Dear Investors,
For most of us, we have probably witnessed the most tumultuous year yet in our lives. COVID-19 forced us to do many things differently (work from home, remote school classes, lockdowns, limited mobility). The disease turned out to be far more widespread and deadly than we had imagined back in Feb / March 2020. It has affected livelihoods and our collective psyche, and I suspect this will have a lingering effect on all of us for years to come. With vaccines around, hopefully things will be much better in a few months’ time.
As equity investors, it was truly an astonishing year. What began with a complete meltdown in prices in March 2020, ended up being one of the most rewarding years for some investors. I say ‘some’, because a lot of investors exited the market in March 2020, only to be caught completely off guard by a sharp recovery in prices in the following months. The indices were back to pre-pandemic levels by Nov 2020 and have continued moving further up since then.
If there is one lesson we can take from last year, it is the futility in trying to ‘time the market’. No one could have predicted the sharp fall or the subsequent recovery in market levels. Fortunately, I did not attempt timing the market either and that was the most significant decision I made last year (more significant than the portfolio constituents).
Our portfolio has 18-20 holdings with the top 5 constituting more than 40% of the portfolio. Below is a broad sector wise classification of our holdings.
The portfolio consists primarily of companies that are market leaders in their respective industries. Strong companies can withstand economic headwinds and are more resilient in difficult times like the year gone by. I expect them to gain market share and further consolidate their leadership position in the coming years. Almost every sector in India has several years of growth ahead of it, my role is to find leaders in these sectors who can grow faster than competition and do so profitably. I do not foresee big changes in our portfolio holdings and expect to hold most of them for years to come.
When to sell:
This is a question all investors struggle with. When is a good time to sell a stock? If you make a quick 20% in 10 days, should you sell? If a stock goes down by 20% soon after you buy, should you sell? I go back to the futility of trying to time the market. I believe we are better served spending more time thinking about the long term prospects of a company before investing in it. Having invested, it is more important to track how the business is performing rather than worry about short term price movements. In a bull market, it is quite tempting to book a quick 30% gain in 30 days rather than play the long game and make 300% in 7 years! You are more likely give back quick gains in future trades while the longer term gain is more resilient and has a lasting impact on your net worth.
It is still early days for me as an investment manager but 2020 felt like 5 years of experience compressed in a single year! I am very grateful to all of you for placing your trust in me and will strive to remain worthy of it. This is my first investor letter; I plan to write at least twice a year going forward.
Please feel free to call or write back with comments or questions about your portfolio, I would be happy to discuss.
Regards,
Arpit
Comments