I would be lying if I said that we are in a deep value market with opportunities galore. With markets having moved significantly from the lower levels of March- April, 2025; people like me are finding it increasingly difficult to put incremental cash to work in the names I like.
What kind of stocks do I really like? I prefer extremely predictable easy to understand businesses where the bottom line is capital protection. I do not want something miraculous to happen in order to make a killing. I just am not wired that way. So, I do not find it easy to invest in companies with low dividend yields, ie below 2%; rather I like companies which are under owned and are hardly covered in the mainstream media; where institutional ownership is low to negligible or where due to some reason, the FIIs have sold irrationally.
There is another thing which I have begun to detest and that is the opium of diversification. I find it stupid to buy 20 companies in order to diversify and manage risk when you do not really understand what’s going on in at least 15 of them. Some people take the extreme step of buying 40-50 companies which is worse than buying an index fund.
Please understand that we are here to grow our capital significantly in order to grow rich and create wealth. We are not in this market to manage beta or diversify or do asset allocation etc as most of us have less than $1 M in capital. Most my friends are still below $250K capital ie they have less than Rs. 2 cr in the markets. When your capital is so low, all you should do is to allocate it in the best possible way to help it grow faster. Buffett became the legend he is because he was growing his capital of $500K at the rate of 40-60% a year before he hit the $10 M mark in late 1960s. He is on record saying if he can manage less than $50M, his investment returns will again be north of 35%.
So the myth we have been sold is that markets give 12-13% returns annually and this is what our expectations should be. Let me clarify- markets meaning large stocks like RIL, HDFC Bank etc give that much returns because they are already so large in their market capitalisation that it is difficult for them to grow faster than the gap growth on a sustainable basis. A company with 2 lakh crore market cap might find it difficult to grow at 50% because in the absolute number, the difference is 1 lakh crore. On the other hand, a 10000 crore company can go to a market cap of 20000 crore in a year because of its low revenue and profits base where even a small change on the upside can lead to multifold growth in profitability. This is the reason why so many stocks have gone up 20-50-100x since Covid lows on account of massive revenue growths on a very small base.
For people allocating less than $1M capital, liquidity is not a problem as we are only buying 500-1000 shares of a company and can get out even on a very bad day. Also, if we get two or three opportunities where the upside potential is large, its better to put in 50lakh than 5 lakh as our position will be very small compared to the market cap, even for a 1000 crore company and thus, we will get easy entry-exit opportunities. So even when we get cold-footed putting 10-20 lakh in a stock, remember that in the larger scheme of things, its peanuts and we shouldn’t be afraid of backing our best ideas with whatever we have.
If you like a good plot of land with 2 crore, you would even take a loan to buy it. You would not say, oh I will only put 20lakh in this plot and will buy 10 more such plots because I want to diversify.
So what I am now doing with my portfolio? Along with the standard disclaimer that whatever I write here is not a recommendation and I have a lot of vested interests in my positions so please do not buy or sell on this blog’s discussion.
Currently, I find the ideas of InVits extremely attractive. They are pseudo-cash positions as the yields are north of 10% which limits the downside and provide a lot of cash and since they’re much less volatile in bad markets, can act as a cushion in times of distress. Also, when the markets do turn rocky, we can easily redeploy that money. I have never held a cash position but am increasingly holding 15-20% cash in the form of Invits. They’re much better than traditional FD or liquid funds due to the underlying yields. The added magic is quarterly payouts so that you don’t have to wait the entire year for your dividends.
It won’t be a surprise if I go up to 40-50% cash in two years as the markets make new highs. Even though Im a perma-bull type of an investor, I do appreciate the logic of markets cycles. Every one to two year, we fall 2025%; every three-four years, its 35-40% and every 8-12 year period witnesses a deep crash. The beauty of these crashes is that the old winners fall the most and are never the new leaders. HDFC Bank, Bajaj Finance, Page etc all haven’t done anything significant since April 2020 while Dixon, BSE, Solar etc are up 50-100x. So once we go through that fall in 2027-2032, god knows when, the fall will be magnificent.
The only people who make money in such times are the ones sitting on cash before the crash. It is impossible to predict when the fall will be and in the meantime, the loss of returns on the upside at the culmination phase of a decadal bull run can be massive. Thus, the key is to have enough invested through all times while having significant capital to buy.
The only thing which will help you survive long years in the markets is recurring cash in the form of dividends. Once you have enough cash to stop worrying about making excessive returns or fall in markets, you can remain rational and deploy in times of extreme duress. It also allows you to hold on to your conviction ideas when the going gets tough or even when the returns are very high.
The views expressed in this blog are personal opinions and are shared for educational and informational purposes only. They should not be considered as financial, investment, or legal advice. I write primarily to document my own learning and thinking process. I am not a SEBI-registered investment adviser, research analyst, or financial influencer, and no part of this blog should be seen as a recommendation to buy, sell, or hold any security. Please do your own research or consult a qualified professional before making any financial decisions.
Life is all about Compounding! 