I was recently asked to for a copy of the tracking sheet I mentioned in an earlier post. I have uploaded it in the google groups (see here). It is a very simple tracking sheet with intrinsic value for each stock noted in the sheet to prevent me from focussing too much on the current price or cost.



A few key points on how I use the tracking sheet
– I regularly compare the current price with my estimate of intrinsic value (column B). If the discount (column F) is 30% or more and I have confident about the company, I will add to the holding. Conversly if the stock sells above the intrinsic value, I will start selling.
– I tend to check the quarterly and annual reports to see if there are any reasons for me to update the intrinsic value of the company (for better or worse).
– My focus is to ensure that current value of the portfolio (B19) is at a discount of 30% or higher from the total intrinsic value (B18). This ensures that I am selling overvalued stocks and looking for or buying undervalued ideas. The idea is to ensure that the portfolio does well and there is an upside in the form of undervaluation.
– I also have dividend for each stock on the spreadsheet. I am not too focussed on it, though I like to track the value for each stock and for the portfolio as a whole.

I use the above spreadsheet to drive my buy/ sell or hold decisions and to anchor my thinking to the intrinsic value, rather than the cost or current price. As you can see, there is nothing fancy about the spreadsheet, its as dumb as it can get.

Disclaimer : Please do not read too much into the stocks listed on the spreadsheet. The above list may not be a true representation of my current holdings.

There is one key point missing in this blog – My portfolio details and performance. The omission is by design and there are several reasons behind it.

I have written in the past on my reluctance on sharing my portfolio in detail, especially the performance. I have disclosed my portfolio in the past (see here) and it has more or less remain unchanged since then.

There are several reasons for not sharing my performance. The key reason for not sharing the performance, is that a public display would put pressure on me and would in turn impact my investing decisions. Investing is tough enough and I don’t want to make it any more tough for me.

The second reason for not displaying the performance is that I want the readers to follow my posts based on the strength of the ideas I present and not the performance of my portfolio. The soundness of idea – sensible and rational value investing – does not change based on whether I perform well or badly as an investor. There are some investors who are far superior to me in performance and practise a similar approach. The performance of these investors is a reflection of their superior skills.

In addition to the above reason, I can choose to put any numbers as there is no independent audit of these numbers. I do not want to create a situation where the readers are always wondering whether the numbers on the blog are real or imagonary.

As you can see in the sidebar, I also publish my posts on moneyvidya.com. This association is non financial and i was contacted by the moneyvidya team in past to be a member of their core blogger team. I have posted my stock ideas on the website in the past few months and thought of sharing a snapshot of the portfolio performance.

A few caveats before you read too much into it.

– The above stocks do not represent my portfolio. They represent a few of my ideas which I decided to post on the website.
– The above is an equal wieghted portfolio of the picks which is not the case in my personal portfolio.
– The portfolio performance may not be a true reflection of my personal portflio in future as I do not have idea of how to take a stock off this model portfolio when I decide to sell it (maybe the moneyvidya team will clarify that for me)

So why publish this portfolio
A few key points stand out.

This dummy ( pun intended 🙂 ) portfolio has been in the top 10% for the last 10 months ( I don’t know how that is calculated though by the moneyvidya team). This in a way shows the validity of picking good stocks and holding on to them.

This dummy portfolio has beaten the index by around 20% during this period. This period is too short to reach a conclusion, but is interesting as typical value investors generally under perform bull market and out perform bear markets.

Finally, not matter what I try to claim, there is a certain amount of bragging involved too. The reason why the last few months have been more satisfying, is that I have been able to follow my convictions, ignore the doomsday predicitions and commit my personal capital to my ideas. That is more satisfying than the gains themselves. I expect this approach to work in the long term irrespective of short term market fluctuations.

I recently received a comment from rajiv which is reproduced below

Rohit,
As a stock moves towards its intrinsic value, there is a temptation to exit a little before the final value is hit, especially if you have waited a long time for Mr. Market to come around.
I feel that as a value investor the sell decision is much tougher than the buy decision, because the buy decision usually comes with a big enough margin of safety. However, during the sale decision the market value may be stuck at Intrinsic Value minus 10%, making the investor quite jittery to sell.

I have been asked this question in a several different ways, but all essentially boil down to the point – when should one sell a stock ?

I agree with the point made by rajiv and several other readers – selling is more diffcult than buying. In addition, there is no clear cut formulae for selling. The process of selling is made even more diffcult by the various emotional and psychological factors involved in selling.

Emotional factors
Most the discussions and articles on investing rarely discuss emotions explicitly. I find that strange as anyone who has ever invested in the market can vouch for the emotional roller coaster. The rational aspect of selling is easy for a long term investor – sell when price crosses intrinsic value (or 10% below or above – take your pick of the number)

I have written on the above question earlier – see here. The is the rational way of deciding on when to sell.

Now this suggestion may have sounded irritating to some of you and rightly so. The reason this advice, though rational, does not sound great is due to the emotions involved in selling.

There are two situations in which one is selling – one has made great gains in the stock and wants to capture some of the gains. Selling at this point is driven by the fear of losing the gain, which is counterbalanced by the desire to hold on to a stock which has treated you well and also by the doubt that there may be more upside to it.

The other situation in which one sells a stock is when one has lost money on the stock and wants to get rid of that piece of !!@##. In this situation the decision is driven by disgust.

These emotions are quite powerful and not easy to manage

Ok, dude then what?
All these emotions are nothing new, right ? Even if you have felt these emotions earlier, it does not mean that you are managing them well.

A few of the readers and my friends have mentioned to me that I seem rational and cool headed. I wish !!. I am no different, atleast in most aspects. In case of investing, I have tried to manage my emotions as much as I can (manage and not master).

I maintain a spreadsheet of all my holding with the qty, intrinsic value estimate, current price and discount to the current price. At any point of time, when I am looking at my holding, I am looking at the instrinsic value and the discount to it. I ‘anchor’ myself to the instrinsic value. As a result if the stock is selling below the intrinsic value, I will continue to hold.

As the intrinsic value of the stock gets updated every quarter, I am not tied to a fixed value. If the business performs well, the intrinsic value goes up and so does the sell target. If the company performs badly, then the reverse happens.

So is this buy and hold ?
Buy and hold is most abused and misunderstood term (more on that in another post). My approach is not buy and hold, tops and bottom or any other term or title. The logic is simple – buy when something sells for less than intrinsic value, hold till it is below intrinsic value and sell when it is above it. Now if the intrinsic value grows faster than the price, I will continue to hold.

Where’s the catch ?
The catch is in getting the fundamentals and intrinsic value estimate wrong. If you get that wrong and refuse to change your opinion, then you are toast.

But you lose money when the market drops !!
Yes, that does happen. If the market drops, my portfolio will drop with the market. I have yet to figure out how to keep jumping in and out of stocks and still keep my sanity. There is so much chatter and noise in the market, that it is easy to go nuts. My way of keeping my sanity intact, has been to adopt the above approach.

Is this the best way ? no I will not claim that. However as I have a day job, I would rather lose a percentage points, than lose my job and maybe my sanity. Finally, I have yet to find another approach which relies on a sensible and consistent logic and not on the opinion of others.