TIPBlog Portfolio Update – Third Quarter 2009
The 3Q2009 can be summarized as quarter of recovery. In my post SENSEX trends, I looked at quarterly earnings and profitability which showed signs of positive growth. It still remains to be seen whether this growth is sustainable and how long it is going to continue.
It is important for all do-it-yourself investors to make sure they are monitoring their portfolio and keep tracking of progress. Last progress update was for 1H2009 and was discussed in early June 2009. This post summarizes TIPBlog portfolio update and shows progress.
TIPBlog Portfolio Update - 3Q2009
The status or update is as follows:
- Projected dividend cash flow was Rs 11,801 (increased from Rs 10,701 in 1H2009);
- Yield on original investments (YOC) is 4.90% (increased from 4.7% in 1H2009);
- Year-to-Date portfolio value increased by 57.6%;
- Life-to-Date portfolio value is at 330% on cost basis; and
- The portfolio has 11 stocks.
Following is the summary of changes that I made during 3Q2009:
- Initiated starter positions (i.e. new purchase) in Hawkins Cookers Ltd.
- Sold my position in GE Shipping. When I had bought this stock early this year, I had not done my due diligence and bought it for two reasons (a) for low PE ratio; and (2) high dividends. In addition, as I had mentioned in risk analysis for 1H09, lack of watch list or buy list also had a role to play. I completed my analysis and realized it does not meet my criteria for buy a stock. This is explained in my post on GE Shipping stock analysis.
With respect to my year 2009 portfolio goals, I have following updates:
- I have reached the projected dividend cash flow of Rs. 11,801 (against my Year 2009 goal of Rs. 15,000). It remains to be seen whether I will achieve my year end goal.
- To bring portfolio diversification to pre-determined risk level. Summary is; I have not yet reached this goal, and most likely I am going to miss it. I will discuss this in upcoming articles about risk analysis and portfolio re-balancing.
In addition, I have spent quite a bit of time trying to understand index investing and how I want to configure my portfolio. The update is:
- I have initiated a very small position in NIFTY index ETF; and
- I have not yet made any concrete conclusion on how I should go about it. The reason being there are not many choices available. I have ruled out index based mutual funds. Based on my personal preferences and abilities, I am not ready to pay some nut job mutual fund manager operational expenses for nothing.
In continuation to this update, I will also post two articles discussing risk analysis and re-balancing.
Hawkins, progress update, SENSEX trends, TIPBlog, yield of cost, YOC
Hi,
I have also initiated a position in Benchmark ETF. I have decided to buy this fund every month on a predetermined date (SIP). Will use it as part of my core portfolio (expect it to give certain stability).
I even got some 1% as divident last month (I didnt expect it at all )
Hello Karthik,
In long run, it will turn out to be a good move. However, I would rethink the strategy of predetermined date-based SIP. Think on the lines of one time each quarter, or on relative PE, or relative index dividend yield. If you do not have a strategy, you will continue to overpay (like in current scenario).
For examples, if you decide to use on relative PE then you could do as follows:
- Keep investing monthly/quarterly, as long as relative PE is less than 1.0
- Stop investing if relative PE is above 1.0.
- Invest less amount depending upon what is relative PE. There is nothing wrong in accumulating cash. Deciding to keep cash is also a strategy.
As an example, I decide to put way Rs. 1000 monthly for index investment.
Quarter 1: I accumulated Rs 3000 in three months waiting to be invested. If relative PE is 0.8, I buy 40% (Rs 1200) of my allocated investment. Rest keep in cash.
Quarter 2: I will have Rs 4800 (1800+3000). If relative PE is 0.5, I buy 100% (Rs 4800). If relative PE is 0.6, then I buy only 80% (Rs. 3840). Rest I keep it in cash.
Quarter 3: do the same.
If you can spare time, you can do monthly too (instead of quarterly). In the beginning you may feel amount invested is less, but it will keep increase as time progresses.
This way I am investing less when NIFTY is reaching closer to historical PE valuations. And I am investing more when NIFTY is going away from historical PE.
Something to think over….
FYI – Relative PE = Current PE/10 year historical average.
Best Regards,
Hi,
Good Idea.
1.Can you throw some more light on how to calculate relative PE?
Relative PE = PE of the firm/PE of the Market
But how to apply this for Index fund?
2. What happens if the Market goes for a bull run for 3-4 years. Do we just accumulate cash. Will this have any effect in compounding?
Hello Karthik,
(1) I will explain in future post, may be next week. Applying on index fund (instead of index ETF) is little broader discussion.
Relative PE of index = Current PE of index / 10 year historical average PE of index
(2) If market goes for 3 to 4 years of bull run, then historical PE will start inching upwards (albeit slower than current PE) and hence impact on relative PE will tend to be milder. i.e. you will still continue to invest, its only that instead of 100% it will be lot smaller. Furthermore, it appears you would be willing to overpay than keep cash? Plus, if you are an index investor (and not index trader), your horizon has to be more than 12 to 15 years.
BTW: where does compounding come into picture! Are you talking about “averaging in”?
Best Wishes,
TIP Guy,
I liked the idea of using relative PE. Could you please suggest where to find the current and historical index PE?
Also it seems you plan to trade in index (ETF)rather than invest. Did I get it right? If yes, could you throw some light on how index trading is different than stocks trading, which makes it suitable for your type of investor i.e. long term.
Thanks,
Sachin
i am also not able to get whether its trading or investing? how do you trade in index? how do you find PE of index?
thanks in advance
Hi,
Thanks for clarifying.
Yeah you are right…It makes sense. My investment horizon is 25 years (Retirement). My earlier logic was that I will buy ETF for certain amount every month for the next 25 years. I felt that market movements would even out and my target was to get a return of around 12%.
Your logic makes more sense so will adapt it.
1. Sachin- You can find the PE for past 10 years in NSE website
Home > Indices > Statistics > P/E, P/B & Div. Yield values
My understanding is that we derive data for 10 years and than use excel to find average and apply the above formula.
Tip guy,
Please correct me if Iam wrong
I also would like to thank you for the time you are spending to educate us..
Karthik,
Your interpretation is correct. Minor correct, use the 10 year rolling. I will demostrate it in post next week. This is generated enough interest for a post.
Best Wishes,
I think I am getting the concept, but would request TIP Guy to help me understand how to execute it. It will good to have a separate post on this topic.
thanks
rutwik
Rutwik,
Acknowledged. I will be posting next week.
Best Wishes,
Karthik,
Thank you. I recently came to know that we can use WebQuery to fetch data within a spreadsheet. Do you have more inputs on this? I am digging more to find out how it can be done so that such concepts can become easy to implement.
Comments from other readers are welcome too.
Sachin