Learnings from my Investing Career What is investing? Consists of - - PowerPoint PPT Presentation

Learnings from my Investing Career

Too much literature available Dependent on conviction, upside risk and detailing Is effectively switching between various asset

• classes. It cannot be

within the same asset class.

Buying Sizing Selling

What is investing?

Consists of three steps: Buying, Sizing and Selling

Have a grip on intrinsic value

Careful on leverage Works best in cyclical sectors Know the counter view on the stock

Contrarian approach to investing

Things I Believe In Have a grip on intrinsic value Be cognizant

• f risk

Common Sense Cycles: It is an art; primarily based on how

• thers are behaving in that asset class

Charts: Price is set by a marginal seller/ buyer; incorporates fundamentals most of the time - Anthony Bolton

Things I Believe In

CASH: A residual asset class but a very important one

18,620 23,002 38,667 Net Equity 77.4 Net Equity 77.7 Net Equity 57.5 30 35 40 45 50 55 60 65 70 75 80 15,000 20,000 25,000 30,000 35,000 40,000 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19

ICICI Prudential Balanced Advantage Fund Net Equity Exposure (%)

Sensex Levels

S&P BSE Sensex Levels vis-a-vis ICICI Prudential BAF Net Equity Exposure (%)

Sensex Level Net Equity Exposure %

Source: BSE India & MFIE, Data as of September 30 2019. The in-house valuation model starts from March 2010 onwards.

Things I Believe In

All big mistakes can be avoided by looking at...

Trailing price to earnings Trailing price to book Trailing price to cash earnings per share Balance sheet quality PO/QIP activity in sector Dividend yield Leverage

• f

company Market cap

Stock Picking

Cement + Metal Sectors

• Rs. 31,623

Infosys + Wipro

Rs 1,07,604

Market Cap

Name Mcap (In Crs.) IT

Dec-99

Infosys 48,005 Wipro 59,599 Total 1,07,604 Name Mcap (In Crs.) Cement

Dec-99

Ambuja 4,797 IndiA Cements 1,004 Heidleberg 132 Total 5,933 Name Mcap (In Crs.) Metals

Dec-99

Natl. Aluminium 8,151 Hindalco Inds. 5,995 Tata Steel 5,208 S A I L 4,647 JSW Steel 781 Hind.Zinc 697 Vedanta 212 Total 25,690

Mcap(In Crs.)

Data as in December 1999

Pharma

• Rs. 1,31,249

DLF

Rs 1,83,082

Market Cap

Mcap (In Crs.)

Mcap (In Crs.) Pharma Dec-07 Sun Pharma.Inds. 24,071 Cipla 16,529 Glenmark Pharma. 14,656 Dr Reddy's Labs 12,306 Divi's Lab. 12,112

• Glaxosmi. Pharma

8,701 Piramal Enterp. 7,493 Biocon 5,772 Lupin 5,168 Jubilant Life 4,963 Opto Circuits 4,796 Wockhardt 4,576 Cadila Health. 3,952 SPARC 3,236 Aurobindo Pharma 2,919 Total 1,31,249

Data as in December 2007

Metals

• Rs. 2,86,600

Pharma

Rs 2,95,302

Market Cap

Mcap(In Crs.)

Data as in June 2015

Mcap (In Crs.) Name Jun-15 Pharma Sun Pharma.Inds. 2,10,461 Lupin 84,841 Total 2,95,302 Metals Hind.Zinc 70,605 Vedanta 51,630 NMDC 47,061 Tata Steel 29,583 S A I L 25,379 Hindalco Inds. 23,107 JSW Steel 21,084

• Natl. Aluminium

10,309 Jindal Steel 7,841 Total 2,86,600

Market Cap

Top 10 pharma companies

HUL

• Rs. 3,95,178

Mcap(In Crs.)

• Rs. 4,29,055

INR CR Mcap (In Crs.) Name Sep-19 Sun Pharma.Inds. 93,440 Dr Reddy's Labs 44,874 Divi's Lab. 44,214 Aurobindo Pharma 34,512 Cipla 34,293 Piramal Enterp. 32,599 Lupin 32,393 Torrent Pharma. 28,216 Biocon 26,754 Cadila Health. 23,884 Total 3,95,178

Data as in September 2019 Top 10 Pharma Companies

Market Cap

PSU Universe Top 5 stocks sorted By Mcap

• Rs. 16,81,081

Mcap(In Crs.)

• Rs. 30,84,528

Data as in September 2019

Top 5 stocks sorted By Mcap Mcap (In Crs.) Name Sep-19 Reliance 8,44,530 TCS 7,87,738 HDFC Bank 6,71,509 Hindustan Uniliver 4,29,055 Infosys 3,51,696 Total 30,84,528

Equity Credit Gold/Cash Real Estate

How to create wealth across asset classes

Valuations

(How others are behaving) .

Cycle

(What changes a cycle)

Trigger

(Flows)

Sentiment

Our Philosophy based on my Learnings

VCTS Investment Framework

Valuations - Equity

Parameters Used: Price-to-Earnings, Price – to-Book, Market cap to GDP, Earning Yield

Equity Valuation index is calculated by assigning equal weights to Price-to-Earnings (PE), Price-to-Book (PB), G-Sec*PE and Market Cap to GDP ratio. G-Sec – Government Securities. GDP – Gross Domestic Product; Asset Allocation – Schemes that invest both in equity and fixed income

108.19 50 70 90 110 130 150 170 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Invest in Equities Aggressively invest in Equities Neutral Incremental Money to Debt Book Partial Profits

Market Cap Analysis

Share in the Overall Market Cap (%)

Index 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mar-19 Jun-19 Sep 100 79 79 75 74 71 79 77 78 79 78 81 75 74 72 65 70 73 73 74.0 250 9 11 12 12 13 11 12 13 13 14 13 14 15 15 16 16 16 16 15.1 Above 12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12 11.7 10.9

Top 100 indicates top 100 companies by market capitalization,101-250 indicates next 150 companies by market cap and above 250 indicates 251st onwards by

• marketcap. Source : Kotak Research , Data as of September 30, 2019

Valuations - Credit

Parameter: Gap between yield –to-maturity and repo rate

Data as on September 30, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.

Gold/Cash is a residual asset class based on the valuations on the other asset classes When all other asset classes are costly gold and cash are cheap and vice versa.

Valuations – Gold/Cash

Valuations – Real Estate

3.95% 5.70% 7.30% 5.70% 3% 4% 5% 6% 7% 8% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 1QFY… 2QFY…

Mortgage rate premium movement over Rental Yields

Valuations – Real Estate

Institutional Selling aggressively and valuations attractive

Burst

Valuations off charts, new valuation models emerge, investors forget the existence of the World Risk .

Bubble

Institutional buying, valuations costly

Boom

Institutions both buying and selling, valuations not cheap

Boring

Institutions not buying, valuations attractive

Best Time to invest

Market Cycle

Lehman Crisis 2008 Dot com burst – 2001

• Equity Markets in

2011-2013

• Equity Markets in

2015- 2016 (China slowdown)

• Debt Accrual

Schemes currently Equity Markets currently

• Equity

Markets in 2006 & 2017

• Real Estate in 2013
• e-Commerce in

2014

• Bitcoin in 2017
• Equity in 1999
• 2007

Buy high market cap stocks. Miss growth sectors due to above Buy high trailing p/e stocks. Buy consensus stocks among fund managers.

My philosophy will not allow me to ...

Asset Class performance – Cyclical & Unpredictable

Time Period S&P BSE Sensex Returns (%) CRISIL Short Term Bond Fund Index Returns (%) Gold Returns (%)

CYTD – till Sep’19 6.7 9.9 18.9 2018 5.1 6.7 7.9 2017 28.0 6.1 13.1 2016 2.0 9.8 8.6 2015

• 5.0

8.7

• 10.4

2014 29.9 10.5

• 1.7

2013 9.0 8.3

• 28.0

2012 25.6 9.1 7.1 2011

• 24.7

7.9 10.1 2010 17.4 4.7 29.5 2009 81.0 6.6 24.4 2008

• 52.4

9.5 5.8 2007 46.9 8.0 31.0 2006 46.8 5.5 23.2 2005 42.5 4.5 17.9 2004 13.0 2.7 5.5

Source: MFI Explorer and Kotak Securities; Calendar year returns. Past performance may or may not be sustained in future. Returns mentioned are in terms of CAGR

“SIP is deliberately doing something slightly inferior, to prevent the likelihood of something very

• inferior. It’s such a fine line between stupid and clear. SIP seems clever, but we should

recognise that it’s true value lies in not being stupid.” - Tim Harford, Financial Times, October 19, 2018.

Systematic Investment Plan (SIP)

1 2 3

Hybrid Mutual Funds Asset Allocation

4

Even Index Funds/ETFs

Four Ways of Investing for Decent Returns: Sufficient for 99% investors

Time Management: Very critical element. Most successful individuals know how to manage time. Thinking: Often people tend to forget that one needs a separate ‘thinking time’ Temperament: Important aspect. It takes courage to give a buy call at the bottom and a sell call at market top. Reading: A must-have habit when investing

Key Traits of an Investing Person

Nothing called consistency in performance,

• nly process

No decision is a decision Truisms

Money comes to a fund manager till he fails

• Anthony Bolton
• Woodford
• Bill Miller
• Bill Gross

Hubris Forced selling

• r buying are

good investment/dis

• investment
• pportunities

There will be mistakes; cant get all calls right

Solutions

Hybrid funds Credit Funds Closed-end Funds No Leverage

Sharing of theory is easy but implementation of what you know is a challenge There is no age

• limitation. Can

continue as long as one is mentally fit Keeps you alive and interested in the world

Over short duration, there is no connection between competence, capability and alpha generated

There are multiple ways to make money in long run

Advantages of being an Investment Professional

Managing public money has its own challenges Can you keep on learning as you age

Can one’s weakness go away? (Mark Sellers Speech)

Handling irrationality in the market

Short term performance is never driven by process

Disadvantages of being an Investment Professional

Investment Professionals I Follow: James Montier Howard Marks Michael Mauboussin Atul Gawande Why not Indian Gurus? Every guru is likely to have some biases; a problem likely to be compounded with

• ne's own biases.

My Market Gurus

James Montier Howard Marks Atul Gawande Michael Mauboussin

CONTRARIAN CHECKLIST PRE-MORTEM CYCLES

My Market Gurus

THANK YOU