This is part 2 of the PMS series, check the first one here.
Lets jump to the 7 things I learned :-
1. Portfolio Diversification & Allocation
The money in the PMS was fully invested same day they received it on account opening, was shocker to me as I had not invested such huge sums in one go.
The money was spread across 11 stocks with approx equal weight.
The stocks were well chosen with themes like turnaround, capex kicking, consumer driven, value, tailwind, infra etc .
Before this I usually would be buying some stock on tip and have 20%-40% allocation, and the tip would generally come at the worst of times.
I learned the importance of diversification and allocation, and above all conviction which comes by own research.
2. Tracking Performance at Portfolio Level
As you know I get a report each business day on how my portfolio is doing per stock level and at the end there is cumulative valuation. Annualized return and comparison against Nifty as benchmark.
When Investing directly I used to track at individual stock level, and would get affected by rise and fall of each stock.
Post Investing in PMS have started looking at Portfolio Returns and not individual stock returns and w.r.t benchmark.
No point beating yourself when the overall market is not performing.
I now understand there would be times of under performance, flat performance and over performance. You need to live through all the phases while being fully invested.
3. One or two very high return stock can change the portfolio returns dramatically
Don’t beat the shit out of yourself if all the stocks don’t give good returns.
1 or 2 stocks with very high returns can change the overall portfolio returns and such stocks bring the alpha.
Most importantly don’t trim or sell your winners only because of price action.
There were 2 stocks in the portfolio which were 100% and 150% up respectively at portfolios peak, they are still part of the portfolio.
Previously I used to think all my portfolio stocks should perform well at all the times and would sell the winners early.
4. Do Nothing
Media used to report all the stocks the PMS used to buy every now and then and prices of the stocks would zoom and hit 20% upper circuit limits.
I used to think how many stocks the PMS holds and if they book profit immediately after such rise in few days.
What I learned is not all stocks are reported in media, not all reported by media are in your Portfolio and PMS holds for long term all the stocks they buy.
From the initial 11 stocks only 3 have been sold and replaced with others. So 8 stocks have been part of portfolio even after 16 months.
I don’t remember holding stocks for so long unless it was a loser in first place.
I learned a great lesson after creating a portfolio of well diversified stocks you have to do nothing. Yes repeat with me DO NOTHING.
5. Rational Behavior
One of the stock in the portfolio was declared as shell company by SEBI when they came out with list of such companies and trading was stopped immediately in this stock.
The ban was revoked and first reaction by investors was to dump the stock. It went down by approx 30-40% in 2 days.
The PMS acted in rational way did nothing and in few months price recovered to original levels and later went on to hit new highs.
As an individual I would have taken the opposite stance and as other retail investors would have dumped my position in the stock.
6. PMS manager are not magicians
When a particular stock which is bought by PMS happens to be reported in media, Retail Investors jump in and drive the stocks to crazy levels.
Which again comes to same level after initial boost. They think if the PMS has bought it must be good and can give good returns, forgetting that they need to hold it for as long as PMS and they are entering at higher levels. Price does matter.
I would like to emphasis here that PMS managers are not magicians they can also do mistakes and they also need to hold it for long period of times to reap the full benefits.
Their portfolio are made of 10-11 stocks, 1 or 2 failure will not make a dent in portfolio returns.
When you piggy back on such stocks, understand the story, build your own conviction and be considerate of Price, Time and Allocation.
7. Stick to your Strategy
First lets look at the returns I have got so far in different time frames, this time frame is too small to come to any conclusion but lot has happened during this period.
From 28-Apr-2017 to 14-Aug-2018 -> 2.56% Annualized (Nifty 16.71%)
From 28-Apr-2017 to 31-Mar-2018 -> 17.07% Annualized (Nifty 8.88%)
From 28-Apr-2017 to 31-Jan-2018 -> 48.38% Annualized (Nifty 23.97%)
All above figures are from PMS report and are net of Fees, comparison is done with Nifty, ideally should have been Nifty small and mid cap index.
In this period:-
– There was midcap and smallcap exuberance till Jan 2018
– Followed by heavy correction in Mid caps, small caps and very small correction in Nifty Index post Jan 2018
– The under performance of Mid and small caps continues and Large caps started outperforming in last few months.
From the above numbers it must be clear to all that majority of my Portfolio is in small and mid cap stock.
The out performance of PMS portfolio is very visible when things where going well for mid and small caps till Jan, post that both PMS and Nifty corrected.
Nifty showed out performance post that and PMS portfolio continued to correct.
I would say great data set in short period of 16 Months.
What this means is that market will give returns to your strategy (mid and small caps in my PMS) and sometimes it will whack your portfolio.
You need to be able to stick to your strategy at all times and be rewarded when time comes.
Build Diversified Portfolio of good stocks with proper allocation, Be Rational, Do Nothing, Stick to your strategy and track investment performance at Portfolio level.
Don’t compare your returns with others but with a suitable benchmark.
Hope I would have learned this few years back, but as they say it is never to late. Trying to Implement the above, and hope readers take few things away today.
Do share your thoughts in comments sections below.
Thanks for being part of my Journey.
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Coming Soon:- Is Portfolio of multiple strategies better than Single strategy ?
PS:- I am still invested in the PMS and will update you time to time with the returns and any new learning. Follow the blog to get updates.
Disclaimer:- Nothing on this site should ever be considered to be an advice, research or an invitation to buy or sell any securities