There is a certain level of curiosity in knowing what the other guy is making or getting in terms of investment returns. A lot of people and friends I know like to flaunt the returns they are getting from the market (The stock I bought last month doubled !!). Maybe it is an ego thing or maybe just a topic of discussion.

I personally prefer to discuss about specific ideas, both in person and on my blog. I find that more interesting and educational for me and others. As a result of this quirk, I have never discussed about the overall returns I have made from the stock market on my blog. I am not selling anything to anyone and just like to share my ideas with like minded people. I am happy if people read what I have to say and can learn something (maybe) with me.

I have been asked about my investing experience and the kind of returns I have made. I have made 32% returns (annualized and unleveraged) over the past 8-9 years following a value approach. These may not be the fantastic returns some of you expect or may have achieved. However they are far more than what I have targeted for myself. Investing is side thing for me and is not my profession. I primarily invest for myself and my family and prefer a buy and hold (not buy and forget) approach. My personal portfolio is low on risk and volatility as I prefer a good night’s sleep.

It may be possible to get higher returns through alternative approaches. However I have found that value investing suits my temprament and the returns I have made are more than satisfactory for me.

A word of caution : I tend to hold a number of stocks which I discuss on this blog. However the purchase price for the stock and portfolio weightage of the stock makes a lot of difference to the overall returns. So please do not buy the stocks I discuss without your own analysis.

In terms of personal disclosure, this maybe as far I would like to go. I am not intending to disclose my overall portfolio and returns on an ongoing basis. Investing rationally is diffcult enough. I do not want to do it publicly and make it more diffcult for me.

However more important than the returns is my investment journey till date. I will be discussing the details in this and the next post. It is likely to be a long post, and maybe boring (no excitement in the way I invest). However what I have gone through may echo what you have or are going through.

1997-1999 (The start)
I had completed my MBA and was working in sales and marketing. I was responsible for handling the finances of my entire family and for me capital preservation was more important. I knew the basics of finance, however that was not sufficient to invest intelligently. An MBA education teaches you about corporate finance, but does not teach you to be an investor.

So during this phase I started learning the basics such as what is an FD, what is a mutual fund etc. Internet was not common then and so my learning was based on economic times and a few books I could get. There were no live quotes then, so one had to look at the papers to get the daily quotes.

During this period I came across the book – The warren buffett way and was competely struck by it. I was completely bowled over by warren buffett. I started reading any books I could get on him. I think I must have read around 20-25 books on him till date. These books led me to other investors like Benjamin graham, Phil fisher etc. By the end of 1999 I had read quite a few books on these masters.

This was more of a reading/ learning phase. The two stocks I bought during this phase were Reliance petroleum and Arvind mills. I read an article in business world on RPL and hence bought that stock. Arvind mills had given a presentation in my college some time back and I liked what I had heard and so went and bought a small amount of the stock.

Well, RPL did well and Arvind mills tanked as the denim industry went into a downturn.
Prior to these two stocks, I bought the following stocks also
IFCI – because the dividend yield was high
Karur vyasa – It was cheap on P/B basis
Larsen toubro – It was a well known company then though not a hot stock.

So by the end of 1999 (before the IT boom), I had a hodgepodge of stocks in my portfolio with most of them doing badly. The good thing was that I was learning and constantly re-evaluating the stocks I had. I soon realised that I had goofed up in some of my picks like IFCI and arvind mills and sold them at a good loss. The rest I held on.

2000 ( The greed phase)
By start of 2000, I felt I had learnt a lot and was ready for the dive ( don’t laugh). So starting from Jan 2000, I started looking at stocks. However all the reading for the last 2-3 years had made me wary of the IT stocks due to the high valuations. I luckily avoided picking any specific stocks during the early part of the year.

However it is not easy to avoid greed, especially if you are new to the market. Thinking that mutual funds are safe, I setup an SIP for some IT and general funds. Well, by the end of the year the IT funds and other funds had tanked and I got an expensive lesson.

Toward the end of the year, I started analsying a few companies and picked up SSI and asian paints. My analysis for asian paints was correct and I have benfitted from it. However in case of SSI I ignored the high valuations. I built a DCF model and pretty much made assumptions to justify the price. I paid for it by losing 90% of my investment on it.

So by end of 2000, after 4 years of learning, all I had to show was a drop of 15% in personal investments and ofcourse a lot of learning in terms of what not to do.

The reason, I think I never gave up was because I was already in love with investing and reading and so was not very dissapointed by the losses. By the way, I had still done better than the market averages. Why is that important? I will come to it by the end of my investment journey

2001-2003 (rebuilding the portfolio)
By 2000, I had got an expensive lesson for being greedy and for ignoring valuations. However I never letup on my learning. I was actually enjoying the process and knew by then that I was fairly passionate about it (money or not). Access to information through the internet made the learning process easier too.

By mid 2001, I started re-analysing my portfolio and identifying my mistakes. Overall, I think I did not have too many. I sold off SSI and exited the IT funds. The rest of the portfolio remained the same. I started analysing stocks and picked up the following companies during the 2001-2003 phase

– Blue star
– Concor
– ICICI bank (had bought the IPO, just increased the holding)
– Marico
– Pidilite
– Gujarat gas

In addition I moved into a few good mutual funds and exited the poorly performing funds. By Mid 2003, my portfolio had done much better than the market, but was below cost in absolute terms as the market had been dropping for the last 2 years.

It is easy to look back and regret that mid 2003 was an all time low (index was around 2900) and one should have invested heavily into the market. But if like me, you were new to the market and had faced only a bear market, it was a very diffcult thing to do. It was difficult to see a bull market over the horizon.

In hindsight (which is always perfect), my portfolio was well positioned for bull run. It however did not feel that way at that time.

By the way, I was not done doing stupid things. I was sick of L&T’s performance (due to the cement division), their management and the stock price. So I sold it after 4 years at a 10% gain. What happened after that ? see here

To be continued …..