Monthly
Communiqué
November 2014
Dear Investors and my dear advisor friends,
It's the time in the market that matters, not timing the market!
I am sure anyone who has ever read anything about investing into equities has read the clichéd "equities are
for long term" statement a zillion times. Most of the time these statements are also backed by a lot of
statistics which prove that if you try to time the market for its bottoms and peaks and by mistake or by a
stroke of bad luck, if you missed the best 10 days then your returns would be quite a few percentage points
lower. Equally, on the other hand, you will find a lot of articles and data which will tell you that when there is
profit to be had, take it off the table. There is no definition of long term and if you had invested in CNX Nifty
exactly on August 31, 1994 and withdrew 10 years later on August 31, 2004 you wouldn't even beat PPF
or Bank's Saving Accounts returns as CNX Nifty had given mere 2.19% compounding returns for this period.
I have no love for this kind of analysis because I have one of those habits where I read the preface, introduction, foreword, afterword
everything in a book before I actually read the book. First year of management studies I read a book called “Statistics for Management”
written by Levin-Rubin. The introduction to this book says that there are three types of people in this world – liars, damned liars and then
there are statisticians. So much for using numbers to prove a point in favour or against long term investing. I believe in logic. And hence, I
will spare you the horror of reading graphs, charts and tables.
I do believe that while investing in equities one must invest for the long term and really one has no idea when the market will do what you
have been waiting for it to do. I read a famous statement by John Maynard Keynes which said that “The market can remain irrational
longer than you can remain solvent” and then there's another equally apt one which goes something like “Markets go up till the last
person has bought and markets keep going down till the last person has sold”. These statements mean that if you have a definite time
horizon to your investment which is not sufficiently long term in nature, then forget fundamentals, your future will depend on gyrations
of the stock market. So what is the definition of long term?
Our industry started off by saying that long term means 3 years; if you go by taxation policies for investing, long term means one year,
after a real bad fall in markets sometimes people tend to say long term means five years!!! Look, let me be honest, there is no fixed
definition of long term. And only put that money into equities, which you are OK to forget about for next few years. Money which will be
needed in a visible time frame, should never be allocated to equities. After hearing this kind of statement from me, a lot of times people
talk about investing in equities as if they have alternative options.
Let me quote a hypothetical situation, if you have a saving of Rs 5 lacs now or if you get an inflow of Rs 5 lacs and you need it to be Rs 10
lacs in the next 5 years, you may need somewhere in range of 15% compounded returns to meet that goal. There are very few asset
classes including equities which will absorb a sum like 5 lacs and still leave you the scope to reach your goal. And what is the point thinking
that if I keep in a bank at least it will be safe! Yes, it will be safe, but the goal will remain a goal and not a score.
The best of companies are in business for decades. It takes decades to implement a business plan, exploit a market opportunity to the
fullest and to build a scale business. If you think that Flipkart is the new kid on the block, think again – they started 8 years back in 2006!
(Continued overleaf)
Our Investment philosophy - BUY RIGHT : SIT TIGHT
Buy Right stock Characteristics
QGLP
‘Q’uality
denotes quality of the business and management
‘G’rowth denotes growth in earnings and susained RoE
‘L’ongevity
denotes longevity of the competitive advantage or
economic moat of the business
‘P’rice
denotes our approach of buying a good business for a fair price
rather than buying a fair business for good price
Sit Tight Approach
Buy and Hold:
We are strictly buy and hold investors and believe that
picking the right business needs skill and holding onto these business to
enable our investors to benefit from the entire growth cycle, needs
even more skill.
Focus:
Our portfolios are high conviction portfolios with 20 to 25
stocks being our ideal number. We believe in adequate diversification
but over-diversification results in diluting returns for our investors and
adding market risk.
Portfolio Management Services
Regn No. PMS INP 000000670