Year End Report (2012) on Stocks we wrote about & our Personal Portfolio

We wrote a number of stock specific articles in 2012. Below is a table about how they have done since we last published about them.

2012 Stock Returns
As the table suggests, we got it right almost 81% of the time this year. 🙂 Lucky us…
The articles on above mentioned stocks can be accessed here: HUL, Cairn India, ONGCor Others.

Personal Portfolio

Our personal portfolio has gained approximately 11% (13% including dividends) in 2012. This seems disastrous when compared to Sensex returns of 25%+. But since most of the stocks were bought in second half of 2012, the results aren’t entirely comparable. By the way, Sensex gave 11.6% in second half of 2012. But if you still feel otherwise, then you have the right to do so because the numbers are against us…
By the way, as a disclaimer, we would like to share names of stocks we hold in our personal portfolios. We are long on all of them (except 1) and are ready to hold them for next 10+ years.

Stocks (Long Term Investments): Axis Bank, ONGC, Balmer Lawrie, Cairn India, BHEL, Clariant Chemicals, Tata Investments, IOCL, L&T Financial Holdings, Novartis India.

Stocks (Medium Term): Thangamayil Jewellery

We would be glad to buy any of the above mentioned stocks at lower prices. So as 2013 approaches and with most experts expecting a bull run, we presume we are among the very few who hope (& pray) for a correction… 🙂

Have a happy new year everybody!


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ONGC Dividend History

ONGC is an Indian oil exploration company majority owned by government of India, i.e. it’s a PSU. As a stock, it has a very long history of dividends. It’s a company with solid business model and has highly reliable cashflows. If you are an Indian investor focusing on dividends, it would be strange if you do not hold shares of ONGC. Ask anyone to name few great Indian companies which have paid generous dividends. We can bet that ONGC would definitely figure in such a list. We ourselves have chosen it for our Dead Monk’s Portfolio. We personally hold ONGC and another oil explorer Cairn Indiaas long term investments.

 
ongc logo
 
This post is about ONGC’s dividends, frequency of payouts, payout ratios and all related information.
 
Why are we doing this? As already mentioned, we hold ONGC in our long term portfolio for primary purpose of dividend income. We are doing this to reaffirm our faith in ONGC of being a good dividend stock to hold for years to come. J As far as capital appreciation is concerned, we believe Cairn India is a better stock in oil sector.
 
Dividend Rate (%)
 
ONGC is known to be a regular dividend payer and this notion is validated by data. It has been consistently paying dividends for more than 10 years. The table below shows the dividend rates (as % of face value). The great thing is that the dividends have been continuously increasing during the last 5 years.
ONGC's Dividend Payout Rates
ONGC’s Dividend Rates (%) : Last 10 years
Dividend Payout Ratio (%)
 
A company with high dividend payout ratio can mean two things: Either the company has no future investment plans OR high dividend payouts are temporary (due to some asset sale) and hence not sustainable. ONGC for last 10 years (!) has maintained a very stable payout ratio of 40% i.e. it shares 40% of its earnings with investors as dividends. This shows that company is balancing its growth (investment) plans and wealth sharing objective on a consistent basis.
ONGC’s Dividend Payout Ratio : Last 10 years
Dividend Policy
 
Company’s dividend policy (available on its website) has the following 2 highlights:
  • Factors to consider while deciding dividends: Future capital expenditure plans, profits earned during the financial year, cost of raising funds from alternate sources, cash flow position and applicable taxes including tax on dividends.
  • As per govt.’s guidelines, all profit-making PSUs in oil sector (like ONGC) should declare the higher of a minimum dividend of 30 % on equity or a minimum dividend payout of 30 % of post-tax profit.
Since company has maintained 40% payout ratio for last 10 years, it is safe to assume that same would be maintained in future too. Since great companies generally increase their earnings over years, it can be safely assumed that dividends would increase in years to come.
 
How many times ONGC pays dividend in a year?
 
In last 8 years, ONGC has paid dividends twice every year. Interim dividend (generally higher than final dividend)is paid in December. This is followed by Final Dividend paid in September. We have plotted all dividend payouts by ONGC in last 12 years. The same can be seen below. This dividend calendar is a good depiction of when (& how much) to expect as dividends from ONGC every year.
 
ONGC Dividend Calendar
Click to enlarge
Though we haven’t discussed ONGC’s future business prospects, we believe that being a mature company with ageing oil fields (except those owned by its subsidiaries ONGC Videsh Ltd), it would be wrong to expect it to become a multi-bagger in years to come. But what can be expected is a stable flow of dividend income, stability in portfolio and potential of positive surprises in case there are any bumper oil & gas discoveries.
All in all, we would stay invested in ONGC and keep investing as and when its prices fall substantially.
 
Disclosures: Hold Long term investments in ONGC, Cairn India.

2013 Indian Stock Market Predictions

2012 is drawing to a close and Indian markets have given close to 25% returns this year. And just like past years, experts are coming out with targets like 21,000, 23,000 & 26,000 for Sensex. It seems that everyone is anticipating a bull market. And this anticipation is fueled by buzz words like Reforms, FDI, coming rate cuts, rising investor sentiments, etc.

So what are our predictions?



Before you close this website after reading our answers, we would like to tell you 2 things:

If a bull market is really coming, you will not listen to what we have to say. If markets correct next year, you will repent not listening to what we had to say.
So here is our answer:

We have decided not to make any predictions. It is irrelevant for long term investors like us. We will continue to invest in great companies and try buying them at really cheap prices.

So, have you decided to leave? Because you didn’t get that hot stock tip??

No?? …Then we will go ahead and tell you two really important facts…

Fact 1:

Indian markets are currently (December 2012) trading at P/E multiples of 19. And this is not cheap by any standards. You can check State of the Markets to get a snapshot of Indian market’s valuations. We have an analysis which tells that investing at current levels may not turn out to be a good bet for next 3-5 years. Anything less than 3 years does not interest us. Just check the table below:
PE Ratio & Returns Sensex
P/E Ratio of Sensex & 3-5 Year Returns
We are trading close to P/E multiple of 20. And average returns over 3 year periods are abysmally low at 4%. We won’t vouch for 5 year data as this number is skewed because of bull-run of 2002-07 (which may not be repeated during our lifetimes).

Fact 2:

We checked last 20 years’ data and found that 13 of those years gave positive returns. Out of these, 6 can be attributed to Great Indian Bull Run (2002-07). So, there were 7 ‘normal’ years of positive returns. These 7 years were followed by 4 years of negative returns & 3 years of positive returns. Surprised? Yes… its true. The probability of getting positive returns, just after an year of positive return is lower than that of getting negative returns.
We are sorry to disappoint those who were looking for hot stock tips for 2013. We continue looking for safe, stable, rock solid, cash generating machines. We don’t know what would happen in 2013. But we do know what we would do in either cases. If markets correct, we would buy more of these great stocks. If it moves up into the overvaluation zone, we would not buy. It is as simple as that. 🙂 But as it has been rightly said, successful investing is simple, but not easy.

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Multibagger of Long Term Investing

Wouldn’t you be shocked if we told you that someone has turned Rs 10,000 into Rs 3,69,00,00,000 (Rs 369 Crores) in 32 years?. And that too by doing nothing in stock markets!! We bet you would be… 🙂


Your next question would definitely be – Who has done it?

Our answer is that we don’t know. But we are pretty sure that promoters of company would be one of them. They would have held shares for 32 years and made a killing. By the way, turning Rs 10K to Rs 369 Cr is same as growing your money 49% year on year for 32 consecutive years. Even great Warren Buffett managed a ‘paltry’ 25%…  So even if we told you earlier that you cannot become Warren Buffett, here we have data, which suggests that you actually can!!

(In comparison, banks pay 8% per year on deposits)

So now you’ll ask – How has it been done?

Before we answer this question, we would caution you that data given below has been collected from various sources and may or may not be correct. So, take it with a pinch of salt.

The company is WIPRO. Suppose you invested Rs 10,000 in its shares in 1980. You would have got 100 shares @ Rs 100 each. Now shares of Wipro have gone through multiple splits & bonuses. So we adjust them as and when splits & bonuses happened.

1980 – Bought 100 shares @ Rs 100

1981 – 1:1 Bonus = 200 shares

1985 – 1:1 Bonus = 400 shares

1986 – Stock Split to Rs.10 face value = 4000 shares

1987 – 1:1 Bonus = 8000 shares

1989 – 1:1 Bonus = 16,000 shares

1992 – 1:1 Bonus = 32,000 shares

1995 – 1:1 Bonus = 64,000 shares

1997 – 2:1 Bonus = 1,92,000 shares

1999 – Stock Split to Rs. 2 face value =9,60,000 shares

2004 – 2:1 Bonus =28,80,000 shares

2005 – 1:1 Bonus =57,60,000 shares

2010 – 3:2 Bonus =96,00,000 shares

Value of one Wipro share is around Rs.385.

So as of today, your investment of Rs 10k is worth a staggering Rs.369 crores!!

And we are not finished yet. If you know about benefits of dividends, you would realize that Wipro has been a regular dividend payer. Last year it paid Rs 6 per share as dividend.  So you would have earned  Rs.5,76,00,000 (Rs 5.76 Crores) last year alone as dividend income. Just imagine how much you could have made from dividends alone in last 32 years. 🙂

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Why they don’t discuss these 2 things on Indian Business Channels?

Have you ever watched channels like CNBC-TV18, NDTV Profit and Zee Business? Do you remember what they discuss on these channels? As far as we can remember, they discuss about investment ideas, target prices, breaking news, directional calls, trading strategies, etc. But there are 2 things that they never discuss:

  • Time Horizons
  • Size of stock holdings in portfolio

But before we talk about importance of these two things, we will like to thank these channels for showing us the real beauty of stock markets!! (Don’t worry: the link takes you to Google search page, no malware or spamware would be installed on your device). 🙂

Sonia Shenoy CNBC TV18
Oh My God!

So why are Time Horizons important? It’s because it helps in deciding whether we should be affected by daily price movements (& news) or not. For example, when Maruti had labor unrest in Manesar and stock was hovering around Rs 1000, it should not have affected an investor with time horizon of 10+ years. The labor problem was a short term blip and provided long term investors an opportunity to pick up a great stock at very cheap price. And as we later saw, Maruti ran up to 1500 in no time at all (i.e. 50% up in 3 months!).

Now we come to Size of stock holding in portfolio. By having a cap on size of individual stock holdings, an investor can keep a check on his risk levels. It also helps in not getting too emotional about a single stock. You may hold the best stock in the world, but putting all your eggs in one basket doesn’t make sense. One bad quarterly result and your entire portfolio comes down crashing. But there is a flip side to this approach too. You can pick as many winners as possible, but if you’re not invested in them to a degree that their positive movement has a significant impact on your portfolio, you are essentially failing.

So to tell you frankly, we watch business channels for entertainment and glamour. 🙂 What about you?

Disclosure: No positions in Maruti Suzuki.

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Large Cap Nifty Stocks – Returns since our call in December 2011

Important: Don’t miss the last paragraph.


When we wrote Large Cap Nifty Stocks available at deep discounts in December 2011, we were very excited to find a number of great companies available at very cheap prices. And since the world as well as Indian economy hadn’t fully recovered, it was really common sense that one stuck with businesses which could weather the economic turmoil. We advised and bought a few of these large caps for our personal portfolios.

So after an year, when index has given 25% returns, we checked the performance of individual stocks. And we must say that we are more than happy to see around 15 stocks giving 40% + returns. But there are a fair number of duds too. There are 10 stocks which trade at discounts compared to December 2011 prices.

Large Cap Nifty Stocks Returns One Year
Nifty Stocks: One Year Returns (Dec 2011 – Dec 2012)
As of now, markets are trading at a PE of close to 19 and since markets have run up around 800 points in last 4 sessions, we are not sure if it’s a good time to pick stocks. We would rather wait and watch for the time being.

Caution: Our post might make you believe that we have good predictive capabilities. The fact is that we don’t. Why? Markets have risen 25% in last one year. So have all stocks representing the market. And as Warren Buffett said: A rising tide lifts each and every boat. You only find out who is swimming naked when the tide goes out.

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Stable Investor turns 1-year old!

The Story

 
When we first started this site in November 2011, we were not sure how long this experiment would last. Our first post was all (or rather only) about number crunching and to confess, very very boring. 🙂 But we still had a reason for starting this site. And it was to keep a check on ourselves. A check that whether we are putting our principles to practice or not. You can read about the (real) purpose of Stable Investor if you want (Hint – Animal with spikes!!) 🙂
 
Months went by and somewhere in middle of 2012, we had a change of heart. After a lot of debate, we decided to change our approach towards long term investing, and in general towards long term wealth building. One thing led to another and we abandoned our old portfolio in favor of a new one; which received positive as well as negative reactions for its strange name – Dead Monk’s Portfolio. 🙂
 
Thank You
 
Though we write everything here for our own selfish purpose (after all, we killed a monk to name our portfolio 😉 ), the fact remains that a lot of people deserve a praise here.
 
So thanks to all of you.
 
Future
 
It has been a year and we are debating how to take Stable Investor forward. We have a few ideas like starting discussions on personal finance, etc. But we still haven’t come to any solid conclusion. As of now, our first priority would be stay in line with our current purpose.  If you have any ideas about what more can be done, please let us know.
Proof of our Passion for Long Term Investing!!
Warren Buffett Long Term Investing
Found in author’s bedroom!!
The picture above has been clicked in author’s bedroom. And as far as we can make out, it is not of his girlfriend but Warren Buffett!!! 🙂
 
So we hope you are going to bear with us in years to come. And thank you to everyone again for making us last a whole year so far!

Hindustan Unilever Ltd (HUL): A good business is not always a good stock

HUL is an example of a great business. It has a portfolio of famous FMCG brands that every Indian uses atleast once a day. Who wouldn’t recognize Lux, Lifebouy, Kissan, Rin, Surf, Axe, Close Up, Dove, Fair & Lovely, Sunsilk or other HUL brands? With Indian growth driven primarily by domestic consumption, there is no question whether HUL, with all its powerful brands, is well positioned to take advantage of this growth or not. Even respected stock research houses are claiming that ‘HUL is on a path of sustainable growth with the help of its powerful & diversified brands and thus they maintain a Buy rating on the Stock once again.’


HUL Hindustan Unilever Limted
HUL – A good buy?
But we beg to differ from everyone here. We are not convinced that HUL is a good BUY at this price. With HUL at Rs 530, there are some facts which suggest that it may not be the best time to buy this stock:
  • HUL is commanding a P/Emultiple of 50. This is highest multiple it has ever commanded. FMCG companies generally trade at high PE multiples. But a PE=50, doesn’t seem sustainable.
  • With a 3 year growth rate of 4.63% in Sales & 2.02% in Profits, a P/E of 50 does seem irrational.
  • If we check HUL’s PEG Ratio with Current PE=50 & G=15% (though past records stands at less than 5%), we get a PEG=3.33. And a stock having PEG>1 is considered to be overvalued.
  • Another way of looking at PE=50 is that investors expect HUL to grow at 50% per year in future. And common sense says that this is insane. With a company of HUL’s size, a 50% growth rate is like Elephant running at 300kmph!! 🙂

So what are your views?

Disclosures: No Positions in HUL. But if we had already purchased HUL years ago and had big capital gains built into the stock, we wouldn’t sell it even if it was overvalued. This is because we believe in power of doing nothing in stock markets. 🙂

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