Aug 2014:10 years on … A wonderful, continuing journey
In 2014
- Dec 2014:Commodities: a 150 year history
- Nov 2014:Gillette – the best an investor can get!
- Oct 2014:Government gets moving on reforms
- Sep 2014:Small caps aggressively priced, as high quality large caps still reasonable
- Aug 2014:10 years on … A wonderful, continuing journey
- July 2014: High Quality offers a good reward to risk ratio
- Jun 2014: Stay Clear of Broken Balance Sheets
- May 2014: Election 2014 and the Rupee
- Apr 2014: HDFC – a great company at a reasonable price.
- Mar 2014: Markets at new high, but still reasonably priced
- Feb 2014: Promoters increasing stake is welcome
- Jan 2014: HDFC Bank: When the going gets tough
The Indian equity market was up 3% for the month, as the Nifty and Sensex continue to scale new highs. Markets are currently trading at 26% above the peak levels reached in Jan 2008, and it would be fair to say that the 6 year bear market is over. Our portfolios continued to do well during the month, performing well ahead of the Nifty. Some of the stocks that we were buying till a few months back, are now closer to their intrinsic worth. In some cases, we are surprised at the speed at which the re-pricing is happening.
August 2014 is also 10 years since we set up Banyan Tree Advisors. As people running the firm, it has been a wonderful experience for us. What started out as an idea in the minds of two people has now bloomed into an organization. We have been blessed with great colleagues and clients that we get to work with each day. We currently have 16 people in the firm, of which 4 of us handle investments directly. The business development and client relationship team has been strengthened to 3, as it is our endeavor to maintain the same level of client engagement and personal touch that we were offering when we set off on this journey. Our back office team of 4 people is a solid team, some of whom have been with us since inception and help in running a nearly flawless set of processes. For fulfilling the last mile of paperwork involving our clients we have a 4 member team. Our dealer is responsible for efficient execution of trades for our clients. We believe we have the most stable investor base in the industry and we end up learning a lot from our clients. It gives us a great amount of pleasure that we have been able to touch over 300 families and work with them to strengthen their financial future. We look forward to many more decades of being associated with wonderful people.
A quick look at the markets over the past decade – A decade back, the Sensex was trading at 5200, and currently trades at near 26600, up at an annualized rate of 17.7%. Our portfolios were comfortably ahead of the Sensex or Nifty in this period. This period also witnessed a full cycle of the stock market – a bull market that lasted till 2008, 6 years of a consolidation phase and reaching new highs in recent times. We are convinced that equities is the asset class for inflation beating return, with nil tax for long term holding as the icing on the cake. In this period, there were 2 negative years, 4 moderate years and 4 years of great performance for the stock markets. Our sense is that, since returns can be lumpy, one needs to stay invested in equities in order to make inflation beating results.
There were about 4200 companies that were ever listed prior to Sep 2004, of which only 2180 were traded as on Sept 2004 and only 1760 that were filing financials properly. Close to 60% of companies listed prior to Sep 2004 had failed. Corporate failure related risk is high, and an investor needs to avoid this risk, by choosing to invest in high grade companies. Since then, of these 1760 companies, only 700 did better than the market. Nearly 20% of companies have seen negative growth in revenues over the past decade and 20% of companies have seen negative stock price returns. Only 40% of the companies grew in line with nominal GDP growth. The data does suggest a strong case for active selection of high grade companies, buying them at sensible prices and staying invested in them. We prefer to continue doing that for the next decade too, at the least.