After procrastinating for months, I am finally sharing names of companies which are part of Dead Monk’s Portfolio (DMP).
But before that, here is a gentle reminder of what to expect from this portfolio.
In previous post discussing (or rather rethinking) Portfolio Structure & Composition, I mentioned that for DMP, I would stick with Core Satellite structure and a maximum of 15 stocks in the portfolio. You can read more about the reasoning here.
Structure of Dead Monk’s Portfolio
In a follow-up post deliberating the need to find more dividend paying companies & stocks from other sectors, I mentioned that most of the stock in existing DMP pay decent dividends. But just to be on a safer side, I would also keep an eye for new dividend candidates, in case I decide to kick out some of the existing stocks. There is good bad news and bad news on this front. I have removed one dividend payer – Graphite India from the core. And next bad news is that I have not found a suitable replacement for this company. 🙁 Hopefully, I would find it soon enough.
Another point to note here is that no. of stocks in DMP has been reduced from 15 to 9. This is because of one above mentioned removal, as well few more removals from satellite part of the portfolio. I have also not named specific companies in Misc (Satellite) part of the portfolio. This part deals specifically with short term and speculative bets and is more dynamic (changing) than rest of the portfolio.
Out of the 9 stocks, 7 were part of original portfolio too. Two new entrants are marked with a ‘*’.
So here are the 9 stocks –
Balmer Lawrie & Co.
Tata Investment Corporation
9 Stocks in Dead Monk’s Portfolio
I would have personally loved to add more stocks in this list to achieve higher diversification. For record, only 4 sectors namely Energy, Chemicals, Financials & FMCG are part of this portfolio. You can say that this kind of diversification may not be sufficient. But this portfolio is in line with my own risk appetite and understanding of certain sectors. I would prefer to stick with only a few companies and business which I understand rather than venturing out dangerously in areas I don’t understand. I may be missing out on potential multibaggers here. But that is a price which I am ready to pay to have a stable, ever growing portfolio of stocks which I am ready to hold for decades and not just years.
Note – You might say that this portfolio is not stable at all. It has been reworked in less than 2 years itself. Correct. It’s true that I have taken the liberty to change (reduce) the no. of stocks in the portfolio. But this is because I myself am learning newer things about myself and my personal investment psychology. I am arranging a long term portfolio around my personality rather than it being the other way round. Anyways, most of these 9 stocks were already a part of the original portfolio. So change is there, but it’s not an earth shattering one. 🙂
I have already covered about most of these companies in detail as provided in a list below.
One particular business which has seen some drastic changes in last few months is Clariant Chemicals. I am personally not very sure as to how to take a call on this one. But because of management’s proven track record and respectable dividend policy, I have decided to stick with the company for time being. But you can take a call yourself by reading my thoughts on Clariant Chemicals and also weighing the consequences of some recent developments (link).
I would leave you with these thoughts and this ‘link-heavy’ post. Rest assured that I have put most of my money where my mouth is. 😉 Do share your views about these nine companies and also share your list of stocks which you would be buying for next few decades.
We are in process of making an annual assessment of our Dead Monk’s Portfolio. In our last post, we tried to questioning portfolio structure. We eventually arrived at a conclusion that Core-Satellite structure has worked for us and we are going to stick with it. But we have made slight adjustments to it. We now have a simpler SATELLITE structure. For more details about the new modified portfolio structure, please refer to this.
Do we need more dividend stocks?
In previous post, we mentioned that we might need to find new dividend stocks for the CORE of the portfolio. This was to stay prepared for possible exits from existing positions and to maintain the dividend income levels from the portfolio. We are almost through with our stock selection and we feel that inclusion of new dividend stocks may not be necessary at present. Reason? Apart from 5 stocks which will form our dividend core, the stocks forming part of the Large Cap Satellite themselves have decent dividend yields. Add to this the fact that a pick in Growth Oriented Satellite comes from energy sector and has recently announced a promising dividend policy.
We have chosen 13 stocks for DMP. Out of these 8 stocks have a known history of paying generous dividends to the shareholders.
Do we need to have stocks from every sector?
The answer is a big NO!! The chosen 13 stocks belong to just 4 sectors. These are sectors and industries which we are comfortable with.
Another thought which bothered us was that we regularly come out with list of stocks like 10 Stocks to buy in next market corrections & 13 Great Indian businesses. Wouldn’t it be a wise idea to have a few of those stocks in this portfolio? This concern has been addressed in the new portfolio and a number of stocks from these lists have found their way to Dead Monk’s Portfolio. 🙂
We have intentionally not chosen specific stocks for cyclical section of the portfolio because these stocks would be bought and sold at regular intervals. We do not plan to hold them for decades at a stretch.
We would share the portfolio composition in our next post.
Dead Monk’s Disclaimer – As an investor, we can never eliminate the risk of being wrong.
Almost an year back, we came out with our strangely named portfolio – The Dead Monk’s Portfolio. For those who don’t know about the origin of this name, we suggest you read this.
Though one year cannot be referred to as long term, we thought it was a good time to re-evaluate the ideas / concepts / principles on which we built this portfolio. We are still learning from Mr. Market and we are ready to accept our mistakes and take into account certain new developments.
Structurally, we think that Core – Satellite approach works fine for us. It allows us to focus on creating an ever increasing CORE of dividend paying stocks. This core periodically generates cash to fund purchases for SATELLITE stocks.
In the new structure, the CORE remains same. It would consist of 4 to 5 dividend stocks. This part of the portfolio would form about 50 to 60 percent of the entire portfolio.
There is a small change in the SATELLITE part. We continue having sub – sections of Large Caps (15-20%) & Growth Oriented Stocks (20-25%). But we have decided to merge the Miscellaneous, the Cyclicals & the Speculatives Section. This part of the portfolio would now form less than 10% of the entire portfolio. We are doing this to simplify the structure. Another reason is that the cyclical stocks & other short term bets can increase the volatility of the portfolio. It is best to combine them into one section and put an upper cap on their weightage. This would also help in reducing the emotional purchases if (& when) we are tempted to do so. So the new structure stands like this –
New Structure – Dead Monk’s Portfolio
We would have loved to hold hundreds of great stocks like Peter Lynch. But we don’t have a team of analysts to help us out. And neither are we Warren Buffet nor Peter Lynch. 🙂 Therefore, we stick to our earlier approach of keeping the number of stocks to less than 15.
As far as individual stocks in the DMP are concerned, we prefer not being judgmental of the price performances after just one year. Some stocks have done good. Others have been pathetic. But there are a few, whose poor performance is because of the change in fundamentals of the business. We need to take a call about them.
We also need to find new dividend stocks for the CORE of the portfolio. This is to stay prepared for possible exits from existing positions.
Another issue which we felt needed some addressing was that though we have tried to stay within the sectors which we understand (circle of competence), we feel that this makes the portfolio skewed towards one or two sector (energy, commodities, banking, etc). Hence, we also need to decide whether to choose stocks from other sectors like FMCG, auto or not.
Another thought which is bothering us is that we regularly come out with various list of stocks like 10 Stocks to buy in next market corrections & 13 Great Indian businesses. Wouldn’t it be a wise idea to have a few of those stocks in this portfolio?
We will try to answer most of the questions in next part.
Dead Monk’s Disclaimer – As an investor, we can never eliminate the risk of being wrong.
In our post on changing Stable Investor’s approach, we mentioned that we plan abandoning our existing portfolio (Monk’s Portfolio). We also plan to start a new portfolio named Dead Monk’s Portfolio (DMP). Reason for choosing this name is given in next few lines.Why Dead?
We want our portfolio to be so easy to maintain that even a dead person is able to do it, i.e., without much thought and activity. 🙂
For us, monks are ultimate symbols of calmness, serenity, stability and longevity. These are some of the terms which we want our portfolio to be associated with.
Note – The topic may seem a bit haywire as it documents a loud thinkingsession.
Here are some of our thoughts –
Dead Monk’s Portfolio (DMP) can follow a Core –Satellite approach in which core could account for 60-75% of portfolio and Satellite the rest 25-40%
Corecan be made up of high dividend yield large cap stocks OR low PE, average to good dividend yield large & mid cap stocks OR low to average PE, good to average dividend yield large and mid cap stocks, trading below their book values OR any other combination of parameters and concepts like Magic Formula.
We prefer companies which pay regular & increasing dividends as the proceeds can be used to buy more stocks or as a source of passive income. Also these stocks are stable and less risky. But according to experts, this stability comes at the price of lower returns. And as stable long term investors, we are ready to accept non-astronomical returns.
Satellite can be made up of companies which offer long term above average growth and which may not be doling out dividends. Such companies generally prefer to invest profits back into the company which may be growing at rates higher than company’s cost of capital OR for novices like us, higher than overall market growth rates.
But how do we find stocks which offer stability as well as good dividends? There are many ways of finding such stocks. One is to check the indices that track dividends. Another is to check lists of highest dividend yielding stocks. But such lists throw up names which we are not comfortable investing in : so it would be a good idea to take such lists and add a filter or two like market cap, profitable in last 5 years, etc).
Another approach can be to use stock screeners with conditions like large and mid caps, dividend yield of more than 3%, consistent & increasing dividend payouts in last 5 years, trading close to 52 week lows, low PEs etc.
We are compiling a list of good stock screeners for this purpose and would share them shortly.
Another question which has been raised is that does it even make sense to bother about capital appreciation of the Core portion of such a portfolio?
These are just some of our preliminary thoughts and we are still not done with our analysis. We are also exploring other ideas which have not found mention in this post. Let’s wait till the time we finalize the first version of our new portfolio approach (with blessings of the Dead Monk in the grave). 🙂