Ten Things I Learnt This Samvat

Diwali is a festival of lights and sweets, but is also a festival of giving. And in my small way, because I get to talk to some of the sharpest minds, this is one way of giving back all the knowledge I get. Here are my top 10 nuggets of wisdom that I picked up in the last 12 months of the Samvat gone by.

Hiren Ved of Alchemy, when asked about a particular company running the risk of being a one-trick pony, asserted that there will be times when some of the most successful companies come to prominence via one key product, and everything else fits around it.

I could think of Royal Enfield being such an example for Eicher or multiple other snacking companies having one hero product which gives them shelf space and then market other products. While one-trick ponies are usually risky, sometimes the business model can revolve around that and thus needs to be analysed in greater detail.

Vijay Kedia gave an important lesson on thinking about a sector, when asked about capital market stocks. Kedia believes that banking may have selective gains, but banks are finding it difficult to mobilise deposit growth, and that is happening because there are options - options that AMCs and wealth managers are providing. And since money is moving away from Fixed deposits to the wealth managers, follow the money. And you will rake in gold.

While the timing is debatable, because the Indian markets have corrected in the last one month, Pankaj Murarka of Rennaissance Capital made this telling point when he mentioned that people should not try to time the max upside in markets, because logical thinking may not work in the bull markets. This is evident in the way high quality businesses have not yielded results, and definitely not as much some of the high growth businesses have. Also, logical thinking might tell investors to shy away from Indian SMIDs because of valuations, those are the stories that have done very well.

Vikas Khemani is bullish on Indian markets. But when asked about whether markets are very expensive, Khemani cited the example of Japan, which rallied dramatically in the previous century, and market-wife multiples went up over 40x before real concerns stepped in. Sometimes, markets do what they do and not factoring in a melt up can lead to losses which can hurt, as Jeremy Grantham had mentioned famously in 2017. Khemani effectively asserted that there is no reason why expensive markets can not rally further, and why investors should not really try to time the top.

Conversations with both Rajeev Thakkar and Siddhartha Bhaiya brought this out. Both investors were okay to miss the upsides, because those misses would not cause them pain. They would be happy to see others make money if their hypothesis is that the markets will come back to the value zone where they would be comfortable investing.

“Macro factors are top-down, be it market timing or sector rotation or thematic bets, those are more chance-driven. The more macro you go, the more it becomes a coin flip. The more micro you are, the more it remains stock-picking,” says Prashant Khemka.

When a multi-billion dollar fund manager talk about an investing style, one should take notice. Mind you, there are enough macro investors. But it is a difficult art, and those don't get into bottom up investing. Choose your style, and then stick to it. But yes, do think about Prashant's advice.

“Most conversations and investment theories talk about what to buy and when to buy, but sizing—which is how much to allocate to a particular stock—and when to sell are equally important. The day investors spend a lot of time on sizing and selling, a lot of mistakes in investing will go away,” says S Naren.

S Naren made such an important point in one of my shows a few years earlier, which I re-read this Samvat and made me think about it very closely. Sizing up your purchases, figuring when to book profits - all are such important conversations - that it is better to think and talk about this very closely as well. Make it a mainstream conversation, as well as a key thought process.

“I believe it is highly possible to improve your long-term results by adjusting your investment position at the extremes of the cycle. Not that often. But at the extremes” - Howard Marks.

There is a lesson here for everyone, in that while it is nearly impossible to time the top or the bottom, if lower valuations give you comfort, go and buy big. Or vice versa, if higher valuations give you discomfort. It wont be at a particular level, but will be at a range where one finds favour or discomfort.

Rahul Arora spoke about this recently, when he cited a global fund manager telling this key point. And this comes true every single cycle. Think of Bajaj Finance and Asian Paints pre-Covid, or the EMS names since then, or many more such examples. And contrast that with stocks like ITC, which until March 2022, did not move.

The last one, as usual, is not about investing. And I know Covid has now taught everyone to live in the moment, but it gets re-emphasised every year. Invest for the long term, but don't leave tasks and aspirations for later. Kya pata - kal ho na ho.

Happy Diwali everyone, and Saal Mubarak!