Happy New Year 2015 – The year of Focus and Concentration

Here's wishing you a very Happy New Year 2015.

The year 2014 was the year to dream BIG. That was the year when many did not believe the things that were possible in the Indian stock market. But if you thought BIG, you would have taken advantage of the emerging opportunity. You would have realized the potential in our backyard. which we have communicated in the previous year's theme, Greeting Card 2014.

This year, we wish you –
Seasons Greetings and a very Happy New Year 2015

Make 2015 the year of Focus and Concentration.
Let this be the year when we do not get carried away by the opportunities. But we instead ride and take advantage of these.

"In the epic Mahabharata, Arjuna was asked to shoot the wooden fish's eye that was tied on a tree above a pool of water, while looking only at its reflection in the water below. He was not distracted and when he looked into the water all he saw was the Fish's Eye." In the same way, we as investors need to focus on a few but better investment opportunities and bet big on them.

A note on Diversification Versus Concentration:

How many stocks should you own in your Direct Equity portfolio?

This is a complex question, with no straightforward answer. On one hand we have Peter Lynch who owned at times thousands of shares in his Mutual Fund. His policy was to buy and hold for 10+ years as long as the story of the company develops on expected lines, as the value unravels over long periods.

On the other hand we have Warren Buffet who buys as few shares as he can, and once he has decided to buy, he buys as much as he can of the share, in fact preferring to buy out the owners and keep the management in place. With the funds he is deploying, he is actually holding very few stocks.

• The basic principle is simple actually. The more diversified an investor in the Indian equities, the more likely the investment returns are going to be close to the average. And lower the Risk.
• Another thumb rule is that no single share, at the time of investment, should be more than 15% of your entire portfolio.
• However the more the shares you have, the more difficult it becomes to track the events and performance.
• And experienced mature professional equity investors who devote sufficient time to analysis and research, and have build confidence and conviction, have super concentrated individual portfolios of 3-4 stocks.

Conclusion:

My opinion is that individual investors who are not investment professionals but have significant wealth in equity should have 12-15 stocks in their portfolio. This requires some discipline, and a periodic review.

• JainMatrix Investments researches many stocks, and has a research universe of about 50. But the Model Portfolios are only Large Cap – 7 and Mid and Small Cap – 7, a total of 14 recommendations. These portfolios have done very well against their stated objectives, see Investment Service.
• As the Indian markets appreciate to new highs, like diligent gardeners, we need to prune our portfolios carefully and build the Focus and Concentration. See Portfolio Review Service for more details.

So have a great New Year 2015 – the year of Focus and Concentration – Punit Jain.

Punit Jain
JainMatrix Investments

JainMatrix Investments (www.jainmatrix.com) is a firm started by Punit Jain that offers Equity Research and Portfolio Advisory Services.