Portfolio strategies

The UP elections 2017 have given a formidable mandate to the Modi's NDA Govt. Predictions have also been made on this momentum continuing on to the 2019 general assembly elections paving the way for a stretch of strong government focusing on execution, creating jobs and improving the quality of life in the country.

The euphoria of the elections were carried to the stock markets with 5+% moves and BSE SENSEX making an all time high. I do believe this is just the tip of the iceberg and start of a long term bull cycle for India.

However, as an investor I would like to have some stock caps to ensure I manage overall portfolio risk exposures.

An important risk management process I follow is; No stock in the portfolio has a weight-age of over 5%. (Depending on ones risk-appetite one may keep this between 5-20%, but not over 20%)

Now why is this important? Risk management would mean ensuring your portfolio is well balanced to prevent any downside portfolio risks. This just ensures when there are bad days (and there will always be) your diversified stock holdings with capped risk exposures protect your overall downside risk and allow you to sleep peacefully.

Another more structural portfolio approach is to have a clear weight-age between large, mid and small caps. I follow a 30-40-30 allocation strategy.

This strategy does force me to sell companies I truly love and believe in, but it gives me a good nights sleep!

Economic Moats

My learning for this weekend is based on the book 'Little book that builds wealth' by Pat Dorsey.

The book is all about identifying economic moats which are companies which have a competitive advantage in the market they operate, protected from competition and ability to earn more money for a long time.

Economic moats can be broken down into three categories
1. Intangibles either in the form of brand, patent, technology, regulatory environment etc
2. Network effects through multiplying customers through ones reach in manufacturing, distribution and reach.
3. Customer switching costs which ensures hanging on to the customer giving it pricing power.
4 Cost advantages from process, location, scale or access to a unique market.

A caveat is one of the above characteristics with a reasonable valuation and you have found an economic moat...Let's find a few!

Soft skills for a successful investor

A few basic skills one needs to be a successful investor:

1. Patience to work through mountains of financial informations and invest & hold on to what you truly believe. 

2. Discipline is following a consistent and hard working approach coupled with a diligent investment ethic. 

3. Perseverance would be having an independent approach and not shying to stay away from the crowd. 

All of this starts with knowledge of once investment operation and humility and gratitude for the results achieved. 

India Budget 2017

Last week India had the much anticipated and hyped financial budget 2017. My initial reaction is the budget was practical (not populist despite elections around the corner) and paved the path for job creation. Given the sluggish private sector investments the Govt needs to step on the gas and invest for the future. I firmly believe the growth pause cause by demonetization is behind us as we see pick up in sales for vehicles, mutual funds, insurance policies, oil etc. I must confess some sectors run through the parallel economy would need to change their operating model to start complying with the laws and taxes. With GST in the anvil and lower tax rates for SME I do see tax collections to be robust and compliance to be even better.

Globally the Dow crosses 20000 and Nifty is headed to 10500 obviously with a few bumps which would be good buying opportunities.

All set for the all important UP elections which would give a good sense on future pace of reforms. 

Localizations

Over the last years we have seen countries starting to look inward; focusing on local jobs, stimulating local businesses and giving a sense of power to the people of the country. This has been seen in India with the 'Make in India' initiative; in USA with Trump's victory and 'Make America great again!';  Brexit with rural U.K. voting for opportunity, change and control vis-a-vis London. All these point to the fall of globalization. Now onwards good and services will be produced / procured based on 'political' economics rather than traditional economic theories.

The Trump era like the Modi era will mark the increased polarization of issues and greater mud-slinging politics. Get ready for spicy breaking news!!!

Retirement Planning 2020

Planning for retirement is the most difficult question faced by most of the people.

Although its easier said than done here are three questions one most ponder and decide to have a comfortable retirement life.

1. When do you want to retire?
2. How much do you want to save?
3. How much minimum percentage of your final salary do you wish to target?

The are countless of other questions and bets one will have to take like long term inflation, interest rates, cost of living, medical costs etc to come up with the right pension amount. And I am sure at the end it will feel you should have done more.

My simple advice is take life (professional career, personal life etc) in 5 year buckets. Its much easier to break down long term goals into shorter term targets which are easier to predict, manage and remember!!!

Think about where you want to be in 2020!!!...