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Guerilla warfare technique in portfolio construct

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This week we celebrated Shivaji Jayanthi, Chhatrapati Shivaji’s 391st birthday ( Born 19th Feb 1630, Shivneri Fort, Pune Dist, Maharashtra. Chhatrapati Shivaji was the chief of the Marathas. The Marathas were among the most valiant Indian kingdoms that staved off the Moghul ambition for conquest of the entire India ( then Bharath) for the longest time. 

So what has this got to do with us? Shivaji’s Story has a very important chapter that we can use in the world of investing..Now do I have your attention? 

Shivaji used a military tactic that’s now called Guerilla warfare which consists of small and coordinated attacks by a small team of soldiers on a large army using the element of surprise and speed to inflict lasting damage on the enemy. Guerilla warfare has since inspired legions of experts to discuss its application in military to even Marketing ( my dear friend Pravin Shekar , an outlier marketer) have used these basics to deliver a tremendous value be it in the battlefield or in the business world. 

Lets understand the key aspect of guerilla warfare, 

  1. It is way to get a disproportionately large results with small actions/resources ;
  2. It is tactical and relies on speed and stealth ;
  3. It involves quick planning and immediate execution ; 

How can this knowledge be applied in the context of Investing ?

One can manage a portfolio  of securities that are CORE & SATELLITE ( format). 

The CORE portfolio is your long term wealth bucket that will not be disturbed or changed. These are for long term capital appreciation and growth aspirations. These are securities that can be fluctuating in the short term or go through volatility in the short term but are extremely prone to compounding in the long term. One needs to have a substantially large base of assets in this bucket to enable long term appreciation of the portfolio. Example of a CORE Portfolio will be any NIFTY Stock.. as long as you bought the index or a stock and held for reasonably long time, your returns would be in line with the markets.Another example of this would be the Govt oriented Tax Free Bonds that were offered in 2014/2015 with a tenure of 15/20 years are excellent long term debt investments. 

The SATELLITE portfolio is more the shorter term say 1-3 year bucket that will be extremely tactical in nature. It will comprise of securities that are expected to provide good returns in the short term and that needs to be redeployed every 2-3 years to other opportunities of a similar nature.  In the debt side these could consist of Short term Income funds, Arbitrage Funds , Short term Fixed Deposits. In the Equity space we could look at these as sector or thematic funds, as per the theme that looks attractive and which is still to play out…Example of this was in 2018, Healthcare theme consisting of Pharma , hospitals, insurance companies etc.. had a extremely poor past track record and were ripe for rerating. Since then this theme has delivered  25 % annualized  returns ( BSE Pharma Index : May 21, 2018 : 12686, Jan 6, 2021 : 22016, CAGR : 23%pa). 

The satellite  portfolio is akin to the guerilla warfare that can deliver higher returns than the conventional portfolio, but it is also lot more dangerous as it can quite turn out to be a big drain on your resources if the call goes the other way or it takes a long time to play out and hence the time advantage is lost. In the satellite strategy exit at the end of the 2/3 year is a must unless and otherwise you are staying put for extraordinary reasons. 

Chhatrapati Shivaji Maharaj  ki Jai!! 

So think about what is your Satellite investment strategy now… 

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