Chirag Setalvad, Senior Fund Manager - Equities at HDFC AMC Ltd, shares investing insights from his career to help you become a smart investor
29-Jul-2022
The market is a very humbling institution and hence it is not surprising that over the years, there have been many lessons learnt. Some of the more important ones have been the following:
Try to be disciplined: We all know the right thing to do is buy good-quality companies at reasonable prices and hold onto them for an extended period of time. But we are waylaid by poor companies at cheap valuations, great companies at fabulous prices and the temptation of timing the market. This all takes away from returns. This is as much a business of identifying big winners as it is of avoiding big losers.
Hold stocks for an extended period of time: This requires tremendous patience and discipline. On the one hand, you have to resist the temptation to exit and hold on despite a stock giving multifold returns. This is especially true for a high-quality business which can compound at elevated rates for an extended period of time. Exiting early on the back of high returns in the search of the next big thing can mean missing out on a great future compounding opportunity. On the other hand, it also means holding onto something when it temporarily stagnates and to resist the temptation of getting out with the intention of getting back in at a later point, because more often than not, that does not happen.
It is important to focus on quality: This is true both at the level of a business as well as that of its management. The difficulty lies in balancing quality and valuations as paying a bit extra doesn't hurt but paying too much can certainly hurt.
This too shall pass: More often than not, the more things change, the more they remain the same. Hence, it is prudent to be wary of new fads and be cognizant of the benefits of being contrarian. Some fads will click and persist but many do not. It is difficult to overemphasise the intrinsic mean-reverting nature of markets, be it at a market, sector or stock level.
Recognising these lessons is easy but one needs to graduate from the school of hard knocks for these lessons to really sink in.
This interview was conducted in June 2022
Also in the series:
Ajay Tyagi's most precious investing lessons
Pankaj Tibrewal's most precious investing lessons
Samir Rachh's most precious investing lessons
Pat Dorsey's secrets to investing success
How Sushmita selected her first mutual fund
Bill Ackman's guide to investing
Does compounding work in mutual funds?
