introduction:
(1) SEBI orders a forensic audit of Brightcomm Group that if you have ten lakh rupees or one lakh rupee, how is it that you should be designing or developing your portfolio by using these few rules? Hi, everyone. Welcome to Today's video. So on this video, I am going to do two things. One, I'm going to talk talk about five famous quotes from World Famous investors and what wisdom you can get out of it. Second, I'm going to help you apply
(2) that wisdom by designing a ten lakh rupee portfolio in front of you so you can adjust the amount if your portfolio amount is one lakh. And if you're looking to make fresh investments or take fresh positions, you can incorporate some of these tips that have been passed on by World Famous investors. Also, a very quick shout out to our sponsors for today, which is FinBingo . It's a product of taxbuddy. com. It's
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First quote:
(1) So check the links in the description box and let's get this video started. So the first quote or the first piece of financial wisdom comes from Mr. Warren Buffett. He says that a horse that can count to ten is a remarkable horse, not a remarkable mathematician. And this is such an intelligent quote because in the market, you would often hear things like that. You know what? Let's go and buy this highly undervalued industry. And you know what? I'm buying like an undervalued stock which will become a market leader. It has monopoly this that. But yes, from a market perspective, if you buy a stock in a dying industry,
(2) even if that stock is a market leader in that dying industry, guess what? That stock might become dust very soon. So you should be really careful. Now, can I show you some examples of this? Absolutely. So let's talk about a stock called L&T, because I've heard so many people going Gaga over this stock. So the word of the day today is Gaga. Now please don't comment about Lady Gaga. Just tell me the meaning of the word Gaga. That's the word of the day for today. So if you take a look at the L&T stock and you can clearly see that the stock has given a run of 66.
(3) 42% in five years. Right. So this is the return that you're getting from a stock like L&T larger than to grow. Now if you compare this to the five year return of Nifty, what do you see that Nifty has given an 83% return. So Nifty 83% return. L&T roughly 66% return. So L&T is giving much less return compared to Nifty on a five year basis. Now that is not the problematic part. The problematic part is that how much risky is Nifty? Visa is how much risky is L&T. That risk factor can be calculated by looking at the beta of the stock. So if you simply go and search
(4) for longterm beta of LNG, you will see 1. 3. So what? In simple terms, this 1. 3 indicates that if the market or Nifty 50 gains 100 points, then L&T should be gaining 30 more points. So it should be gaining 130 points. On the flip side, if market falls by 100 points, then it's okay for L&T to fall by 130 points. But the story that I just told you about the returns that Nifty gave very high returns, but L&T gave very low returns in a growing market. So what is it that I'm trying to tell you and very easy to understand language. I'm simply trying to tell you that there are certain stocks like L&T
- which have consistently underperformed the market despite taking much higher risks. So just because they are in an industry which you feel is a growth industry and they are a market leader in a particular space, don't just go and buy stuff because many a times I hear the argument that Akshat, you know what, India ka vikas hone wala hai so many highways will be built, roads will be built. And guess which company is going to build those highways and roads L&T is going to build. Okay, great. Then show me the returns. Vikas also happened five years ago, right? It's not as if that vikas is someone new. It comes every five years. People keep on talking about vicars, Vikas vikas all day.
- But that vikas or development is not translating into the vicars or development for L&T stock. So please avoid please don't tell L&T as a great stock or stocks like L&T as great stocks. So whenever you hear people talking about such stocks, always quote Mr. Warren Buffett on this, that a horse that can count to ten is a great horse, but not a great mathematician. But on a side note, I have never seen a horse who can count to ten. So I don't know when this quotation got formed.
Second quote:
(1) But anyways, so let's move on to quotation number two. This again comes from Mr. Warren Buffett. It's a very good quotation. So it says that instead of predicting rain, focus on building an Ark. Now the origin of this particular quote comes from Bible and it's the Noah's Ark story without getting into it because I might say something incorrect here. So I will refrain from doing it. But basically Noah was the person who built an arc that saved the entire world. Right? The meaning behind the quote is fairly simple, that we always keep on predicting that something bad is going to happen.
(2) So I will wait for that correction and then once the market corrects, I will reenter the market again. So we try to keep on predicting the rain rather than building the ark or building a portfolio that is built on good fundamentals. For example, right now there is so much volatility that is going on in the market. People are fretting that you know what, everything is going to become dust. China is going to bomb this particular country. Russia is already bombing everyone. US is feeling left out. So it will also start some agenda. This that so bad bad stuff is going to happen. Probably no one can guarantee that for sure.
(3) But don't worry about made up things. If you are an investor, then just pick good businesses and invest in good sensible companies. Now there is an entire video that I can do on portfolio design and that video will last for 2 hours. But let me highlight four very important points that I personally follow. Number one, you should be doing business analysis, not stock picking. This is very, very important. People miss this simple point. I for example, am an ex management consultant. Whatever I talk about on my YouTube video has to do with business analysis. Majority of the times, not simply stock analysis.
(4) There is no point in just simply using MSCD. RSI bunch of other indicators if they are not supported by fundamentals. If you are picking bad businesses, you will always keep on feeling scared all the time. And that is precisely what is happening. Why do you think people panic sell because they buy stocks in which they have no conviction. Why do they not have conviction? Because they have not done the analysis of the business. They are just trying to ride the momentum. And whenever any major tectonic event happens in the economy, all RSI MACD, it keeps on setting.
- Nothing happens there. It does not work from a technical perspective. Technicals are important, no doubt about that, but only up to a certain point. You must get really good in doing business analysis. As long as you have done business analysis, picked sensible stocks, you will not get scared. This is very important. This brings me to point number three. That 80% of my portfolio, personally speaking, it is invested in fundamentally sound companies. Now I will say something controversial and a lot of people are going to give me a lot of heat.
- Now what are fundamentally sound business? Super easy to understand. Businesses that make money are fundamentally sound businesses or businesses that can make a lot of money going forward. Those are sound fundamentally businesses. When I say good things about stocks like pidilite or HUL, many people say, Akshat, your prediction is wrong. HUL has fallen a lot this that I fail to understand it. For example, I'm a big holder in HUL right now I'm sitting at a loss of roughly 8% or 9% on HUL because I have downward average the stock and I have not violated my rule that all my money is tied into HUL
- and why did I purchase HUL in the first place? Because it's a fundamentally sound business. Go and check it balance sheet. Tell me a five year period where HUL has not given a return. Tell me a five year period where the revenues of HUL has not grown. Tell me a five year period where the profits of HUL has not grown at a good rate. You will find all these things happening for stocks like HUL. Therefore, they are sound. And 80% of my portfolio is made up of well diversified sectors and well diversified cash rich profit making companies like HUL see what happens with that 20% money that you are investing.
- So I do very little speculation or very little swing trades. And that is precisely what you should also be doing. I get messages from people that actually I bought Paytm. I thought that it was a great stock. I ended up investing 80% of my portfolio in Paytm now what am I supposed to say to it? It is not called investing. This is called as acting irrationally. So please understand that as per Mr. Warren Buffett's quote here, again, please take a look that focus on building a good Arc. Don't try to predict when rain is going to happen.
Third quote:
(1) Now comes the third quote and it comes from Mr. Peter lynch. It's an excellent quote and I will break that down and read that quote for you. Look for small companies that are already profitable and have proven that their concept can be replicated be suspicious of companies with growth rates of 50% to 100% a year. Now this is an excellent quote and this depicts the type of growth stocks that I purchase. Now basically what happens is that as per point number two that I was speaking
(2) earlier, that if you just simply go and buy companies like pidilite, or HUL, they will give you decent returns, no doubt about that. But they can never give you exponential returns per se. The reason is fairly simple that these companies are already very big. So you need to identify smaller companies that are not getting a lot of attention because when these companies come under the spotlight, a lot of people will switch to these type of companies and these companies will become really big, so to say. So therefore, I do growth investing, growth investing with 20% of my portfolio.
(3) Very little goes into speculation. So 80% of my money goes into good Arc based companies. 20% of my money goes into growth stocks. Now, what is meant by growth stocks? So growth stocks are companies that can be smaller. These could be companies that are going to skyrocket in the future. These are companies that have a very high chances of getting acquired in the future. So there can be multiple aspects to this growth. But I hope you get the picture that this
(4) 20% of my money I'm investing purely for growth. Can I give you a couple of examples? Absolutely. I will give you a type of company in which you could consider investing. This is not an investment advice and a company where you should not have invested. I will give both the examples. So let's look at the first part of this quote. So look for companies that are already
(5) profitable and have proven that their concept can be replicated. A classic case in point is something like amrutanjan. Amrutanjan is a company that is not very big as of now, it has proven its metal in terms of building a brand. So everyone understands what amrutanjan brand is. It has successfully expanded its operation in the Southern part of India and there is a lot of scope left for that company to enter into northeast west part of India as well and build its presence. We are also launching new products, doing a bunch of good, good things.
- I have done a complete analysis of amrutanjan stock and according to me, these type of stocks are sensible stocks to purchase from a growth perspective as well. Now, this is the first part of the quote. Now let me give you a counter example. Be suspicious of companies with growth rate of 50% to 100% in a year. Now, there was a video that I did a few months ago about the brightcom group. And you can go and check out my video. I categorically told that, hey, this looks like a manipulated stock.
- It's a pump and dump scheme in the making. Why? Because take a look at this particular chart. It went up like this. It showed exhibited more than 100% growth just within a few months. And I categorically made a video during this period of time telling that, you know what? This looks like a pump and dump scheme. And the stock has started to fall now and correct a lot.
- In fact, take a look at this particular article. This was released on 2nd March, 2022. sebi orders a forensic audit of brightcom group but when I posted it, a lot of people created ruckus on Twitter saying that akshat, you know what, you don't understand companies this that now this theory has been literally picked from Mr. Peter lynch quote.
Fourth quote
(1) Now comes the fourth point of the fourth quote. It again comes from Mr. Peter lynch. And the quote goes something like this. There are five basic ways a company can increase its earnings, reduce costs, raise prices, expand into new market, sell more of its product in the old markets, or revitalize, close or otherwise dispose of losing operations. Okay, so basically how this connects to your portfolio, essentially you should be purchasing companies that have certain kind of moat. Now, what is meant by moat?
(2) Moat means competitive advantage. If you cannot do a complete business analysis, what you should simply be doing is that just go back, refer to this quote and see if a company has power to do of all these different things. So let's take three examples. Asian paint, Hindustan unilever, Nestle. And now you tell me that, do these companies have the ability to raise prices? The answer is yes, they can increase prices, therefore their profits can go up, no doubt.
(3) Have they done it in the past? Yes, very recently. In fact, HUL companies like Nestle, they have increased their prices. No problem there. Number two, can they expand to new markets? Absolutely, they can expand to new markets. For example, HUL is aggressively expanding into the rural market. They are launching like smaller Sachs. Same goes for Nestle. We are launching smaller Cadbury versions
(4) and hundred different types of Maggie Masala and what not right. We are entering into new markets also. They are selling their products in the old market. Of course, they can sell more of their products in the old market and they are very obsessed in terms of cutting costs. So this builds the moat for a company and these companies tend to survive from that particular perspective. So keep this quote in mind while designing your portfolio.
Fifth quote:
- And this brings us to the fifth and the most important part about portfolio building that you should not try to time the market. And this quote again comes from Mr. Peter lynch. And this is what the quote says. Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves. There is a systematic reason that we are moving towards a world where there are going to be shorter beer run cycles and more Bull run cycles. Why?
- Because quantitative easing has taken hold over the world. This roadmap was prepared in 2008 and every time a crisis hit, government prints more money and asset prices inflate. So if you are in the habit of just sitting on the sidelines watching the market go up and down, up and down, you will not make any money in the market. In fact, you will lose a lot of money. No one, including me or any other investor in the world can predict the market. That whether the markets are going to go up or whether the markets are going to go down. If they could have done it,
- they would have sold everything and would have taken appropriate positions. But it just cannot be done. Please do not believe in people who are telling you that, hey, I will teach you how to predict the market. No one can do it. The only way you can make money in the market is by staying in the market. That's the simple golden rule that you need to follow in terms of your portfolio design.
How you should be developing your portfolio
(1) Okay, so this brings us to part two of the video that if you have ten lakh rupees or one lakh rupee, how is it that you should be designing or developing your portfolio by using these few rules. So let's say if you have one lakh rupees then 80% of that money should go into, well, moated companies. What are well, moated companies. Now again, I can create like a two hour video on this but I hope you got some of the basics from the short discussion that we had.
(2) So please invest 80% or 80,000 of that money into, well, moated companies. Now these should be spread across different sectors. For example, tech could be one sector. Right. Now companies like TCS will fall in this domain. Again, not an investment advice. Please take it from an education perspective. FMCG companies.
(3) These could be companies like HUL, Nestle, Marico, etcetera. Then you have Pharma or chemicals. So I am quite bullish about these sectors. Right. And finally you have banks. So in pharmacy it can be big companies like Abbott. So these are good companies to have. And banks you of course have HDFC bank.
- ICICI bank. Bajaj finance. These are some sensible stocks to purchase. Rest 20% of the money should go into growth money. So growth money means that you are purchasing smaller companies or next Gen companies. These according to me, would be companies like amrutanjan or deepak nitrite, etc. Like or revolutionary tech.
- Now majority of these tech stocks are not in India. So just comment below in case you would want me to make a video on how I would be purchasing stocks of one lakh rupees in, let's say, US market. So I'll make a post on that if there is enough interest. Important point to note is that, hey, this 20% money again should be diversified across sectors. So please keep that in mind. So in summary, please don't try to guess the market.
- Be sensible. Relate to these quotes. These quotes have been written with a lot of experience in place. So you can definitely incorporate some of the key lessons. And I hope that through this post you enjoyed learning and demystifying these quotes. Please give it a thumbs up and I will see you the next time.
