Entering a good investment opportunity is hard enough, having an exit strategy is exponentially harder due to the risk of exiting too soon and losing the potential gains, or not exiting soon enough and facing an erosion of notional gains. Can you eat the cake and have it too? 👇
Once you are favorably positioned in an investment, say you enter at X & 2Yrs later it has grown 3X. Then, without killing the golden goose, just extract your X out of it. Now the engine is running on risk-free capital. This is a mind-hack to prevent you from getting cold feet.
Let the 2X ride the trend perpetually, don't worry about under/overperformance henceforth.

Invest the X you just extracted in a 'new economy' sector that is poised to do well for the coming decade.
This ensures 2 things:

1) You are taking home at least some reward from your previous investment in an 'old economy' sector (steel, cement type co's) & de-risking yourself.

2) You are getting a pie of the new sectors.

So your portfolio stays RELEVANT for the winds of change.
I deliberately mentioned 3X in 2Yrs because the feelings of unease are maximum when one gets a big gain in short time.

In this heightened euphoria, one either exits the whole position and misses a future multibagger, OR doesn't book even partial profits and the trend reverses.
IDEALLY start with a *lumpsum in a *concentrated folio of 15 stocks (x 7% weightage), in the middle of a cyclical downturn that happens once every 5Yrs like clockwork (1993, 1998, 2003, 2008, 2013, 2018-20). As the rally unfolds, start booking partial profit, and add new ones.
10Y into the journey, you'll see 7-8 of your initial picks doing well & contributing the 'venture capital' you need to venture into new sectors.

Portfolio will have grown to 35-40 names, which is fine. The initial picks will become dividend contributors, the new names add alpha.
20Y into the journey you'll find that the initial stocks are all gone (just like Index keeps removing the champions of yesteryears every decade) which is the right way to shuffle.

Being a long term investor doesn't mean holding on to the same names forever like a kid holding 🍭
Every decade throws new opportunities; We need to catch it in the nascent stages and ride it at least for a decade, while partially booking profit from it at the fag end of its peak upcycle.

Caveat: Don't think of booking even partial profits until your principal is at least 3x
Steel, cement (primary essentials) ruled in the 90's.

Banking, BPO/KPO (secondary allied services) in 2000's.

FMCG (tertiary/ daily convenience items) in the last decade.

Quaternary sectors (biosimilars, CRAMS, AI, ML, cPaaS, lifestyle, discretionary leisure, OTT) for 2030.

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More from @techlunatic

16 Sep
The leaders rally first & become overvalued FAST. There's great premium for showing urgency to pump a lumpsum amount in such stocks early on in the rally.

The laggards start their journey after all the good stocks have already gone up. << One can do SIP in such slow movers. Image
Should we only buy the leaders?

No.

Figure out where we are in the Bull cycle.

Have the leaders..

1. a) taken off in a big way
1. b) or starting to take off

Have the second rung stocks..

2. a) caught up with the leaders
2. b) yet to catch up

Your alpha comes from there
The second rung stocks too have the potential to reach the same destination, albeit, with a lag. Use this lag for timing your investments. If the leader is in a strong uptrend, start SIP-ing into the other one. Catch the leader at any future drawdown.

Read 5 tweets
9 Sep
A short thread🧵

The US armed forces faced a dilemma during WW2, because returning bomber planes were riddled with bullet holes and they needed better ways to protect them.

The army knew they needed armor to protect their planes but the question was, “Where should they put it?”
When they plotted out the damage these planes were incurring, it was spread out, but largely concentrated around the tail, body and wings. So the most natural impulse was to armor the parts with the most bullet holes.

But..
Abraham Wald, a statistician, made an observation—the military would make a terrible mistake by upgrading the armor along these sections.

Why?

Because the military was only looking at the damage on returned planes. They hadn’t factored in damage on planes that didn’t return.
Read 5 tweets
8 Sep
Maruti, fundamentals history :

20Y EPS growth CAGR : 12%
10Y growth CAGR: 7%
Current EPS : 140rs /share
Yield at CMP : 2.5%

What is this *Yield? 👍

Explanation in the comments section below 👇 Image
Read 4 tweets
30 Jul
When a stock falls, it opens up deeper arbitrage opportunities during a 'falling knives' scenario. This discount attracts a rapid influx of fresh cash until the arbitrage opportunity gap is filled (i.e the market stabilizes) to the point of 0 alpha.
Earnings yields is mostly stable and smooth curve. It's the stock price that fluctuates due to sentiments, liquidity, news cycle, perception etc.

Let's say the long term earnings yield was growing at 9%. If you bought at

(A), your returns = 5%.
(B), your returns = 15%
If you track yield, you'll get better entry points and get better bang for buck. If you track only price, there's a risk of getting trapped at (A) where all technical indicators are bullish.
Read 7 tweets
29 Jul
Stock prices respond disproportionately to free float availability (or lack thereof) than to theoretical Excel valuations. The growth rate x float decides the PE multiple, that's why every co. can't be 15PE. A co. with just 10% float will deviate that much from its DCF valuation.
If there's 2 similar co.'s, one listed (with 15% float available to investors) vs another co. unlisted. The market will arrive (rightly so) at wildly divergent valuations for both. The second co.'s valuation is based on 100% ownership, while the 1st one on a limited supply basis.
If both were listed with 100% float available to free-market forces, or if both were unlisted, then one can do a side by side DCF, otherwise sharing social media infographics comparing stats of Nestle vs Amul, vs ITC without considering locked up float shows lack of wit.
Read 6 tweets
29 Jul
The central narrative of my investment narrative has never been and will never be :

a) Catching stocks at the bottom
b) Catching potential multibaggers
c) Being obsessed with the chosen few 'potential multibaggers'
d) Buying 'safe' stocks and avoiding errors at any cost.

👇
b) Never treated this as a 'potential multibagger' when I bought it, just a better-than-average candidate among others.
Read 6 tweets

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