resume, as will theaters, and offices and so on – and some of it will encourage more purchases. (For instance, if you can’t take public transport or an Uber because you’re scared of the virus, you might want to get yourself a personal vehicle after the crisis is over)

Also, authorities have to respond. We believe they’ll do this by easing liquidity and perhaps by cutting interest rates. How much lower can we get? [The coming of a kinda-sorta perfect storm – March 2020 PMS Letter to Clients]

It’s easy to miss the fire alarm going off in the middle of a hurricane. That fire alarm was the sudden and inexplicable drying up of liquidity in global markets that is more to blame for the recent correction than the virus.

We all thought that the drop in the markets was about how the world was going to fall down due to the coronavirus. But it wasn’t. At least not yet. The fear is there, of course, but in this massively leveraged world, just a little spark is enough to start to bring down the neighbourhood. It’s an extremely fragile system. [Follow the Money. How a global liquidity crisis beat us before the coronavirus.]

Investing in an uncertain world

What does it all mean to how we are thinking about investing?

Once in a lifetime sale on quality stocks? A new normal where a lot of the old leaders will no longer be relevant? Just the beginning of a long depression-led bear market?

First, we have to think probabilistically. In simple words, we need to give up the urge to pretend like we know how things will pan out. There are few precedents to what is happening now. But we are optimists overall, so believe the world and India, will come back from this.

The LongTerm MultiCap Portfolio Revamped

Excerpt from PMS Webinar Presentation [4th April]

Our 2020 portfolio strategy reflects this uncertainty

The LongTerm MultiCap Portfolio Revamped

Due credit to Prof. Damodaran’s Value Framework from where this has been adapted.

We will therefore focus on a few things:

  • Large caps to get money first when it comes back, so more focus on the larger caps
  • Keep investment ratios around the above themes but be ready to replace at new opportunities.

Changes to the LongTerm MultiCap Portfolio

Our 25-stock LongTerm Portfolio has been partly in cash for the last 18 months, with 16 occupied slots currently. Of these, we will retain 12, replace 4, and add 9 new stocks to arrive at a full 25-stock portfolio.

The complete portfolio with links to short notes on each stock and updates on how the portfolio is doing is available on the MultiCap Portfolio Page.This will involve selling a few stocks from our portfolio that are currently there:

  • GNA Axles
  • Bandhan Bank (Replaced with Axis)
  • PSP Projects
  • Kotak Bank (replaced by SBI)

The portfolio is now weighted towards Large and Mid Caps, together forming 84% of the portfolio.

The LongTerm MultiCap Portfolio Revamped

80% of the portfolio is now what we call the “Reasonably Valued Core” and “Quality Bargains” with the remaining 20% in the lower probability (higher risk) “Market Fire Sale” and “Post-Virus New-Normal” buckets.

The LongTerm MultiCap Portfolio Revamped

Where is the portfolio?

Click here to see the portfolio: [Premium Access Required]

You can see the 25 stocks and each stock has it’s own page, linked appropriately.

How to allocate

This is important. Overall, we do simple equal-weight i.e. up to 4% allocation per stock. But we will not buy lumpsum. Not now when there could well be a few more corrections as the market finds its bottom. We don’t know when or what that bottom will look like, so the cash we have raised from selling debt and other stocks will be deployed over the next several months. We will note on slack for every tranche.

So the strategy is:

  • Buy the above stocks over FOUR tranches.
  • Each stock is 4% so buy 1% per tranche.
  • Meaning, if you’re investing Rs. 500,000 in total, you’ll allocate Rs. 5000 per stock.
  • If the stock has a higher value than Rs. 5,000 (Abbott, for instance) buy once now, and skip subsequent tranches till you need to add more.
  • We’ll announce subsequent tranches later.

For a regular investor, who is looking for a standard mechanism of investment, just buy into the stocks every month.

Bottomline, be prepared to be nimble with the portfolio as we start to come out of the lockdown and various parts of the economy start to fire again.

Connect with us on slack #long-term-stocks to discuss.

Upgrade to Premium to get access to our portfolios (Long-Term MultiCap, Momentum, Dividend Yield, Fixed Income) by upgrading to Premium. Have questions? Email us at premium [at] Capitalmind [dot] in or on twitter @capitalmind_in


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