Perspectives – Page 8

Why we are reluctant to take cash calls at present

We have had a few conversations with partners on why we are reluctant to take a 20% cash call at present despite the current uncertainty to re-enter when prices are more favourable. I thought it may be appropriate to share our thought process with all our partners.

I want to separate the question into 2 parts

a) The cash call on “Asset Allocation” – which is for partners to make

b) The cash call on “portfolio construct”- which is for Solidarity to make

Dear Prime Minister, give us a message of hope, courage and equanimity

Will the lockdown in India end on 17 May or will we as a country go deeper into “economic hara-kiri” ? (Anand Mahindra)

The first lockdown was perhaps right. In the fog of war, you have to act decisively till you figure out a course of action. However, post mid-April, we seem to acting more out of fear, than with “systems thinking”.

Playing the game vs being clear on what game you are playing

In trying to optimize short term performance and also long term performance simultaneously is a very hard game to play. We can choose to be smart in the short term or in the long term – but can’t choose both. It’s a rare genius that can trade short term and invest long simultaneously. Most people who claim they can do this lie about their returns.

Why did Franklin Templeton wind up Six credit funds?

Franklin Templeton Mutual Fund, on Thursday announced it would wind up six credit funds with a large exposure to higher-yielding, lower-rated credit securities.

Why did they do so? The Corporate Bond markets in India are fairly illiquid. FT schemes have got impacted because they invested in papers with low credit rating (they actively took on credit risk).

Positioning portfolios in context of the Corona Virus (5)

As a follow up on the 2 scenarios we shared earlier on 18 March, the scenario likely to play out is perhaps something between Scenario 1 and Scenario 2 that we envisaged. No one knows, “for sure”, the road map to normalization. We are likely to see 2 steps forward and 1 step back approach based on “trial and error”.

INVESTMENT THESIS ON HDFC BANK

HDFC Bank is perhaps India’s most secular compounding story with over two decades of superior growth backed by prudent risk taking

Enclosed is a brief note to explain our thought process underlying this investment.

Observations On Asset Allocation

Enclosed note contains our perspectives on broader asset allocation.

Positioning portfolios in context of the Corona Virus (4)

A salute to our doctors, nurses, police forces and sanitation workers who are at the forefront of this battle. A salute also to the Indian state – we are always criticized by the West, but we show our best when our backs our against the wall. And we have done a far better job than the developed world so far.

I am writing to share a few thoughts

1. Be careful how you interpret the news you are reading

Interpreting news flow

We have witnessed a black swan event. We need to wait out the storm. We will not panic and sell unless we believe the fundamental 3-5 year prospects of a company have been significantly challenged. Selling now – just because there is short term uncertainty – will crystallize a temporary loss and make it permanent.

Positioning portfolios in context of the Corona Virus (3)

It has been a really tough month for all of us. Portfolios will be down about ~25-30% in a month. This is a speed of decline which I have never encountered as a Fund Manager.

Solidarity believes that following a disciplined process will result in good outcomes over the medium term, even if we get the occasional bad break that we are experiencing at present.