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Portfolio Management 1:01

Portfolio Management 1:01. Presentation at IIM, Calicut. Some Key Concepts. Approaches to Portfolio Construction Top Down v/s Bottom Up Value v/s Growth Think of Cycles… nothing is linear Client Requirements Match Needs, Requirements and Abilities Risk Use Math & Computing as tools

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Portfolio Management 1:01

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  1. Portfolio Management 1:01 Presentation at IIM, Calicut

  2. Some Key Concepts • Approaches to Portfolio Construction • Top Down v/s Bottom Up • Value v/s Growth • Think of Cycles… nothing is linear • Client Requirements • Match Needs, Requirements and Abilities • Risk • Use Math & Computing as tools • Make Bets Explicit • Why are you diversifying? • Your OWN Portfolio?

  3. Elements of Portfolio Construction Top Down Growth Value Momentum Bottom Up

  4. Decomposing Approaches Top Down Asset Class Country Sector • Equities • Bonds • Currencies • Property • Commodities • Oil • Precious metals • Natural Resources • Developed Markets • Emerging Markets • Regional markets • FMCG • Pharma • Services • TMT • Manufacturing • Cyclicals

  5. Decomposing Approaches Bottom Up • Volume • Price • Efficiency: • Costs • Assets • Restructuring • Technical Charts • Reflexivity • PE/G • Option Value Value GARP Momentum • Dividend Yield • Price/BV • Replacement Cost • Payback • EV/EBIDTA • P/E • DCF

  6. Some Lessons from History • Japan V/s UK in 1944 • Korea V/s India in 1950 • Singapore! • Hero Honda V/s Kinetic Honda • Bharti V/s IDEA • Infosys V/s HCL • HDFC Bank V/s SBI There is NO trade-off between Top- Down and Bottom up

  7. Think of Cycles! Nature is cyclical, not linear! • Life Cycles • Business Cycles / Boom-Bust • Seasonality • Innovation / Schumpeter • Market Cycles

  8. Valuation Approaches Value Growth Momentum • Illiquid • Misunderstood • Hated/Uncovered • Appraised value • Institutional Favorites • UVG Stories • Imagine it! • DCF or Option value • Max Volume • News Flow • Volatile • Technicals In Reality, there is no distinction. Growth and Momentum are LongTerm/Short Term Value catalysts

  9. OUR VALUATION “SCREEN”

  10. VALUATION BENCHMARKS

  11. Think Client Management • WHO is the CLIENT? • WHAT does he want from you? • HOW are you shaping his expectations & mindset? • WHY should he stick to you? “Most clients would rather have their fund manager fail conventionally than succeed unconventionally.” — Marc Faber

  12. CHANGING NEEDS OVER A LIFETIME Equity/Bonds Property Art/Misc Own Business House Durables Daily Exps

  13. KYC and Thyself! Relative Pvt. Banks / Pension Funds / Macro Funds/ Fund of Funds Asset Allocation Country Allocation Regional Funds Sector Allocation Country Funds/ Mutual Funds Large Cap Small Cap HNW / PMS / Absolute Return Funds/ “Hedge” Funds Absolute

  14. Key Success Factors • Institutional Marketing • Deployment of Large Pools • Capital Preservation BCA GLOBAL Pvt. Bankers / Pension Funds / Macro Funds BCA EMG MKTS • Marketing Scale & Scope • Economist Regional Funds • Fund Manager • Technician BCA CHINA Country Funds INDIA FUNDS Absolute Return Funds • Stock Picker

  15. Risk Mitigation • Formulas / Computers are tools, not cast in stone • Sterling Crisis • LTCM • Markets discount the rate of change ; most metrics measure history • Understand logic of EMT, CAPM and Beta; do not be bound by it. “Risk is something I manage between my ears.” — Warren Buffett

  16. Make Explicit Bets • Asset / Sector / Class • Use Computing to make interrelations and risk explicit; scenario modelling • Catalyst • Reflation ; Upgrading Debt Rating ; Margins… • Valuation • Payback, DCF, etc • What will make you change your mind? • Your weightage should not be led by overconfidence !

  17. IDEAL PORTFOLIO 75%

  18. Decompose | Decompose | Decompose

  19. Decompose | THEN | Consolidate • A good investor is a good businessman and vice versa

  20. Typical Career Path to Nirvana Analyst Head of Research Fund Manager Abs. Manager Own Funds Large Fund Manager Marketing Guru Even Larger Fund Manager

  21. How is your Portfolio Tilted? OWN INTERESTS CLIENT TIME PROFESSIONAL COLLEGUES WORK COLLEAGUES FAMILY BUILD A CONSCIOUS LIFESTYLE !

  22. AMERICAN SALARY ENGLISH HOME GERMAN CAR CHINESE FOOD INDIAN WIFE AMERICAN WIFE ENGLISH CAR GERMAN FOOD CHINESE HOME INDIAN SALARY HEAVEN AND HELL YOUR REAL WEALTH = YOUR HAPPINESS = YOUR STATE OF MIND = WITHIN YOU

  23. SUMMARY • UNDERSTAND YOURSELF OBJECTIVELY • UNDERSTAND THE INVESTMENT LANDSCAPE • UNDERSTAND THE UNDERLYING INVESTMENT • UNDERSTAND THE MARKET PARTICIPANTS • FOLLOW BASIC PRINCIPLES AND STICK TO THEM! • BE HAPPY!

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