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More thoughts on portfolio concentration

I had about 64 stocks in my portfolio on Oct. 1 2015. It is only about 12 months that I have learnt the lessons of value investing and my earlier teacher/guide (I realize now) wasn't really that well versed - so yes, she did a great job of introducing me to this world and since last 6-8 months I have had to build upon her introduction. So in the process of learning I ended up buying many good businesses. [The reason I say these are good businesses is that they were all selected based on fundamentals focusing on ROE/ROIC/Cash flow etc. after research often spread over several days/weeks. Of course, the depth of analysis has increased with time filling several pages of the 'Diary of a Dumb Investor'. However, I now realize that this learning curve landed me up at this juncture with large portfolio with many stocks where I had invested only 0.5% of my portfolio. My biggest gainer Britannia at 250% forms <2% of my portfolio.]

Until recently two pieces were missing in my arsenal:
a. Understanding of importance of Margin of Safety - it was a consequence of not knowing how to value businesses
b. Understanding the importance of portfolio concentration

To a large extent I must say (conscious of Authority bias), it was Porinju Veliyath's interviews where he placed repeated emphasis on Margin of Safety that got me thinking. Then the Safal Niveshak course material further emphasized it for me. The challenge still remains in terms of learning to value businesses and be confident that there is a 30-50% Margin of Safety.

I was reading Bruce Greenwald's Value Investing book yesterday and I made the following note regarding portfolio concentration. [Chapter 8 - Constructing the Portfolio]

"Risk Reduction in Value Investing comes from Margin of Safety and Portfolio Diversification. Margin of Safety provides a mechanism for risk reduction which is totally distinct from diversification" . (rephrased for brevity)

This is a great lesson on the interlinkage between 'Margin of Safety' and 'Portfolio Diversification'.
So to conclude, ICICI Direct's Portfolio X-Ray Report is proving to be a great tool to enable portfolio concentration - it is helping me see how scattered my investments are. It is now an uphill climb from here towards a concentrated portfolio. I am trying to do it gradually so as to not pay additional brokerages and short term capital gains if the wait is just for another few weeks to cross 1 year holding period. Expect to have a portfolio of 15-20 stocks by mid - 2016 to Jan 2017. Few Bets, Big Bets, Infrequent Bets - Dhandho !

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