There are two questions that will always haunt any long term investor. One is about what is a right asset allocation, and second is how many stocks one needs in a long term portfolio. I do not think there is any boiler plate type of answer to these questions. I believe while it is absolutely necessary to have an optimum asset allocation and multiple number of stocks, the actual percentage allocation or number of stocks will depend upon individuals risk profile, willing to learn, willing to spend time reading about companies, etc. In addition, these two aspects cannot be generalized and it cannot be a static numbers. These have to be dynamic and should change with the investing time period. Having said that following is my thought process for my long term portfolio.
Number of Stocks in Long Term Portfolio
Interesting Reader Questions
I receive questions in my email and once in a while I like to sample out few interesting ones. In last one month or so, I received two very interesting questions on which I presenting my thoughts below.
Why do you make your analysis very length and elaborate, although I like the completeness? Is it really required? Looking at EPS, P/E ratio and similar four or five parameters should be good enough to make a judgment decision.
Completeness cannot be obtained without being elaborate. Am I right? I do not now weather a length of analysis is required or not. In my view, length is not a barometer in my analysis process. I am looking for few things based on my objective, and I pursue it to understand it better. Many times I stop short knowing it is not going to be worthwhile to continue. I am looking for generating income using dividends and capital appreciation.
Power Companies leading the Renewed IPO Buzz
Yes, the buzz is back and testing markets and testing mettle of individual investors. Three power sector companies, viz. Adani Power, Indianbulls Power, and NHPC, are in fray to get investors money. I had expressed my thoughts about Reliance Power IPO. Let us revisit some of the few tidbits in the context of this latest buzz.
Adani Power was priced in the range of Rs. 90 to Rs. 100 per share. It completed the subscription period and based on the NSE data; it was over subscribed by 20 times. My viewpoint is, its the herd mentality and craze continues. We individual investors never learn our lessons.
Corporate Dividends in Emerging Markets – Some Thoughts
The creation of Pan Asia Dividend Aristocrat index by S&P is a realization that Asian economy (specifically emerging markets) will continue to grow. This is a step in right direction to recognize managements who are prudent in their cash management over a longer term of 10 years and more.
The newly created S&P Pan Asia Dividend Aristocrats consists of 31 corporations. Of these 31 corporations, only five companies are from emerging markets of China, Taiwan, and India. Many readers will view this lack of dividend growth in emerging markets (including India) as shot in the arm saying dividends does not provide significant return. My viewpoint is different. The chart, I presented earlier shows that dividends provide approximately one third of the total returns over 10+ years.
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No Entry Fee for Indian Mutual Funds – Really?
The regulatory diktat of abolishing entry fee for mutual funds has received a good coverage in the financial media and blogosphere. Almost in all of the news coverage, it has been hailed as a beneficial to individual investors. Many financial and personal bloggers have also published individual post explaining how and why it will be good for individual investors. This was a typical example of herd mentality – everybody saying good so it is good. I am surprised that personal finance folks are also providing one sided opinion.
I found only one article by Shewta at Personal Money which provides a balanced analysis on the impact it may have on various players. I am taking this one step further to provide my understanding and implication on individual investors.
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Bloggers and Blogopreneurs Debate
Sriram Vadlamani at Trak.in wrote a post on Are Bloggers Entrepreneurs? The discussion through the post seems to be demonstrating that bloggers can be considered as entrepreneurs. However, the resulting discussion in comments section trended towards showing bloggers are not entrepreneurs.
Across many other blogs, I am observing that entrepreneurism is being associated with (or related) to the personal risk and/or risk of invested money. There is a fundamental flaw in the chain of thinking. And this fundamental flaw comes from our misunderstanding of the true meaning. We take the literal meaning of the definition and fail to put entrepreneurship in proper context.
The central premise of entrepreneurism is about “risk of the idea”. The risk is associated with whether the idea solves any problem, how that idea can be executed, whether a business model can be derived out of it, or whether it can be sustained profitably. The basis of entrepreneurship does not stand on pillar of personal risk and risk of capital. These two aspects are just the enablers or facilitators. They do not, cannot, and will not drive entrepreneurship. If that were the case, then all angel investors and venture capitals would be called entrepreneurs. Buffett takes personal risk and capital risk by putting money into companies (many times distress and depressed companies), he should be called entrepreneurs! Do we call them entrepreneurs?
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Indian Corporates Offering NCDs
The key attractive aspect about NCD is they are fixed income vehicle with capital being secured. In general, NCDs offer returns that are 2% to 4% higher than savings, CDs, or some of other government bonds. For example, the current L&T offers interest rates in the range of 9.51% to 10.24%, while Shiram Transports offered NCD upto 11.5%.
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