Ten Things I Learnt About Investing In The Post-Pandemic Samvat

An HP advertisement on Diwali says 'Diye se diya jalao', interpreted as helping someone by your actions. There is joy in doing that, and more so during Diwali.

As we reflect upon a year which has been starkly different from the previous two, the reading and contemplative conversations with market veterans bring us great learnings, and I will do my bit by sharing what stood out for me in the last 12 months.

The biggest learning though, as is always the case, has come from just watching Mr. Market. The best teacher always.

Here are the 10 best teachings for me this samvat:

Ridham Desai of Morgan Stanley, at BQ Prime's Future Today Summit, spoke about the importance of optimism for an investor.

"If you are not an optimist, please walk out, because equity markets are not for pessimists. I will tell you why. In the equity markets, we trade the future, not the past. If you are bearish on the future, then you should obviously not be in stocks."

The investing world lost one of its brightest luminaries in Rakesh Jhunjhunwala in the samvat gone by.

And while remembering him, his dear friend Ramesh Damani reminded us of one of the biggest things in wealth creation—backing up the truck and buying into high-conviction ideas. Damani said it in his own way:

"What distinguished him (Jhunjhunwala) is the bet size that he made. While I might be happy buying 1 lakh shares or 2 lakh shares, he would think in terms of percentage-sized stakes in the companies he invested in. While we took the mud and fashioned it into bowls, he took the mud and fashioned it into jars."

Tom Pence, in a post on the KCP Group website, says: “Never confuse knowing more with gaining insight. Thoroughness can often be the enemy of insight. One must consider when it is time to stop the input in order to devote sufficient time to contemplation and ultimately making the best decision.”

Raamdeo Agrawal, a permabull, talks about the importance of making the good capital markets even better. The piece to learn from this is not the impact but the thinking of the man.

"There is no dearth of capital in the world. And this is a situation different from 20 years back. (On the) one side, we are the largest country by population, which is the poorest. And outside, there is a savings glut. Can we create an environment which can attract enough money from outside, but reward domestic savers too? Because unless that happens, we won't become a world-beating economy."

Ray Dalio, founder of Bridgewater, in a LinkedIn post, makes this point for organisations, but which can be extended to investing as well.

"Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don’t," Dalio wrote. "By creating an environment in which it is okay to safely make mistakes so that people can learn from them, you’ll see rapid progress and fewer significant mistakes."

Think about this in the context of investing. If you learn from it, you will gain. But that is known. What stood out was that if we create an environment where it is okay to 'safely' make mistakes, and if those mistakes don't wipe you out, you will see rapid progress and eventually make fewer mistakes.  

This one is from Michael Batnick, director of research for Ritholtz Wealth Management.

“People desperately want to be told what to do. That's why there is such a big audience for hucksters and charlatans. I know better than most, but I need to constantly remind myself, especially when I hear opinions that confirm my priors, that nobody can see the future," he said. "This sounds incredibly obvious, but it's something that often goes overlooked. As Morgan Housel said, 'The best story wins'."

Ridham Desai features twice in this piece, for he laid out a gem of investing advice, standing on the shoulders of Harshad Mehta, at BQ Prime's Future Today Summit.

"For all the maligning that Harshad Mehta has, the one thing that I loved about what he said is—the maximum that you can earn from a short trade is 100%, but the maximum that you can earn from a long trade is infinite, because stocks can go up 20-30-40 times."

Maneesh Dangi of Macro Mosaic argues about the macro issues that are headwinds as well, and makes this pertinent point in one of his LinkedIn posts.

"Indian reserves grew because of Fed's expansion and easy financial conditions. Even if rates settle here and QT is implemented modestly, the reserves are likely to fall quarter after quarter," Dangi said. "Most other Asians don't have the problem that we face, i.e. high CAD. This is the key reason why the Indian business cycle is overtly dependent upon global easy financial conditions."

Kenneth Andrade of Old Bridge Capital makes this point on capex in India, which is at odds with the popular opinion. This is one of the few topical points included in this piece (out of BQ Prime's Alpha Moguls series) to show the thinking behind capex, which is pertinent to current times, but the theory of which is everlasting.

"Manufacturing cycle has to exhaust its capacities before capex cycle begins. Capacity utilisation levels have to cross 85%, and that is not a bad thing. The minute you cross 85%, domestic cash flows hit all-time high, and the cash flows will have to go back to generate the new capex cycle," Andrade said. "I believe that is some distance away. Capex is happening in a narrow band, and otherwise, we have enough capacity on the ground to utilise first."

This one is my own. And once again, it got proven in the samvat gone by. On Oct. 4, 2022, the much-awaited and assumed to be a certain inclusion of India in the global bond indices did not happen.

While it may not have a material impact on bond markets, a lot of people had factored in the event as if has already happened. Just goes to show that it is better to not preempt events which are beyond your control.

Somehow, a lot of things beyond our control get aligned during this amazing festive season in India.

Wishing all a great Diwali and a fabulous new Samvat. May you be blessed with wealth, happiness and, most importantly, peace of mind. 

Niraj Shah is executive editor at BQ Prime.