This article compares my stock portfolio with an equivalent investment in a Nifty index fund and the Nifty 100 Low Volatility 30 TR index. We post this comparison each month. Before we begin, new readers need to appreciate the context of these investments.
I started direct equity investing only after achieving a comfortable level of financial independence and ensuring my son’s future portfolio is reasonably secure. At the time of writing, its value is about 18% of my equity MF retirement portfolio and 9.4% of my total retirement portfolio. So it is no longer an experimental portfolio.
It was experimental in the sense I invested without the fear of performance. There is no experimentation or research in the stock selection strategy. That is often a waste of time and, therefore, a waste of true wealth = time. I continue to invest in the same way. Plenty of money can be made in low-volatile, robust blue-chip stocks.
Caution: No part of this article should be treated as investment advice. I started investing in stocks after my goal-based investing was in place. Readers must appreciate that I started investing in stocks after hitting the threshold of financial independence. So there is no pressure for me when I pick stocks the way mentioned here. Please do your research and buy as per your circumstances.
My goal is to buy stocks with practically zero research. I also continue to invest as usual in mutual funds.
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I have purchased mutual funds every month, regardless of market levels, and I shall strive to copy this uninteresting strategy for direct equity if I have the money. Also, see Fourteen Years of Mutual Fund Investing: My Journey and lessons learned.
Time is not just money; Time is unquantifiable money. Time wasted in stock or mutual fund analysis, the right time to invest etc., is an unquantifiable loss. So my goal is to buy a fund or stock within a minute.
There is zero skill involved in any aspect of my portfolio. I compensate for the lack of knowledge with discipline. Randomness (aka luck) plays a massive role in the return numbers below.
After evaluating the performance of low-volatility indices, I got the confidence to invest in stocks. I told myself I would not do any stock analysis or research. A quick check of company health, a brief volatility review, and buy. If I cannot buy a stock within a few minutes, I am wasting time and money (in that order).
The way I see it, the stock portfolio is part of my retirement portfolio basket as a dividend source. It could serve as an emergency fund as a last resort. Maybe I will find another use for It in future.
In FY 2020-21, this portfolio’s total dividend income (pre-tax) was about 30% of my current monthly expenses. In FY 2021-2022, it increased to about 56%. The next goal is to receive one month’s expenses as a total quarterly dividend (post-tax!). I do not consciously reinvest dividends. Younger people should. It matters little as long as the overall investment made each month keeps growing healthy: How ten years of tracking investments changed my life.
This stock portfolio is part of my overall retirement portfolio. I am striving to build the ideal retirement portfolio. Also, see: How to build a second income source that will last a lifetime.
Stock picking strategy
- Choose stocks with little or no evaluation or analysis.
- Choose low volatile stocks with sound financial health (low debt min requirement)
- Choose stocks that trade close to their all-time highs (approx momentum indicator). See, for example, A list of stocks that have traded close to their “all-time high:
- Do not be afraid to pick expensive stocks at absolute price and valuation. Note: Value investing may sound intelligent and enticing, but it is riskier. I neither have the age to take on such a risk nor the qualitative insights to pick stocks that the market has shunned but will be discovered sooner than later. To appreciate the risk associated with value investing and why it is more qualitative than quantitative, see this analysis: Is it time to exit ICICI Value Discovery & Quantum Long Term Equity?
- When in doubt, ask your wife when she is about to fall asleep in the afternoon.
- Do not fear dividends (or dividend taxation).
- What matters primarily is company health. Whether it is a dividend payer or not is incidental. It makes no sense to say no to a company because it pays huge dividends! It makes no sense to sell a stock because it has increased dividend payout.
- All stock investors over 10-plus years will receive dividends whether or not they like it. There is no choice, unlike mutual funds.
- Dividends are not “extra” regarding returns/performance but represent real profit. It can serve as a source of income for an older investor: Building the ideal retirement portfolio. Younger investors will never understand this, and that is fine.
- Peaceful sleep is the best form of realised gains: hence the importance to business health, low volatility, and reasonable momentum (not all stocks in my portfolio will check all these boxes).
- This is the archive of previous portfolio updates.
Related videos: How to buy your first stock without breaking your head
Stock Portfolio May 2023
This is the portfolio evolution.
As of May 23rd 2023, all results are computed using our Google Sheets-based stock and MF portfolio trackers.
Please note: (1) Although investments started in 2014, most of the money invested is only from July 2020. So the portfolio is still too young.
(2) I did not invest bet Nov 2021 and April 2022 due to other priorities. At the time of writing, the last investment was made in October 2022. The portfolio weights have drifted naturally. When I can invest, I try to chase momentum within the portfolio and invest in stocks that have gained the most since I started investing in them.
- Dividend Return = Total Dividends divided by Total Investment
- Capital Gain (CG) Returns = Total CG divided by Total Investment
- Total Return = Dividend Return + CG Return.
- CAGR = ( 1 + Total Return ) ^ ( 1 / Avg. Years) – 1
- Avg. year = 2.534 for the entire portfolio. This is the average of all purchase investment tenures weighted by the investments.
- CAGR is computed only if the avg. years = > 1. XIRR should be taken seriously only if avg-years => 1.
- All returns are before tax.
- The portfolio is compared with identical investments into UTI Nifty 50 Index Fund (direct plan!)
Many people and portals mistake treating dividends as cash payouts while calculating XIRR. This is not the universally accepted academic and regulatory convention. Only purchases and redemptions by the investor should be used in the XIRR calculation. Dividends should be treated appropriately as reinvested (a rule also mandated by SEBI), and other corporate actions should be treated appropriately. The freefincal stock tracker aligns with SEBI regulations for all corporate actions (dividends, splits, buybacks etc.)
Comparison with benchmark
The NIfty 100 low vol 30 is a better benchmark for this portfolio. However, we can only compare it with the index, not the ETF (from ICIC), launched only in 2017.
- Stock portfolio (absolute return)* 27.53%
- UTI Nifty index fund (absolute return)* 33.27%
- Nifty Low Vol 30 TRI (absolute return)* 31.16%
- Stock portfolio CAGR 10.07%
- UTI Nifty Index fund CAGR 12.00%
- Nifty Low Vol 30 TRI CAGR 11.29%
- Stock Portfolio XIRR (incl all corporate actions like dividends and splits) 10.58%
- UTI Nifty Index fund XIRR 14.55%
- Nifty Low Vol 30 TRI XIRR 13.87%
* Total return and CGAR include liquidated holdings (see monthly update archives for details). The concentrated nature of the portfolio cuts both ways. It gains big and loses big.
According to Tikertape, the portfolio has no red flags with a beta of 0.59 – meaning 41% less volatile than an index like the Nifty or Sensex.
According to simplywall.st, this is the portfolio “snowflake” score. “An established income portfolio with a great track record”. It is also quite overvalued (low valuation score).
I have had fun building this with no effort and will continue. Please do your research and invest.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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