Blogs from Capital Portfolio Advisors
  • November 25, 2020
  • Paras Adenwala
  • 16

It has been more than 3 decades since I got inducted into the world of stocks markets, formally. The economy primarily agrarian than, today stands transformed as a services economy. Manufacturing was strong in the late eighties and begun getting diluted as the years rolled on. The markets today amply reflect this change.

Over these years, there have been several learnings that Mr. Market has been generous enough to educate, during this journey. I hope to pass them on to our readers through a series of communications, in future. I am happy to share a glimpse of those below:

Businesses

  1. Climate, geo-political risks, technology changes, etc. are impacting the predictability of business and market cycles. Policy and regulatory activism too, are increasingly contributing to making things more unpredictable
  2. Rapid changes in the business environment, are leading to consolidation across business segments. The large are getting larger and the small me-toos withering out. The markets are reacting to this change. There is significant PE expansion in the valuations of several high quality large companies as their smaller compatriots suffer de-rating
  3. Rising compliance and operational costs reducing the longevity of several small and medium businesses
  4. Leveraged businesses cannot withstand business cycles
  5. Exporting businesses will have to remodel themselves, as several countries with large captive markets move towards self-dependency
  6. Several companies prefer outsourcing. Contract manufacturing is gaining ground across business segments
  7. The ever-evolving human behavior is re-shaping the business models
  8. Best businesses donot need publicity. Their performance speaks

Markets

  1. Markets tend to surprise you when you are most confident about  it’s trend. Most of the times it acts contrary to consensus. Scepticism fuels a bull market, euphoria a bear market
  2. Near death of fixed return investment avenues and rising cost of living, is encouraging retail investors to invest in stock markets. Retail participation, therefore, can only increase
  3. Institutionalisation of retail savings is gathering steam. Rising participation of such institutions  is changing the face of the market
  4. Increasing might of local institutions provides a good buffer against the volatile fund movements of FIIs
  5. Negative interest rates in the developed economies, is a positive for developing and emerging economies. India being a large emerging economy stands a good chance to attract flows
  6. Continuing long term underperformance of several active fund managers is pushing investors towards passive and/or complex investment strategies. The scope for these strategies seems attractive
  7. An uncertain business environment is increasing volatility in stock prices, especially for smaller companies. Liquidity in stocks is therefore paramount, since it facilitates easy entry and exits at finer spreads
  8. It is hard valuing a new-age business. e.g. a company that runs a recruitment portal has been investing it’s surplus cash into start-ups. Using conventional valuation methodologies, the stock looks very richly priced, but it continues to attract investors
  9. Trying to buy holding companies due to their large discounts to their NAVs, tests our patience. This strategy in most cases has not worked.
  10. Buying when everyone is fearful and selling when everyone is greedy, is a simple formula to success in investing
  11. Fundamentals and fund flows together, give a good feel of the markets. Knowledge of options comes in handy
  12. Asset allocation is becoming more important than ever before, to provide sustainable long term real returns
  13. Selling is more difficult than buying. Therefore, knowledge of fundamentals+technicals+options helps fine tune this decision
  14. Dividend yield methodology of investing, may work well in growth stocks
  15. Markets work on the principle of “going concern”, hence trend higher in the longer term

 Attitude

  1. Attitude matters more than intelligence, for success in investing. Virtues like humility, patience, objectivity, discipline, flexibility, awareness, among others, matter more than intellect
  2. Process helps mitigate mistakes and improve probability of success
  3. Watching live prices reduces objectivity and increases impulsiveness
  4. Hearing/reading commentaries/views of experts, are not an alternative for self-work. Self-work gives conviction
  5. One is always a student in life and more so in investing
  6. There is no alternative to reading. Best investors have been voracious readers across subjects, not necessarily related to markets
  7. A portfolio of a person discloses his personality
  8. Profits & Losses are a part of an investor’s life. They need to be taken on an even keel. Be grateful for profits and take losses as “Mr. Market’s charges” for educating you

Hope the brief has been worth your time!!

Happy Investing!!

16 comments on “Learnings of an Equity Portfolio Manager

  1. Another excellent blog Paras! Well done. Absolute truth about market, conveyed in simple & lucid language. Precisely Covered local + global market events. Very informative blog! Thank you Paras.

  2. Excellent thoughts. Your post on Selling in Stock Market was also very educational. However, I have seen very good companies losing values as much as 80% in a matter of months and retail investors have no inkling of why eg Indusind Bank.
    Thanks again for posting very thoughtful ideas.

    1. Thanks for your feedback. Truly appreciate!

      You are right, some good companies too correct viciously in a down market. In most such cases, there are company specific reasons for such corrections. Once those reasons are addressed, they tend to bounce back quickly.

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