Annual Letter to Self — 2023
I have been investing in markets for the past 4 years. I decided to summarise my learnings briefly and performance in a letter or journal.
There is no intended goal except to create a moment of reflection and to document what is running on top of my mind from an investing perspective.
On returns
- 17.01% CAGR over the last 4 years
- If I had invested in NIFTY50 instead of purchasing individual stocks, my return would have been the same. No outperformance, no underperformance. I did that actual math by adding NIFTY50 equivalent units on each of the days I bought stocks.
- The tangible financial return on the time invested in finding stocks is zero. So put simply, I would have been better off, had I invested in NIFTY50 because I would have saved time while getting the same returns.
On capital deployment
- ~75% of my money in direct stocks was invested from June 2021 onwards after the COVID-19 sharp recovery was over.
- Holding about 22 securities
Mistakes
- Not respecting valuation: I had done an overdose of Consistent Compounders theme while ignoring price so I invested in companies at exorbitant valuation. This was a big mistake IMO as presumably, I think I had an understanding of the valuation & size of the company. Some of those companies went under time correction.
- Position Sizing: Investing a small sum on a high conviction bet. Stock moves but portfolio does not. I think it was the result of not building conviction on bets.
- Checking portfolio often: Checking my portfolio encouraged me to take “unwarranted” actions.
‘All of humanity’s problems stem from man’s inability to sit quietly in a room alone.’ ~ Blaise Pascal
Learnings
- Built conviction to concentrate bets.
- Discovered myself and my risk aversion. I like to invest in seemingly ultra-safe investments e.g. market leader with limited competition.
(1) As part of replicating investors, I first invested in Rain Industries & Suntek but I withdrew. Both were too risky for me. Rain was leveraged with key personnel risk. Suntek had too much irregularity in cashflows that I did not understand how to value.
(2) Invested in Edelweiss. When I invested, the valuation of Nuvama alone was equal to Edelweiss’s overall MarketCap so there was a huge margin of safety.
(3) Invested in Kotak Bank (highly risk averse), ICICI Lombard (no NPA in its history). But both of these firms operate in very interesting spaces e.g. Kotak specialises in SME Lending (by nature more risky) and ICICI Lombard operates in general insurance which is also facing high sectoral competition.
‘Head I win, tail I don’t lose much’ ~ Mohnish Pabrai
On pursuit of investing
- Charlie Munger says ‘merely being shrewder than other people at identifying stocks and passively holding them to make money for only yourself is not enough of a contribution to society for what one is taking’. [1:50 onwards]
- The whole pursuit irrespective of what results it yields is very selfish if done only to increase your wealth. And if you underperform the index then it is stupid as well.
- So why pursue investing? And why not give money to Index/MF/PMS that can do better?
- I am not opposed to the idea of giving my money to others. I may opt to stop this activity and transfer to some PMS if my performance wrt index does not improve.
- The reasons for pursuing investing are:
First, I genuinely like the process. It does not feel like an effort to me.
Second, investing has helped me understand different businesses, moats, their financial implications, and capital allocation in a much better way. It helps me become a better version of myself as a business professional. To some extent, it helps me do my job better by improving my decision-making.
Third, it keeps me grounded by repeatedly exposing my vulnerabilities to me and forcing me to look at life from long-term perspectives.
Fourth, there is some sort of zeal or ego as well that makes me believe that I can do this job well. So I ‘really’ want to test myself. - At this point, I am still processing Charlie’s point about selfishness. I have taken it beyond investing and I am trying to apply it for the general profession. I am trying to figure out in what circumstances one’s pursuits add value for others and when these are purely selfish. If you have anything that can help me broaden my perspective on this topic then please share it with me.
- In case of investing, Charlie highlights e.g. managing a pension fund is better. In my interpretation, what Charlie is saying is ‘Take responsibility for someone other than yourself and play that part responsibly’.
At this point, I find the whole idea of managing other people’s money too risky. I see great liability for my actions on other people’s wealth and I do not consider myself to be skilled or confident for taking that kind of responsibility. Hopefully, I will find my answer and my balance i.e. what I am contributing & what I am taking from this world are in balance. - Meanwhile, ‘doing justice to the job you have taken’ is the minimum definition I abide by while conducting myself professionally.
Justice. Wrong none by doing injuries, or omitting the benefits that are your duty. ~Bejamin Franklin
Saving grace in this journey
- Did not underperform the index.
- Investing in quality companies that are vetted by top investors
On my investing strategy & investment commentary
Hope you enjoyed reading it.
Thanks
Abhishek
abhishek222222@gmail.com
