As one invests, one learns in two ways. One, from experience. And two, from reading the experiences and learnings of other successful investors. While in some ways learning from experience can have a bigger impact on our minds and future actions, the learnings of others provide a foundation for our own investment philosophy and approach. Imagine being a value investor without having read any of the ideas of Buffett, Graham and others. Not possible!
Here, we catch up with three fund managers to find out their biggest investing lessons. For Harsha Upadhyaya, CIO - Equity, Kotak Asset Management, moving on from one's mistakes is key. Vetri Subramaniam, Head Equity, UTI AMC shares how a big market crash taught him to rethink his risk appetite and asset allocation. Finally, Anand Radhakrishnan, Managing Director & CIO - Emerging Markets Equity - India, Franklin Templeton brings home the point that high valuations are often justified.
'Have the ability to accept mistakes and correct them'
Harsha Upadhyaya, CIO - Equity, Kotak Asset Management
"At the outset, let me admit that while I have spent more than two decades in analysing and managing investments, there is always something more and new to learn every day in stock markets. Investing is quite unlike archery or shooting - there is no bullseye or 10/10 here! Even if one achieves a strike rate of six or seven out of 10, it's quite good for investing in the long term. It is also critically important that one should be able to ride winners more than how much you lose due to your investment mistakes. To successfully manage money over the long term, one needs to have the ability to accept mistakes and correct them.
"The following are simple, yet some of the most important lessons or critical factors to manage money, as far as I am concerned:
- Relying on fundamental analysis to choose businesses to invest in
- Diversification of portfolio to manage or minimise risks of investing
- Having patience to live through short-term volatility and noise in stock markets."
'Securing financial goals is more important than maximisation of returns'
Vetri Subramaniam, Head Equity, UTI AMC
"The early part of my investing career was a long cold winter - the market was lower by 23 per cent between June 1994 and April 2003. But it taught me a valuable lesson - companies that allocate capital efficiently and earn a healthy return on capital are more likely to survive and create wealth. I also learnt to differentiate between the top-down perspective of economy/markets and bottom-up stock-picking. I could be worried about the economy and market and yet remain invested in a company to reap the benefit. In fact, this schizophrenic ability is key to good investing outcomes.
"The most important investing lesson for me personally has been about asset allocation. The market meltdown of 2000-01, in which my personal stock portfolio witnessed an 80 per cent drawdown, was a reality check on my risk appetite. Thereafter, securing my financial goals has taken precedence over maximisation of returns. And in taking asset-allocation decisions, there is no better guide than valuations."
'There is a reason some companies trade at a premium to others and these reasons don't disappear'
Anand Radhakrishnan Managing Director & CIO - Emerging Markets Equity - India, Franklin Templeton
"There are many lessons. If I have to highlight one, I will focus on a common mistake that we all commit, i.e., buying a company hoping that it would be as successful as one of its more esteemed peers. This is called 'playing relative value'. Typically, investors who have missed out on one good company in a particular business would invest in the next one, hoping that it would catch up with the first company. Typically, such a company will look cheap relative to the first company and hence would easily justify the purchase. However, over a period of time, the two companies will keep diverging in real business performance and the valuations will never converge.
"My specific learning on this is from the tech-boom days when I missed a well-managed fast-growing IT company. I tried to compensate by chasing smaller and weaker ideas and some of them worked but only momentarily. Luckily, I realised my mistake, quickly corrected it and survived the subsequent tech-bubble mayhem. This learning is applicable to all sectors, be it banking, gold retailing, telecom, etc. There is a reason some companies trade at a premium to others and these reasons don't disappear. Hence, the valuations gap doesn't go away too."