1 May 2013

Rethinking Dead Monk’s Portfolio – Part 1

Almost an year back, we came out with our strangely named portfolio – The Dead Monk’s Portfolio. For those who don't know about the origin of this name, we suggest you read this.

Though one year cannot be referred to as long term, we thought it was a good time to re-evaluate the ideas / concepts / principles on which we built this portfolio. We are still learning from Mr. Market and we are ready to accept our mistakes and take into account certain new developments.

For those who are unaware of Dead Monk’s history, it might be a good idea refer to the page dedicated to Dead Monk's Portfolio.


Portfolio Structure

Structurally, we think that Core – Satellite approach works fine for us. It allows us to focus on creating an ever increasing CORE of dividend paying stocks. This core periodically generates cash to fund purchases for SATELLITE stocks.

In the new structure, the CORE remains same. It would consist of 4 to 5 dividend stocks. This part of the portfolio would form about 50 to 60 percent of the entire portfolio.

There is a small change in the SATELLITE part. We continue having sub – sections of Large Caps (15-20%) & Growth Oriented Stocks (20-25%). But we have decided to merge the Miscellaneous, the Cyclicals & the Speculatives Section. This part of the portfolio would now form less than 10% of the entire portfolio. We are doing this to simplify the structure. Another reason is that the cyclical stocks & other short term bets can increase the volatility of the portfolio. It is best to combine them into one section and put an upper cap on their weightage. This would also help in reducing the emotional purchases if (& when) we are tempted to do so. So the new structure stands like this –

stock portfolio structure
New Structure - Dead Monk's Portfolio


Portfolio Composition

We would have loved to hold hundreds of great stocks like Peter Lynch. But we don’t have a team of analysts to help us out. And neither are we Warren Buffet nor Peter Lynch. :-) Therefore, we stick to our earlier approach of keeping the number of stocks to less than 15.

As far as individual stocks in the DMP are concerned, we prefer not being judgmental of the price performances after just one year. Some stocks have done good. Others have been pathetic. But there are a few, whose poor performance is because of the change in fundamentals of the business. We need to take a call about them.

We also need to find new dividend stocks for the CORE of the portfolio. This is to stay prepared for possible exits from existing positions.

Another issue which we felt needed some addressing was that though we have tried to stay within the sectors which we understand (circle of competence), we feel that this makes the portfolio skewed towards one or two sector (energy, commodities, banking, etc). Hence, we also need to decide whether to choose stocks from other sectors like FMCG, auto or not.

Another thought which is bothering us is that we regularly come out with various list of stocks like 10 Stocks to buy in next market corrections & 13 Great Indian businesses. Wouldn’t it be a wise idea to have a few of those stocks in this portfolio?

We will try to answer most of the questions in next part.

Dead Monk’s Disclaimer - As an investor, we can never eliminate the risk of being wrong.

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9 comments:

  1. What are the stocks you guys are looking to exit?

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  2. And do take a look at Engineers India..it might be a fit for the DMP:)

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  3. @N

    We will definitely give it a look :)

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  4. @N

    Not sure as of now. We are still discussing the possibilities. Hopefully there would be more clarity after next post in the series.

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  5. Hemant Godhwani2 May 2013 18:20

    Ur team of analysts is right here ;)

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  6. @Hemant Godhwani

    Thanks from the two of us ;)

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  7. When do we get to see the new portfolio??

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  8. May I suggest that when you analyse a business and present it, would it be possible to say in the end, whether it deserves to be part of DMP or not? Thank you.

    ReplyDelete

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