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aequitasindia · 24 days

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How to Invest in Volatile Markets. 5 Things You Should Know

Author : Pratiksha Daftari

Last few years, uncertainty and unpredictability has loomed over us almost at all times with several factors affecting the market volatility. Be it Covid-19 or Russia-Ukraine war or risks of global slow down or inflationary pressures, the world faced challenges, hardly imagined before. Capital markets too, reflecting this unpredictable real economy, have remained volatile and uncertain.

With a lot of investors in India looking at parking their money with PMS houses, they should first try to understand themselves on how to make decisions on whom to select.

Let us start by understanding what a volatile stock market is.

What is a Volatile Stock Market?

In a volatile market, investors may experience significant gains or losses in a short span of time, making it a challenging environment to navigate.

Some Investors may be tempted to pull out altogether and wait until it seems safe to dive back in. While some Investors may indulge in buying and selling stocks quickly.

Need of the hour is to understand that market volatility is inevitable. It is a natural phenomenon of markets to move up and down over the short term. Trying to time the market is extremely difficult. It is also vital to have a solid understanding of the underlying factors driving volatility and to thereby have a well- thought-out investment plan that takes into account the potential risks and rewards of investing in volatile markets.

Investors struggle to navigate through such choppy markets and find it difficult to figure out how to invest in Volatile Markets. Considering this, we have jotted down 5 tips for investing during volatile markets.

5 Important Tips for Investing During Volatile Markets

1. Accept Volatility

Historically markets have had regular phases of high volatility as the economy and markets often run into hurdles. Volatility is inherent to the nature of markets and hence inevitable. While steep falls in stock prices and indices seem unpleasant, they aren’t permanent. Below table depicts the steep drawdown seen in Nifty 50 over its 30+ year journey

2. Use it to your advantage Volatility at times provides opportunities that investors can take advantage of. Investors who are thorough about fundamentals of businesses and its valuation can use this temporary mispricing to accumulate stocks at alluring prices. In fact, some of the best performing stocks of last decade such as Titan, Eicher Motors, Britannia etc have seen multiple instances of double digit drawdowns. Marquee investors have only used these drawdowns to increase their positions and maximise their returns.

3. Cut through the noise

As humans, we are constantly under the influence of our cognitive biases that have an impact on our beliefs and sway our judgement. This holds true for investment decisions as well. When it comes to investments, the pain of temporary losses in challenging markets, even if unrealised, can hurt far more than the joy of having outperformed markets earlier. This phenomenon of loss aversion can influence investors to book losses in investments that are worthy of hold.

Volatility in the markets often creates an aura of uncertainty that shoo away investors who find it difficult to manage ambiguous situations. While some amount of risk is part of the game for investors to enhance their returns, in turbulent times, most investors choose to sit at side-lines rather than exploit the market opportunity available.

As a prudent investor, it is important to be aware of these biases and take a cognizant approach to decision making.

4. Focus on time in the markets and not timing the market

Many times, investors go greedy and churn in and out of stocks with conviction that they will be able to call out market peaks and bottoms. While this may seem logical and hence alluring strategy, timing markets is an exceptionally difficult and thereby a futile exercise. Historically, for good companies, drop in stock prices is not perpetual and hence in the long run, staying invested has yielded better returns for investors. Market participants with a long horizon and disciplined investing approach tend to eventually enjoy good returns.

5. Diversify your investments

Investors can use diversification to their advantage to reduce the blow of volatility in particular asset classes. Having a holistic approach to investing with appropriate allocation to stable asset classes could help. For example, while debt markets are less prone to volatility gold tends to benefit in times of economic uncertainty. Within equities as well it would benefit the investor to spread investments across multiple companies across varied sectors.

Thus, it is important to take note of these factors, and even when investing with a Portfolio management service, investors must try to base the selection decision of the manager on the investment process rather than performance numbers. What defines the success of a PMS in the long run is the discipline and process and historically the best fund managers are the ones who do not deviate from their discipline no matter what.

#portfolio management services

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aequitasindia · 24 days

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Simplifying Stock Market Success with Siddhartha Bhaiya

SIDDHARTHA BHAIYA’S SPEECH AT CFA SOCIETY INDIA

Siddhartha Bhaiya, a renowned figure in the world of stock market investing with a remarkable two-decade-long journey in the financial industry. With a proven track record of success and a wealth of experience, Siddhartha has become a trusted and influential voice in the realm of investment. Throughout his illustrious career, he has consistently demonstrated an exceptional ability to navigate the complexities of the stock market, delivering over 30% CAGR since the inception of his Investment Firm, ‘Aequitas’ in 2013. And it was a great learning experience listening to Siddhartha in the event organised by CFA Society India.

Siddhartha’s twitter bio calls himself a ‘Multi-bagger’ and that is exactly where he kicks off his speech. He goes on to explaining how Sensex has been a multi-bagger since its inception in 1979, with every penny invested in 1979 would be worth 650x in 40 years, giving a return of 16% CAGR. And if you happen to select the right companies amongst them, return would have been much greater than the index itself. One of the main takeaways would be the importance of patience and a long-term view in equity investing.

Even though the Nifty/Sensex index themselves have been multi-bagger over the years, yet a lot of people don’t make money in the equity markets. Emphasizing on it, Siddhartha from his experience gives a practical guidance on how to avoid pitfalls while investing. He points out some major reasons due to which people don’t make money in stock markets, rather lose money. Foremost reason is individuals looking at stock market as a gambling arena or they are investing on tips. On the contrary, it is a game of skill, which involves examining past information and analysing available data to invest. He advices investors to avoid taking impulsive decisions and cites a common phenomenon of a new investor ‘People these days spend less time in selecting stock than selecting a shirt to buy.’

He then talks about cons of derivatives and IPO investing, where people come with wrong mindset of ‘get-rich-quick’. Historically only 10% of the traders are profitable in derivatives, which clearly tells that the odds are against you. And almost 9 out of 10 companies that lists eventually gets delisted. This greed can easily get out of hand when the market moves against you and is equally likely to negatively influence your investing decision going further. Another risk he mentioned is ‘Leverage’. Using leverage can result in much higher downside risk, sometimes resulting in losses greater than your initial capital investment. His idea of pitfalls reminds me of a quote by Bob Knight, ‘Most people have the will to win. However, few have the will to prepare to win.’

Mr Bhaiya being a proven multi-bagger explains the mindset behind it, which initially is to prioritize survival. He quotes Buffet, ‘The first rule of investing is don’t lose money. And the second rule of investing is don’t forget the first rule’. And it emphasizes the importance of protecting your capital. But by taking calculated risks and investing in promising companies, people have the potential to reap significant rewards.

He reiterates the fundamental principal – ‘Time in market in more important than timing the market.’ He explains the importance of ‘holding’ for it to give you multi-fold returns. And says short term drawdowns are just noise, and you must be prepared for multiple drawdowns. He also mentions that many of his multi-baggers took long time to pay off, often going unpaid for as long as 4-5 years. In his words ‘it is always darkest just before the dawn.’ Guiding on long term investing, he recalls that 7 out of 10 stocks with Aequitas have been held for more than 8 years. Session was full of practical applications, where he tells how GAEL has given 33x returns over last 10 years despite facing 8 odd drawdowns. Key take away was, returns are never linear.

Siddhartha gives a ground level advice to investors. Invest in a new stock every single month for next 3-5 years, and after those years pass by you’ll have 36-60 stocks, out of which some will become multi-bagger, some will lose money and some will give you average returns. But most importantly you’ll learn what went right and what went wrong. Highlights of the entire session were such practical hacks. Another hack he mentioned was to always eye for market leaders while investing in small caps. A stock with less than 10 PE and net cash balance sheet has a lower probability to fail. He talks about his preferred matrix of stock below 0.3x Mcap/Sales. He guides on to never average the stocks just because the price has gone down.

Continuing with sharing his mindset, he talks about the difference between luck and skill while making crucial investing decision. He asks investors to wait for the right opportunity by saying ‘Mistake of omission is better than mistakes of commission.’ He meant market gives us numerous opportunities, but we should be wise to know when to jump for it and when to avoid it. Further on this, he explains the cyclical nature of companies and market. Where he says to wait for the cycle to shift in your favour and that is when you will have extraordinary returns.

Apart from the investing wisdom, Siddhartha also emphasises on the ancillary habits one should inculcate to be successful in every field. He guides on how important ‘book reading’ habits are. It opens new door of ideas and prevents you from making mistakes that others have already made in their life. It is the knowledge bank which helps investors build a solid foundation and understand the principles behind successful investing. The seasoned investor likely emphasized the importance of staying informed and continually learning about market dynamics and investment strategies.

Speaker also explains about the rationale of collaborating the idea of Value investing, growth investing and mostly importantly Contrarian Investing. By which he meant Contrarian approach does not mean doing the opposite of others, rather, it means doing things differently. And according to him most significant factor to consider when buying and selling a stock is ‘Valuation’, which he also follows in day-to-day decision making when it comes to investing.

Lastly, he relates on how healthy lifestyle is also crucial to make better decisions, even under stress. A healthy lifestyle can help you thrive as you move through your life’s journey. Making healthy choices isn’t always easy. However, your efforts will pay off in many ways, and for the rest of your life. This achievable change is more likely to become a habit you keep.

Their remarkable career is marked by a series of notable achievements, including successfully predicting market trends, making profitable investments in both bull and bear markets. This he demonstrates using many real life case studies from his past which includes Apar Industries, Avanti Feeds, Jindal Stainless and Elecon Engineering, amongst others.

With an impressive two-decade history of success, Siddhartha Bhaiya continues to be an influential figure, guiding investors, both novice and seasoned, toward achieving financial prosperity in the ever-evolving stock market landscape. Their wisdom, expertise, and unwavering commitment to excellence make them a true luminary in the field of stock market investing.

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aequitasindia · 24 days

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The Secret Sauce for Multibagger returns: The Untold Story

The Milestone

On 3rd August 2023, our AIF – Aequitas Equity Scheme 1, reached a significant milestone of $100 Million AUM. While AUM building has never been a forefront agenda, it’s a positive feat reassuring the faith our investors have shown in us. The contrarian, as we boastfully like to call ourselves, we continue to take the road less travelled, focusing 1-on-1 relationship with our investors, without taking the distributor and empanelment route to market ourselves.

Embarking on our AIF Journey in March 2019, with a fund corpus of $6 million and, in 4 years, commanding a fund AUM of $100 million, validates the robustness of our investment philosophy, which has helped us navigate turbulent market cycles over the years

As amazing as this sounds, it is only half the truth.

The Journey

Aequitas started building wealth for investors in 2013, when we launched our first product, Portfolio Management Services (PMS). After delivering consistent returns for our PMS, a bespoke portfolio service which today stands at 37% CAGR over 10 years, we felt the market’s need for an equally good investment option with lower ticket size, but the same investment philosophy at core.

And thus, 18 March 2019 we launched Aequitas Equity Scheme 1, our AIF, with a portfolio value of

$6 Million and 16 stocks – all the AIF stocks were also part of the PMS stock set.

While 2019 was a memorable year for us as our new champion was out in the battlefield, 2020 was equally memorable for all the wrong reasons – as we were hit by the unknown, pandemic COVID-19. It aﬀected every household across the globe, and that proportionally reﬂected on the stock market that fell into panic selling. “It was a rough and challenging period!!” Siddhartha says further, “Global economies were falling apart to a challenge which no superpower in the world was prepared for”.

18 March 2020, exactly on 1 year anniversary of our AIF – Aequitas Equity Scheme 1, was in negative. Many would have crumbled under this pressure and drawn curtains given such a disheartening start.

What did we do?

Nothing! There was nothing to be done in terms of our portfolio strategy. We entered our initial holdings not because of some momentum or popularity, which had turned upside down. We have a

strong & proven Multibagger investment philosophy which focuses on three pillars – Growth, Contrarian & Value.

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Growth: We identify companies whose numbers are fundamentally strong and show great growth potential for 3-5 years. The markets reward a higher PE multiple for growth companies.

Contrarian: Contrarian approach does not mean doing the opposite of others, rather, it means doing things diﬀerently. Buying the popular names will not provide Multibagger returns. This gives us the necessary edge over others as when our stocks get the long due attention, we are mostly done reaping all the benefits already.

Value: We enter the stock at a very reasonable valuation. This is critical as there has to be scope for potential re-rating. A combination of EPS growth and PE re-rating leads to Multibagger returns.

As nothing had impacted the philosophy pillars, we DID NOT QUIT even a single holding out of our original 16 AIF stocks. And we had the trust and backing of our investors too as we witnessed 0% churn rate during this tough period, i.e., none of our initial investors part ways. Do you think they knew it is just a phase and what the future truly holds? Maybe. Maybe not. But we knew for sure!

How were we so sure?

Well, we had our Skin in the Game. All our Aequitas employees were (and continue to be) investors in the AIF. We firmly believed that it is the best wealth generating machinery available in the Indian equity market. And ‘hell yeah!’ we were right about it.

Also, we had a promise to our investors, an unsaid promise to build wealth for them – more than the market indices. If they have shown their trust by putting in their hard-earned money, it is our job to fulfil their expectation of building wealth – and so we reciprocated by taking the bold call of not charging any fee till we have justified our proposition.

So, for 18 months since inception, we charged Zero fees to our investors. We stood by their faith in us.

A year later, on the 2nd Anniversary of our AIF, March 2021 we made positive returns on our initial investment – as we bounced back from our lowest position during the period. But our first

milestone was still a few miles away – building true wealth for our investors, more than the market average.

So, we Did Not Charge Performance Fees, till we delivered on our unsaid promise in April 2022.

What is the secret sauce?

As you would have figured too by now, the only secret is ignoring the noise around and backing the basics. There are many small market correction cycles that have occurred since pandemic, and it will continue to (maybe there is one as you are reading it) – that is the nature of stock market. The one thing that is rooted is the fundamentals of the companies invested in, backed by a thorough investment philosophy of Aequitas. While our cumulative results stand astonishingly positive, we feel proud to say that it is because of multiple individual stocks and not just one crazy Multibagger.

We held onto the fundamentally strong 16 stocks that aligned with our investment philosophy and as result, 10 out of 16 stocks emerged as MULTIBAGGER over the period.

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We are the contrarians, who do not get moved due to market shifts, corrections. We come from the Mr. Peter Lynch school of thoughts and as he says, “The real key to making money in stocks is not to get scared out of them.”

#pms services in india #pms services #best pms in india

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