Wealth is created by holding on to good investments for a long period: Vinit Sambre
ETMarkets.com
Synopsis
"It was quite interesting to see IT companies getting valued at 100 and 200 PEs, there was so much euphoria and then suddenly everything crashed. This episode had a lasting impression in my mind and brought with it important learnings that markets...
New investors are getting a taste of volatility these days. They are also learning about the ever changing nature of the market. Most investors are taking these things in their stride. However, some investors are totally lost by the wild swings in the market. That is why ETMutualFunds decided to speak to mutual fund managers to find how they deal with such tricky phases in the market. This week we feature Vinit Sambre, head- equities, DSP Mutual Funds. Sambre, who has been in the market for more than two decades, vividly remembers the frothy valuations some IT companies companies were commanding those days. "It was quite interesting to see IT companies getting valued at 100 and 200 PEs, there was so much euphoria and then suddenly everything crashed. This episode had a lasting impression in my mind and brought with it important learnings that markets can get crazy at times and the importance of rational behaviour during such times." Read more about his investment journey and the important lessons he learnt along the way.
When did you start your journey in the stock market? Do you recall your initial years in the market?
My journey in the stock markets began in 1999 when I had joined a broking firm K R Choksey as an analyst. The initial years were very exciting and full of learning. The process of valuing the business was most intriguing for me as I always used to wonder why a company traded at a particular value. Is there science behind that or is it just randomness? In that light it was quite interesting to see IT companies getting valued at 100 and 200 PEs, there was so much euphoria and then suddenly everything crashed. This episode had a lasting impression in my mind and brought with it important learnings that markets can get crazy at times and the importance of rational behaviour during such times.
What was the first thing you learnt in your initial years in the market?
In the initial years I understood the importance of reading annual reports of companies. The annual report is a treasure trove of information which is authentic, and if read properly it does provide a real edge. I also learned how to make detailed financial models which helped me appreciate the importance of numbers along with the story. I consider it my privilege to have been associated with a very fundamental investor like Kisan R Choksey. The focus was always on fundamental research rather than news-based trading ideas. I was guided to read Warren Buffet which helped me develop strong fundamental perspective of how to analyse a business and most importantly how to value it. The role of patience was also amplified when I saw few of our non-tech ideas barely performing during the tech boom but massively outperforming post the tech meltdown of year 2000.
Which was the first bad phase in the market that you remember clearly? How did you navigate it?
Generally, a bad patch is associated with the bear market. However, I have always found that bear markets are the ones which provide an excellent opportunity to accumulate great companies at the most attractive prices. I would rather say that rising markets without matching fundamentals were the ones which troubled me. In that light, the bull market of 2017 tested my patience as our midcap fund was underperforming due to our exposure to sectors like pharma and chemicals which didn’t participate in the rally. However, over the next 2 years these same sectors did extremely well and allowed us to come back strongly. Having learned the virtue of patience, we sat through our positions and waited calmly for the tide to pass.
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When did you start your journey in the stock market? Do you recall your initial years in the market?
My journey in the stock markets began in 1999 when I had joined a broking firm K R Choksey as an analyst. The initial years were very exciting and full of learning. The process of valuing the business was most intriguing for me as I always used to wonder why a company traded at a particular value. Is there science behind that or is it just randomness? In that light it was quite interesting to see IT companies getting valued at 100 and 200 PEs, there was so much euphoria and then suddenly everything crashed. This episode had a lasting impression in my mind and brought with it important learnings that markets can get crazy at times and the importance of rational behaviour during such times.
What was the first thing you learnt in your initial years in the market?
In the initial years I understood the importance of reading annual reports of companies. The annual report is a treasure trove of information which is authentic, and if read properly it does provide a real edge. I also learned how to make detailed financial models which helped me appreciate the importance of numbers along with the story. I consider it my privilege to have been associated with a very fundamental investor like Kisan R Choksey. The focus was always on fundamental research rather than news-based trading ideas. I was guided to read Warren Buffet which helped me develop strong fundamental perspective of how to analyse a business and most importantly how to value it. The role of patience was also amplified when I saw few of our non-tech ideas barely performing during the tech boom but massively outperforming post the tech meltdown of year 2000.
Which was the first bad phase in the market that you remember clearly? How did you navigate it?
Generally, a bad patch is associated with the bear market. However, I have always found that bear markets are the ones which provide an excellent opportunity to accumulate great companies at the most attractive prices. I would rather say that rising markets without matching fundamentals were the ones which troubled me. In that light, the bull market of 2017 tested my patience as our midcap fund was underperforming due to our exposure to sectors like pharma and chemicals which didn’t participate in the rally. However, over the next 2 years these same sectors did extremely well and allowed us to come back strongly. Having learned the virtue of patience, we sat through our positions and waited calmly for the tide to pass.
Can you tell us one mistake that you remember clearly from your initial years? What are your learnings from that mistake?
There are many mistakes which I have committed and have become source of learnings for me over time. One big mistake was during 2010 when the power sector was going overboard, we had invested in one material handling company which was flooded with a strong order book. However, we didn’t realise that this company’s receivables were dependent upon project completion which were getting delayed, leading to sticky receivables and stress on the balance sheet. We had to eventually take a large hair-cut on this name. The key learnings for us was the importance to look at leverage / debt in the balance sheet and ability of the company to easily meet their obligations.
There are many mistakes which I have committed and have become source of learnings for me over time. One big mistake was during 2010 when the power sector was going overboard, we had invested in one material handling company which was flooded with a strong order book. However, we didn’t realise that this company’s receivables were dependent upon project completion which were getting delayed, leading to sticky receivables and stress on the balance sheet. We had to eventually take a large hair-cut on this name. The key learnings for us was the importance to look at leverage / debt in the balance sheet and ability of the company to easily meet their obligations.
How do you see today's market in the context of your own journey?
Markets are becoming more efficient as the information availability has become very quick and easy. During my early days, information was not very easily available and reading the annual report early was an edge. Nowadays, the information arbitrage seems to be diminishing and what is left is the time arbitrage for one to gain from. One has to hold on to the investment for a long time horizon vs the usual behaviour to book profits early.
I am seeing lot of young and smart investors who are following a fundamental approach and are also tech savvy which is allowing them to use tech as an advantage to scan relevant information about the company quickly and be ahead of the curve. I really appreciate this young breed. I can probably just add one thing from my experience that wealth is created by holding on to good investments for a long period. The tendency of investors is to churn investment quickly, which at many times proves detrimental in the wealth creation journey.
Markets are becoming more efficient as the information availability has become very quick and easy. During my early days, information was not very easily available and reading the annual report early was an edge. Nowadays, the information arbitrage seems to be diminishing and what is left is the time arbitrage for one to gain from. One has to hold on to the investment for a long time horizon vs the usual behaviour to book profits early.
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If there is one thing that you would want young investors to learn from your experience, what would it be?I am seeing lot of young and smart investors who are following a fundamental approach and are also tech savvy which is allowing them to use tech as an advantage to scan relevant information about the company quickly and be ahead of the curve. I really appreciate this young breed. I can probably just add one thing from my experience that wealth is created by holding on to good investments for a long period. The tendency of investors is to churn investment quickly, which at many times proves detrimental in the wealth creation journey.
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