So I won’t be humble about it- BSE has been a huge multi-bagger for me. From the time I first bought it to its recent highs, I have seen it drop 60% and then go up almost 25 times from the COVID lows. Now the thing people generally ask is, how much is enough and when should one sell.
The question is most relevant because only yesterday Buffet sold his Paytm position at a 40% loss after having held it for 7 years. This is when he’s on record stating that his favourite holding period is forever. So even the Oracle of Omaha can’t suffer losses long enough.
So one thing which I have learnt is to cut loses, book it once and for all and get out after waiting for about three years. I generally wait two- three years in first buying a position and then building it sufficiently sizeable. If the story doesn’t work out, I generally let it be. Like for example, ISEC has been a huge under-performer in the past two years but I have had my faith intact. Similarly, earlier, I sold Sun Pharma, Care ratings, IOC etc at either loss or nominal gains after keeping them for well over three years. So in my case, three years is an absolute reasonable timeframe before getting myself to change my original opinion.
This is the cost of holding an extremely concentrated portfolio. My top 2 stocks would easily be over 70% of the total value while top 5 would be over 85%. That’s how I have kept them and I have no fuss about it, at all.
You become a serious investor, and make serious money( life changing) when you finally realise and rise above the following myths:
1. Portfolio sizing – it is important so that your winners keep growing while losses drop in value. It is however misunderstood as selling winners to maintain an arbitrary weightage of stocks. A rising stock which goes up from 5% of the portfolio to 50% of the portfolio doesn’t mean higher risk! The risk is to sell it because it has risen to 10% and then miss the next 4bagger!
2. Diversification- I currently hold ten stocks and would be happy to cut them down to 5 in 5 years. Further, in all practical terms, HUL, Colgate and ITC are one type of stocks. So the real holding would be 8! That’s too many stocks to own actually. You can’t even track that much on a daily basis. You should not own a stock which if doubles, doesn’t take your portfolio up significantly! a lot of people claim to own a lot of multibaggers among their 30-50-100 stock portfolios! Even if then you have a 25 baggers BSE, a 15 bagger DMart, your overall returns are just around market!
3. Experts are dumb, institutions dumber- the earlier you realise this, the better investor you become.
So what I am trying to tell you is that in a lifetime, the most successful investors have made their Billions in one or two really huge multibaggers. RJ made at least 2 of his 5 billions in Titan, Damani first made in HDFC Bank and then in DMart itself, Nick Sleep held Amazon and Costco for decades. So if you’re lucky to have found one ten bagger, don’t be foolish enough to sell it to book gains and appear smart. I’ll illustrate it-
Assume that you invested 2l in BSE during covid at ₹200( adjusted price). It hits ₹1000/- and you sell it for 10 lakh. You made 8lakhs. Now the stock went up to 2400/- share. So actually you lost 14lakhs! Your 2 lakhs would have become 24lakh! And not everyday you can lose so much money by being on the table. So the real money is made in holding.
And most importantly, average and size up! Always! The biggest positions must become bigger when they’re moving beyond imagination. RJ couldn’t buy 5% of Titan in 2001. He waited till 2009 to build that up, at prices almost 30x his original prices.
Thus, don’t be in a hurry to sell your dream stocks. They might be on their way to make your dreams a reality!
Life is all about Compounding! 