The self-made investor | Value Research Here is a letter from a reader that traces how he matured as an investor and what he learned during the course

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How I Did It

The self-made investor

Here is a letter from a reader that traces how he matured as an investor and what he learned during the course


Chennai's V Subramanyam has been using VRO for over 10 years. In a highly incisive letter, he has shared his investment journey with us. He has also shared 10 lessons that our other readers and users might find helpful. With the earnest hope that it inspires and teaches many other individuals, here we have reproduced a copy of the same. Read on.

"As an active user of your website for over 10 years, I thought I should share my experiences with mutual funds and direct equity investing for the benefit of the users of this website.

I started my equity investments in 1977, when a friend of mine, who has an MBA from IIM Ahmedabad, introduced me to a stock broker. At that time, I didn't know the benefits of staying invested in equity for the long term and hence bought and sold equity for small profits. Unit Trust Fund was the only equity-oriented mutual fund available back then. But its NAV wasn't showing any significant appreciation.

I also tried investing in IPOs. In 2006, I was still investing directly in equity. By then, while my stock-picking skills had improved, my portfolio still failed to generate any meaningful returns. It was a frustrating experience, but it did not diminish my interest in equities and the faith that equities deliver better return in the medium to long term than FDs or gold.

Then I started investing in equity mutual funds. My initial investments resulted in heavy losses due to many reasons, including misleading mutual fund ads. Still, in order to benefit from mutual funds, I ended up investing in 62 funds across various fund categories. That perhaps made my indirect stock holdings rise to about 500 stocks. Later I realised that no incremental benefit accrues if one owns more than about 25 equity shares of well-managed profitable firms. The challenge then was to reduce my fund holdings such that I paid the least exit load and short-term capital-gains tax.

In 2006-07, I also did a course in financial planning. In one of my course books, I learnt about Value Research. I checked the website and got to know that most of my funds were low-rated. That gave me a way to exit them. I stuck to four- and five-star funds and exited the rest over the next couple of years. Currently, I hold just six funds. All of them are top-rated. My mutual fund portfolio gave me an appreciation of 22.6 per cent in FY2016-17.

In 2014, I again started investing directly in equities. For my research, I used the Value Research website. Soon I had as many as 75 stocks. I started exiting the poorly performing companies. Currently, I have 65 stocks and want to reduce the number further. Quite a few stocks from which I exited at a loss curiously performed very well in the next one year or so.

I use the portfolio tracker at the Value Research website to track my stock and fund portfolios. I have observed that my stock portfolio has performed better than my fund portfolio in the last one year.

As far as stock trading is concerned, I believe that a small investor stands to lose in this game, for it is next to impossible to gauge the short-term direction of any stock. Small investors should also steer clear of derivatives and margin trading.

I also have debt-oriented mutual funds and other debt products like the PPF. My debt allocation constitutes about 45 to 50 per cent at any point of time. I have no investments in gold. The purchase of gold is restricted to jewellery. Overall, I feel my approach to equity investments using both the direct-investment route and mutual funds is working fairly well for me.

I would also like to share some investment lessons that I have learnt over time:

1. Direct equity investments in about 40 to 45 stocks with a good past performance and good future potential can give superior returns in the long term. But this requires some hard work. Those who don't want to take the direct route can invest through a four- or five-star diversified mutual fund with a good record.
2. Investing and withdrawing from both equity shares and mutual funds in small instalments by the SIP/SWP route is much better than bulk investments and withdrawals.
3. Review mutual fund investments from time to time. Exit the non-performers and divert the funds so obtained to better-performing funds.
4. Invest in maximum six mutual funds, providing a healthy mix of large, mid and small caps, across different fund houses.
5. Investing in mutual funds is psychologically far easier than investing in equities as mutual fund NAVs vary within a narrow range on a daily basis, whereas equities can swing wildly.
6. Withdrawals from both equity shares and mutual funds is very simple. You get the funds in your bank account in a couple of days.
7. The price of an equity share can very well go up after one has sold his holding. Similarly, it can collapse dramatically immediately after one has purchased a stock. So, for direct-equity investments, one should be willing to bear a notional loss.
8. Having followed expert advice, I have learnt that there is no guarantee that experts' buy/sell recommendations will yield profits.
9. Investing for the medium to long term is sure to reward the investor, whereas short-term investing and daily trading may not yield results.
10. Investing through an online account for both shares and mutual funds is quick, reliable and easy. Offline investments, involving paperwork, physical handling of documents, etc., are clumsy, inefficient and time consuming. But for realising the full benefits one should ensure KYC compliance."

This story was first published on October 2017.

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