PPFAS CIO Rajeev Thakkar shares 4 market wisdoms
PPFAS CIO Rajeev Thakkar has come up with four market wisdoms for investors as markets rise almost every week. These wisdoms will help re-orient investors’ mindset at a time when markets are positioned precariously.
#1 Avoid price action
“Our investments are based on our fundamental assessment of the business and its prospects and not on price action. Hence, kindly do not expect only those stocks where the price is going up to be in our portfolios,” Thakkar said.
#2 Patience is key
Having invested in a company, one has to be patient with the investment. One cannot expect overnight returns and sometimes it takes a long time for the returns to come. Sometimes patience works in favour, other times it does not.
“I am giving one example of each. Persistent (Pun not intended) Systems: We bought the stock in November 2014 and added more along the way. Till March / April of 2020, the stock did not have much to contribute to the portfolio. However the returns post that period more than made up for the lost years.
#3 Probabilities and not certainties
Equity investing is about taking due care in selecting the companies and management and deciding on the price to pay for the shares. However there are no certainties. At a portfolio level one should aim for a decent risk adjusted return. “There will be some businesses (companies) which do not do as was expected of them and may lose money either in terms of actual loss or in terms of opportunity cost. These cannot be completely avoided. One can only try to minimise these,” Thakkar said.
The current environment is such that valuations are clearly elevated in a lot of companies and sectors. Also trailing returns are looking exceedingly good. To use a cricket analogy again, the run rate so far (trailing returns) is exceedingly good. “To win the match (reach financial goals) ones and twos and an occasional boundary will do the job and sixes are not really required. Also the best bowlers of the opposite side have started to bowl (high valuations). At such a time, it is important to conserve the wickets (capital and gains so far) rather than to hit out at every ball and try to get a six,” Thakkar said.
#4 Underperformance is guaranteed for sometime
PPFAS MF says its investments in companies ignores whether they form part of the index or not and if it is a part of the index, the weightage of the company in the index. Portfolio looks very different from the index and as a consequence, for better or worse, the performance will be different from the index.
“No strategy (even if it has a long successful track record) beats the benchmark index all of the time. There are times and sometimes long stretches of time where the performance of an actively managed portfolio lags that of the benchmark. In our case this is usually, but not always, seen in bull markets where the market keeps scoring via sixes and we take singles,” says Thakkar.
