Candor Investing

I will only recommend stocks which are also part of my own portfolio. Typically my portfolio consists of 8-10 stocks, and you can expect to receive a similar number of stock recommendations in a year. The purpose is to diversify, but not so much that our portfolio starts looking like a mutual fund portfolio. We will not make big money on our 20th best idea. At the same time, concentrating only in two or three companies may turn out to be risky because there are always unknown risks that businesses face.

We will be using the value investing approach to identify favourable opportunities to invest in. Our purpose is to make money in the markets and not buy/sell stocks. Once we have chosen good companies to invest in, our job is to monitor the portfolio well and not necessarily buy into new companies. Depending on the opportunities that the market presents us, after we buy our initial set of companies, one may expect to find a new investment say once in three months. In most cases, it will make sense to put more money in companies that we have already invested in.

Please check out the audited performance of the model portfolio. https://candorinvesting.com/audited-performance. You can expect to make a return of twice the nominal GDP (ie GDP growth + inflation) ie around 15% CAGR returns over a 3 to 5 year period.

You may read about one of our portfolio companies – AIA Engineering a stock we are holding for the last 4 years https://candorinvesting.com/2019/09/01/stocks-for-the-bear-market-analysis-of-aia-engineering/ AIA Engineering is a debt-free company with a differentiated product and very healthy profits. Today, it supplies to more than 120 countries in the world and keeps growing steadily. It is the largest company in the world in its field of operation viz high-chrome grinding media

Unlike other classes (fixed deposit, gold, real estate), returns in equity are never linear. The returns from the equity markets are always lumpy – sometimes up and other time down. Thus, when stocks are down, we don’t know whether the stock price is down because we made an investment mistake or it is just a temporary price movement. This is exactly what makes equity investing difficult for most people. And this is exactly the reason why one can make far more returns in stock markets than in other asset classes – fixed deposits, gold & real estate.

I only do fundamental research. I do not use technical research, futures & options or intra-day trading. I know a lot of people who have made a lot of money in stock markets using all kinds of investing strategies – option selling, currency trading, commodity trading etc. However, in my experience, fundamental long-term investing is far more safe way of investing in the markets. We want to make a lot of money in the markets, but do not want to expose ourselves to completely unnecessary/avoidable risks. So, you will not get - Buy today, sell tomorrow ideas || No technical research || No Futures & Options

Investing is a game of probability and patience. We must expect returns to be lumpy, sometimes down, other times up. If some of our portfolio stocks have fallen from our purchase price, we will re-evaluate the risks to the business. In such a scenario, we have to be sure of our research. If the company is still fundamentally strong and the business is growing, adding more customers, launching new profitable products, entering new geographies (Eg Dmart finally entering Delhi market) we will continue to hold the stock.

Imagine that you invest Rs 100 in a portfolio of 10 stocks – Rs 10 in each stock. Suppose after 5 years, 8 companies go bankrupt, their stock price goes to zero and you lose 100% of your investment in these companies. Stock price 2 of the 10 companies increases by 10 times after 5 years. Your original portfolio increases to Rs 200. Your annualized returns is 15% CAGR – not a bad performance. This means with a success rate of only 2/10, we have still made a annualized returns of 15% over a five year period. What does this example tell us? It is important to make money on the overall portfolio, not on every stock that we invest in Equity investing is a very forgiving business, even after losing money in several stocks, we will make overall money if we identify a few good companies.