The Way I See It

On my phone, I maintain notes of things that I’ve learnt or picked up over the years about investing. I thought it would be worthwhile to share. I would keep updating it from time to time and some theories might change as I gain more experience. Also, note that this is all based on personal experiences and your experience could be very different from mine.

1.      Difficult for me to invest in high PE stocks – I started investing in 2007, where I borrowed money Rs. 20,000 from my father and another Rs. 20,000 from my then-girlfriend (now wife) to invest in stock markets. It was an amazing time where all I bought - went up and I was able to turn Rs. 40,000 into Rs. 4 lacs in less than a year. While I was more diligent than many people around me and I studied most of my companies but sometime after investing. The stocks were hitting upper circuit regularly and every day my portfolio used to go up a minimum of 5%. I clearly remember that I shorted the markets in November ’07 thinking that this is absurd and we would see a correction. But like the saying goes market can remain irrational till you are solvent and this is exactly what led me to cut my shorts in Jan’08. I would have made a killing if I had more money and I could have waited for 3 more weeks. By the time I booked my nifty short losses, my portfolio was down to Rs. 1 lacs and that’s when I decided to return the money to my initial investors. Once the market started correcting in Jan’08, I saw the high PE stocks or in those days it was called SOTP (sum of the parts)  investing, just came crashing down and there was no stopping them. Hence, I'm vary of new valuation concepts and I stick to the traditional way of valuing companies.

This experience has also led me to invest in a way that I keep booking profits periodically and lowering my cost of acquisition from time to time. While this strategy has limited the growth of my capital but this has always helped me have liquidity in bad times.

2.      Contra investing works out well in the long term – I am always averse to investing in hot sectors as generally they trade at a higher valuation and coming back to my first issue, I stay away from them. I have exposure in Pharma sector where I had bought stocks like Dr. Reddy and Lupin close to 2 years back and I have not added them in this bull run. Playing the momentum is for traders and not for investors. I would currently be watching the banking sector closely and picking up companies there rather than follow the heard in buying Pharma or Chemical stocks. My first chemical stock was purchased back in 2014 and that has done really well for me. Contra investing is not a short term play.

3.      Index funds/ETF should be part of every portfolio – As a fund manager/relationship manager, it is difficult to sell passive funds because you are not adding value and it’s not interesting to sell index funds (Read it as no money for the RM). Wealth management cos have built teams to find the next MF which will outperform but in my view, ETF/Index funds are the easiest and cheapest way to make good returns. Sectoral funds should only be bought when things are really bad and hence I have some exposure to BFSI mutual funds, but it’s very small. Not saying fund managers don’t add value they do but because of the restrains to their portfolio mandate they are at a disadvantage especially when it comes to large caps.

4.      Always remain invested – the only thing consistent over the last 13 years on investing is that I have always remained invested. I have changed overall allocation but I have always maintained my equity investments. I have never stopped my SIP’s and has always increased it in bad times. I believe 20% of your monthly income should be put in equity SIP. It could be higher if you are saving more. Asset allocation is important but changing allocation a lot just to try and make additional alpha may backfire as well.

Regards,

Raman Chandna