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Concentrating my portfolio

It is nearly 3 years since I am actively investing in stocks and managing my portfolio. Recently, ICICI Direct launched several reporting tools which includes the Equity Portfolio Drilldown and the Portfolio X-Ray Report. I was observing a strange pattern in the data reported in the equity portfolio drilldown. See image below. Time and again, it appears that my tail portfolio where holdings are <2% are delivering excellent gains and the core portfolio, i.e., stocks with holding >2% are delivering poorly. It was evident from these reports that if I could eliminate the poor stocks from my portfolio and enhance my holding in the core stocks, my overall portfolio gains could be much better.


This was an insight which was very useful in helping me change my strategy from having a highly diversified portfolio containing approximately 60 stocks down to a target of roughly 25-30 stocks. The initial trims have been easy. Some of these had been languishing and hogging a large portion of my portfolio. Two such stocks were L&T and SBI. While these had gained significantly from the time I had purchased them 3-4 years back, it was evident that these were very large and complex businesses which I cannot hope to understand and keep track of. Also these companies were generating poor returns on capital - most often for no fault of the management but as a consequence of external factors related to economy or regulations. 

Another set of trims were stocks such as Finolex Cables. While my exit analysis showed that businesses like Finolex were fundamentally good, they were growing very slowly again due to macro factors. Also my own investment in these stocks was small often <10,000 rupees. So it did not make much of a difference if such stocks did indeed move up by 10-15% as the overall impact on the portfolio was still small and insignificant.

I have set a goal of trimming down to 25-30 stocks. It is a very challenging task. More about it as I make progress.

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