Tuesday, 3 May 2011

One Stock Portfolio - A thought experiment

Suppose you have a fairly large amount to invest in the stock market. Assume that the amount is a significant amount of your networth. And also assume that you can invest only in one stock. What would you do?
To look at this problem in the Charlie Munger way (by way of inversion), let me see what I would NOT do.

  • I would not invest in any company with the following characteristics:-
  • Commodity producer
  • Capital intensive (one which requires a lot of incremental capital)
  • Large debt on its balance sheet
  • Company with poor scalability of its core business
  • Free cash flow is negligible or negative consistently
  • Questionable management
  • An insignificant player in its sector

The more I think about this from a top-down approach, the more I get driven towards FMCG, Pharma/Healthcare or Financial sectors. The main aspect for this investment would be that I would not want to lose much of  the money. Here are some stocks I would shortlist:-

  • CRISIL
  • HDFC Bank
  • SBI
  • Apollo Hospitals
  • Cipla
  • ITC
  • Godrej Industries
  • Titan

The specific pick can vary but I think over time the probability that all these stocks will beat inflation (and fixed deposits) is high.

2 comments:

  1. You can add Page to that list - a company that has grown at 30% for more than 10 years now without a single down quarter.

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  2. Page - is a very good company, but I am not very sure of the moat it has. There is hardly any entry barrier in the business it is in. I am trying to use Buffet's yardstick of a sustainable business here. If I have say, a 100cr war-chest, can I compete successfully against Page. I think the answer to that question is yes.
    However, I dont think I can compete with a SBI or HDFC Bank or CRISIL or Titan even with a very large war-chest.
    Having said that I believe Page would continue to enrich its shareholders for a while to come.

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