For a given risk-return profile of an investor, the profit maximisation can be achieved by
- Finding the ‘Fair value’ of the stock with good accuracy.
- Controlling Greed and Fear with immense Patience and Perseverance, and
- Prudent mixing of stocks in portfolio with adequate weightages to individual stocks, sectors, company size and business groups.
Enumerated below is the investment philosophy used in our various products :
Stock investment philosophy
- We follow a bottoms-up approach i.e. first Company fundamentals, then Industry basics and followed by the Economy as a whole.
- What matters the most is FAIR VALUE. It is the price we pay for the value we get. Buy the stock if it is available at least 20% below the ‘Fair Value’ and hold the stock as long as the perceived value is greater than the ruling stock price. Our forte lies in finding the ‘Fair Value’ correctly.
- Based on fundamentals we maintain a watch-list (varies from 100 to 180 stocks). Stocks are picked from this watch-list as and when the opportunity arises.
- Investment is an art as well as science. It is neither a pure science (else all Finance Professionals would have been Billionaires), nor a pure art (else all chartists and historians would have captured the market).
- Team Smart VERC never meets any company management. Management passion and quality can be easily judged from the long term financial data, Dividend / Bonus policy, export, clientele, acquisitions/mergers, vision, disclosures, integrity, etc.
- Each stock we advise to sell is a decent investment bet! It was the better stock discovered by our team which led to replacement.
- No thumb rules are used to sell or buy stocks, else our advice would have never produced multibaggers.
- Any stock which remains out of sync with benchmark index for prolonged times needs more attention.
- We always compare stock Price with its Value. At no time we compare Price with the past Price
- If a stock is held in a portfolio, or a ‘hold’ is advised on a stock, it means the stock is a good investment bet at the ruling price. No stock is ever held just because its current price is below purchase price.
- We strictly follow our heads, not the heart. All buying/selling decisions are made with complete control over emotions. – The majority of investors are often ruled and ruined by emotions. It is the rationale thinking and actions which speak in our performance.
- We don’t believe in predicting the market. It is the stock fundamentals which enthuse us!
- Irrational stock movements help us in picking the value stocks from our watch-list and also assist in exiting from the overvalued stocks.
- We are quick to admit mistakes.
- Our objective is to buy undervalued stocks, stick to it as long as the story is intact and sell when the story is over. In this process wealth creation is an automatic outcome.
- Risk - Return profile: Overall we target for high returns (about 35% annually) and ready to undertake low to medium risk.
Portfolio management philosophy
Picking good stocks is only part done. It is the combination of stocks that will provide stability and optimum portfolio returns.
As in the game of chess, apart from knowing the strength and weakness of individual pieces (stocks) we need to maximise their combined power to win the game.
- 15 to 18 stocks from different sectors and groups are sufficient to almost eliminate the unsystematic risk in a portfolio.
- From 31 years of investment experience, we infer that a maximum 10% weightage for single stock and 15% for a single sector works very well.
Stocks: All our schemes have a mix of Large, Mid and Small-cap stocks with proportions varying as per the risk-reward profile of the scheme. The ratio of ‘Value’ and ‘Growth’ category stocks varies as per the available opportunity.
Cash: Hardly keep any cash, fully invested all the time! Reason - We don’t believe in predicting market movements.
- Strict NO to borrowed money. Even a small 10% debt in your portfolio may keep you engaged more than 90% of the time.
- Despite intensive research, there are stray instances when the chosen stock fails to deliver the expected financial results. Such stocks are immediately ousted.