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.
Update: We recently added a new tool to the freefincal investor circle – Identify stocks with earnings power with this new tool. See results: Earnings power valuation of my portfolio stocks.
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 11% of my equity MF retirement portfolio and 6.5% of my total retirement portfolio.
Therefore, 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 in mutual funds as usual.
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, I aim 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 annual dividend income (pre-tax) was about 30% of my current monthly expenses. In FY 2021-2022, it increased to about 56%. In FY 2022-23, it became about 70%. In FY 2023-2024, about 88% (updated to March 31st). 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 rather 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 ten years will receive dividends, regardless of whether 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 of low volatility and reasonable momentum to business health (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 Analysis
Update: We recently added a new tool to the freefincal investor circle – Identify stocks with earnings power with this new tool.
See results: Earnings power valuation of my portfolio stocks
This is the portfolio evolution.
As of Nov 21st 2024, 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 between 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
- The average investment duration = 4.10 years for the entire portfolio. This is the average of all purchase investment tenures weighted by the investments.
- CAGR is computed only if the average years = > 1. XIRR should be taken seriously only if the average number of years is => 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 mistakenly treat 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), which was launched only in 2017.
- Stock portfolio (absolute return)* 48.98%
- UTI Nifty index fund (absolute return)* 82.63%
- Nifty Low Vol 30 TRI (absolute return)* 93.36%
- Stock portfolio CAGR 10.22%
- UTI Nifty Index fund CAGR 15.84%
- Nifty Low Vol 30 TRI CAGR 17.46%
- Stock Portfolio XIRR (incl all corporate actions like dividends and splits) 11.04%
- UTI Nifty Index fund XIRR 17.35%
- Nifty Low Vol 30 TRI XIRR 18.92%
* Total return and CGAR include liquidated holdings (see monthly update archives for details).
The stock portfolio has underperformed for the past several months. This does not bother me much because the stock portfolio is a small portion of my retirement corpus, and I treat this as a future income source. I have had fun building this with no effort and will continue. Please do your research and invest.
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