Financial journey since May 2007

Well, I seem to be blogging very little about finance these days. My time is mostly consumed by my new interests.. photography, bird watching and wildlife.

It is a surprise even to me as to how a strongly left-brain oriented person like me has taken to right-brain activities like photography and birding (ok.. they are not entirely right-brain).

But finance has been a favorite topic since a long time. As a kid I used to love monopoly. As a student, I loved math and numbers. Now as a BI (business intelligence) expert, I love charts. I like to ponder over monthly savings ratios, net worth growth rate, expense pie charts, etc. Though I am struggling to balance a few unrelated interests, it is but natural for me to keep returning to my financial interests.

I decided to break the jinx and blog a bit on finance, on my journey since May 2007. (Please read my disclaimer too).

Why May 2007? Because I made a major change in my investment style at that time. I consciously made a decision to go passive, go large cap. Index funds (actually exchange traded funds) were in. Most of my individual stocks were sold. Active stock picking was mostly out except for a few niche holdings. Mutual funds too were reduced to a few concentrated large cap holdings. I chose steady performers (like Franklin India taxshield, HDFC Equity) over star performers. I chose to focus more on my career and kept my finances on auto-run. I opted for SIP’s, made regular purchases of Nifty Bees and slept peacefully most of the time.

The market crashed in Jan 2008. By a stroke of great luck, I had withdrawn a great portion out just 1 month before… to buy a car and to help my sister buy a new house. But still, my losses (notional, as I never sold) were substantial. I never really bothered much about it, but kept my SIPs going and made regular purchases of Nifty Bees. Looking back, I never really formed any real strategy, but roughly had an idea something like this.

1. if Nifty PE is less than 12, its a strong buy. Deploy maximum funds.
2. if Nifty PE is around 12-15, its a buy
3. if PE is 15-18, keep SIPs running, buy ETFs in small quantities. But mainly just stay put.
4. if PE is 18-20, keep a watch. 20+ start liquidating. If PE hits 25, liquidate majorly.

As for my asset allocation strategy, here is what I maintained for most of the time.

1. Fixed assets (EPF, PPF, NSC) – 30%
2. Equity – 60%
3. Bullion (gold ETFs) – 10%

But the above did fluctuate at times. My general asset allocation strategy was as follows.

1. Bullion – minimum 5%  maximum 10%
2. Fixed – minimum 20% maximum 65%
3. Equity – minimum 30% maximum 75%

(What this means is that at any given time, my folio will have equity of atleast 30% even if market is above PE of 25, fixed investments of atleast 20%, etc). I kept changing allocation between the maximum and minimum limits based on my comfort at that point in time.

Because of the strategy above, I was mostly in a buy mode during the latter part of 2008 and 1st quarter of 2009 as the Nifty PE fell below 15. (You can get the PE data here. Go to Indices –> Statistics tab). At times when it came closer to 12 PE, I bought heavily (by my standards). But I have to confess, I was too obsessed with the magical no of 12 PE and kept waiting for Nifty to fall below it, which it did for only a few days. As a result of this, my actual deployment of funds in equity was a bit lesser than what I should have. (Hindsight is always a 20/20 vision… but who knew the market would rebound so soon).

My equity portfolio composition as of today is

1. Nifty Bees – largest single component of my folio
2. Franklin India taxshield
3. Franklin bluechip
4. Fidelity equity
5. HDFC equity
6. IDFC premier equity (new fund added in 2008, though am not a big fan of new funds)
7. HDFC LTA
8. HDFC Taxsaver
9. Insignificant quantities in junior nifty bees, Fidelity tax adv fund, HSBC equity.
10. Individual stocks like Yes bank, Gateway distriparks, Container corp, ITC, Satyam (yes, me too!), CRISIL, were maintained since long (some since 2004-5). BEL was bought in 2008.

(I maintained SIPs in funds 2-6. Funds 7,8,9 were old contributions which I just maintained. I am not a big fan of churning. Many of my holdings are 3-4 years+).

In the meanwhile, my fixed portfolio was

1. PPF (both wife’s and my account were maxed)
2. EPF (had some voluntary contribution as well)
3. NSC (purchased long ago)
4. Floaters like Birla sun floating rate fund and liquid plus fund like Birla sun liquid plus for short term deployment

Bullion was solely Gold Bees fund.

In the meanwhile, I also took these

1. health insurance from ICICI Lombard for self and spouse (floater)
2. term insurance from Aegon Religare for self and spouse

I was more of a sleep walker in investing with a passive strategy. The portofolio seems to have done reasonably well without much intervention from my side. What it also did was to liberate me to concentrate on my career.

So, what am I doing now?

Now with the Nifty PE going beyond 20 (I was surprised by this sudden move!), I have started liquidation in small quantities again. As of May 29 data, Nifty has been above 20.8 PE only for 15% of the entire time from Jan 2000. If you consider data from Jan 2003, Nifty has been above 20.8 PE only for 16.6% of days. It would make sense to sell some. (But history based decisions can also go awfully wrong.. no solution is bullet proof).

I have already sold a very small portion of equity. As the market rises further, I intend to do more of the same. And, with the New pension system being introduced recently, I have started reviewing it. I may even sign up if satisfied. (I dont like their tax treatment though).

Now, since my portfolio is online (well, almost) and open for scrutiny doesn’t mean that it is a great one. It worked for me. I dont care if it was a great folio or a lousy one. I am happy with the returns, given the fact that I hardly spent time analyzing it. However, if you have a comment, I would love to know that.