Investment Management

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. 

Positioning portfolios in context of the Corona Virus (2)

Markets have been on a continuous sell-off mode since then. A draw down of 20% from peak in a year is not an uncommon occurrence.  However, we have all been surprised because we have not experienced it for a while.  And, unlike other corrections, we have all been surprised at the speed of the decline as it has come in less than 3 weeks.

Positioning portfolios in context of the Corona Virus (1)

The Corona Virus has given the markets a scare with the benchmark indices ending ~7% lower last week.   The large number of cases in Italy has understandably made participants nervous whether this is another normal correction or the start of something deeper and bigger.   

I am writing to share with you our perspectives.

Our perspective on the Bharat Bond ETF

We see two roles for “Debt” in any portfolio

• Yield – if the regular income is required to fund expenses.

• Optionality – if a debt instrument is liquid, it not only provides you a coupon, but also serves as a free Call Option to deploy additional capital in Equity markets/other Asset Classes if a very attractive opportunity came by.    Most investors rue having no Cash to deploy during a crisis when Equities are available at very attractive valuations.   Having access to Cash (ability to sell the Bond) + courage (ability to redeploy into Equities) are invaluable during a crisis.    

Is this the right time to deploy capital in Equity Markets? An answer it yourself guide

The most common question Investment Managers get are “Is this a good time to enter equity markets?” and “where do you see the markets headed from here?”

Repetition of truths

Truths need to be repeated many times so that they don’t lapse into oblivion

– José Saramago, Nobel Prize winning novelist and journalist

What do you believe in?

The first principle is that you should not fool yourself, and you are the easiest person to fool

– Richard Feynmann

Developing competitive advantage as an investor

Investing literature is rife with guru’s urging investors to buy companies with competitive advantage.