Small Caps Volatility Wealth Ramesh Mantri Whiteoak Capital

TITLE: -VyhIqXurzA CHANNEL: Unknown DATE: ---TRANSCRIPT--- The whole CA profession is a conservative law. It’s not that people can’t take hits on their portfolio. It’s just that we don’t have the mental capacity.

We say don’t look at a stock but look at the business. Now we’re saying don’t look at the business, look at the person. For the price we pay, India provides the best healthare. If the US wants to reduce reliance on China, it’s natural India benefits. It’s not an intellectual game, but it’s a behavioral game. Higher risk is just a statement that only means I want more. If you’re to buy a house, that’s not an investment. Volatility is a feature of a market. It’s not a market. [Music] Hi and welcome back to the Germinate Show. We’re so glad that you’ve tuned in and as always we endeavor to bring people who are prominent voices in the fund management industry so that viewers like you could benefit from it and today it’s an absolute pleasure and delight to introduce to you Mr. Romesh Mantri. He’s someone that I’ve known now for many years and apart from all his credentials that he’s got and uh the great job that he’s doing in as a portfolio manager a great gentleman and a great human being. Sir, thank you so much for agreeing to come and you know we’ve tried this multiple times. I think today we’re third time or fourth time lucky to finally go ahead with this shoot. Thank you for joining us. Thank you Santo. Pleasure. So uh we’re so glad that you know we can ask you some questions today for the benefit of our audience and I’m going to start with something very elementary. Yes. Now we all know now you’re a proven uh portfolio manager, chief investment officer and have a great track record. But how did this journey start? I know you started at a rating agency and today uh you are uh heading the the business app managing retail money uh through the mutual fund route but how did this transition happen? Yeah, there’s a interesting question. Nobody has ever asked me this actually. So in Kolkata I was studying doing graduation on a footpath I picked up a book on Peter Lynch one up the wall street I read it I fell in love I bought more books of Peter Lynch then of course if you read Peter Lynch you follow with Buffett and that’s really the love started and of course then I was very clear I was studying CA finished my CA but I realized that I didn’t want to be an accountant or a tax guy I just wanted to be an investor and of course one of the other realizations in Kolkata was that Kolkata was a great place to live. I didn’t see a future for myself in Kolkata. So I wanted to study further. Did my management degree and unfortunately what happens is I passed out the month in 2003 March which was the multi-year bottom for sens when you pass out at the bottom of a market than no jobs. Typically jobs start two three years in total market. So in campus you take the job you get. Luckily, I was very lucky. I I got a job in Chris. It’s a phenomenal organization. Uh got used to research, debt research. In fact, I would say one of the luckiest breaks I got in my life because in fixed income you think of downside and equities you think of upside and downside. So actually I got a very early attunement to risk taking of avoiding the bad risks in the portfolio and I would say for people it’s a great actually a blessing to start in fixed income life and then 2005 bull market was on and then I made the shift to you know the takeaway from this very interesting journey of yours from uh being from a credit reaching agency to being the CIO now and over 20 years of that has passed now. What are some of the lessons that you’ve learned both personally as an individual because you here is one lucky person who’s been able to convert their passion to the profession rarely that happens but that must have also given you some important lessons both as a professional that you become and as a person that you are oh I’ve not thought about this so much so first I think uh I think realize is everybody has a personal relationship with money took me many years to realize this you because of your life experiences, your family backgrounds, the paths that you took, the risk that you took, the successes that you made. Everybody has a different relationship with money. Everyone money means different things to different people. True. Right? So that’s something it took me time to. I’m a slow learner, right? So it took me a lot of time to understand that basic message. Number two, again, it took me a lot of time to learn this. Again a slow slow learner is you can’t it’s very hard to predict the world right you know we spend a lot of time in the world thinking about politics geopolitics energy prices gold currencies government policies the reality is and too much time is spent on macro and getting this complex world right it’s very hard to get it right in fact to I think of this as a very large complex equation with moving parts uh it’s very hard to get the result right. So the the focus in life should be to focus on simple equations to solve. Focus on one small company, understand that industry, understand that entrepreneur and try to get them right. Now macro or those thing the big things sometimes may be in your favor maybe but there’s no way to get that right. Number three is uh the quality of businesses matter and I think the most important thing I car care about is why does the customer is loyal to this product? Why does the customer buy this product or service? Ultimately businesses which have loyal customers create value. M uh so and just to give an example the industry which has the most loyal customers they are called edicts is cigarettes that’s by the way one of the most phenomenal businesses over a very long period so you want to look for customer loyalty and of course competition matters but customer loyalty is a sign of c competition that’s something you want to focus on and finally even if it’s a great business if the corporate governance is not aligned if you can’t be a fair partner to that if that owner management is not your fair partner the business probably will create a lot of value but you may not be an equal partner in that value creation. So those are the real lessons. You lead me right to my next question which is corporate governance. Yes. Now as a person and as the organization you guys have laid a lot of emphasis on corporate governance and in fact every presentation of yours you talk about corporate governance. Now for most of our viewers all they want is which stock to buy, which fund to buy. This is somewhere hidden between uh the big headlines, the corporate governance. Is there a way you can kind of simplify this for just about anybody listening to us right now that number one, what would you define corporate governance? And maybe one or two or three points that one could familiarize themselves with corporate governance. You know so corporate governance at a high at the highest level is we are all when we when you’re minority investors in companies ultimately we are partners. So question is whether we are fair partners with the majority shareholder account or the majority shareholders finding ways to screw us very simple hit us hard. So it can be they’re stealing money from the company through various ways including related party transactions are different they create a great business in the subsidiary when they take a low stake at low price. Uh families their families they pay themselves too much compensation. Uh it could be that they don’t have alignment with us. The companies run for the benefit of the family and not for the benefit of shareholders. So companies are family planning vehicle. The business indulges in unethical behavior. Often h happens in sectors where there’s government involvement. You know, highly regulated industries. Real estate often is a problem sector. And finally, you want to show me the results of companies, right? As partner, how did we do the business? If you indulge in aggressive accounting, show me a story that’s different from the reality. aggressive accounting, you show profits when they don’t exist, uh you misstate the numbers. So those are the broader issues. It’s fundamentally at the core are you a fair partner or not. That’s what governance is. So when you say you’re taking care of corporate governance while investing, you’re trying to tick all these boxes and ensuring that the security selection that you do is taking care of these things. So there we are. And when you do that is it difficult to actually build a investable universe or is it easy? No clearly uh when you work on this see there are number of layers of corporate governance of some portion of that is available uh you know through the history of companies but then there’s lot of data that exist sometimes in go in in MCA filings in government records that you need to go through legal cases uh different shareholdings in different companies related party transactions that are not disclosed when it clearly looks let’s say The same address a person has three companies registered address whatever they say they they belong to the same person. If you have the same companies listed on your home address they belong to you. You may have different shareholdings different directors. So you have to go through those layers and layers of understanding. It requires hard work. It requires effort. You need to go through financial statements. Ask critical questions. Like suppose one of the simple things you need to do is compare the numbers with peers. If someone is an outlier, ask why. There should be a very good logical explanation for that. If the if the logic doesn’t add up, then there is a question mark. So, it’s it’s it’s it’s a clearly effort that goes into this. Uh and it’s not possible to be 100% right because I said there are large number of layers. Ultimately, in many ways, you are judging human character directly or indirectly and humans are complex, right? So you’ll still make mistakes, but the idea is to make a lot less mistakes than others. It’s interesting you say that because we say don’t look at a stock, but look at the business. Now we’re saying don’t look at the business, look at the person because you’re judging human character. I mean that’s a new perspective to look at businesses today. Following through on that, you know, the top 100 maybe 200 companies qualify for the large and the ultra large companies, but about over 90% of the market is everything but for these top 100, 200 companies. Many feel that the top 100 to companies are largely good on corporate governance. Rest of the things you wonder that maybe they won’t be as robust as the top 100 odd companies. But that’s where the big opportunity in India is the mid and the small caps. Yes. Now we know the last few months as we’ve been witnessing the increased market volatility that they’ve come off from their uh highs in September October last year 2024. How do you see that part now? Because there are enough people taking pot shots at this some saying that the small and midcap story is over. There are some saying that you cannot build an India story without small and midcap. Do you have your personal view on this? No. First of all uh you know you’re right on corporate governance. The first point uh because the top 250 companies are typically around for 20 30 years. There’s a lot longer track record. There’s a large robust business. They’ve been open to a lot more scrutiny over the years. So generally on an average the corporate governance will be better in the top 250 versus the below one. The smaller companies uh they going to see lot larger variability in corporate governance. And that’s where the role of an active manager comes in to give a very simple analogy. You know, when you’re investing in large caps, you’re effectively playing Australia in Australia, New Zealand in New Zealand, England in England, test mattress, it’s going to be harder because if you think of midcap investing is trying to play these three teams in India, right, on test mattress, most of the time we’ll do well, right? Except the recent news series. And then small cap investing is Indian test cricket team playing any of the rest of the team anywhere in the world. So logically if you want to improve your track record accord you you should avoid playing less in Australia uh England or newslet right so clearly for active managers skilled managers don’t play tough games play easier games so you can add a lot more value in active investing in small caps and mid caps and you have to put in the effort because the track records don’t exist very less information exist you have to do your work and if you do good work you will get reward So the most important question, do we write them off or do we keep them on the top of our books? No, I don’t think India’s growth story plays out without small and big. Clearly, you know, if you’re going to grow at 6 to 7% a year long term, you know, there is going to be lot of growth. Number two, remember just because a company is small today does not mean it’s a weak company. Lot of industries in India today are small because our per capita income is small. Think of travel sector, hotels, travel. It’s going to be a large sector eventually. But because today upper capita spending is low, those sectors are today low. But eventually you’ll have much larger companies. You don’t even have single large cap QSR company. Food is happens to be one of the biggest sectors eventually. So lot of these companies also will make the transition from small to mid mid to large and that’s where the big money is made. You know you you spoke about travel, hospitality, food. This is an offbeat question. Yes. If there was one sector that you’d like to bet on, maybe even your personal money for the next 10 years. Yes. You you have a answer to that? No, that’s uh not easy. First of all, uh so logically, you know, the way I think about, you know, the world is changing and dynamic, right? It’s very hard to see how the world looks 10 years from now. And the world will go through cycles and India will go through cycles. Logically, I want something that is very robust. It’s an essential product. We can’t be without it, right? 10 years later there no good substitutes on that factor I would say pharma and healthcare because pharma India is now you know about 50% of the US generics come from India uh if the US wants to reduce reliance on China where they have a geopolitical conflict on it’s natural India benefits you know number two healthcare again India’s I think for the price we pay India provides the best healthcare right we’re lucky actually we don’t realize how lucky we are in this country you know try to go to get healthcare in US you’ll go bankrupt in UK or Canada you’ll not get an appointment you’re lucky number two it’s a not a discretionary sector when people are sick before food they want medicine or healthare so and secondly we are going to get richer and live longer healthare excellent you know of late market corrections as or as some would like to call crashes have become more a reality. We had a postcoid world where largely you had a one-way street. Yes, you did have the second wave. You did have the Russia Ukraine. You did have the the Middle East crisis. All of them were small blips. Yeah. But for now where we saw some slightly extended maybe to four, five months and a slightly more extended correction. Now for most of our viewers it’s safe for us to assume that they’ve all come in the last four five years. True. How would you answer to them that you know how they should manage with a correction or a crash? No. First of all uh you know said like postcoid see equity volatility is a feature of equities. If you want to get potentially double digit post tax returns and equities, you have to live with volatility. What happened the last four years is actually volatility was very low. And actually because of the COVID base and the fact that 18 and 19 were also difficult years for small cap midcap in India. Lot of money got made in small cap midcap you know 25 30% curves. So people today had long wrong expectations on both returns and volatility. Now returns are normalizing with the market correction because it was extended period with low volatility. Now we have an extended phase of volatility and volatility has emerged. I think let’s understand volatility is a feature of a market. It’s not a bug. It’s appropriate context in Bangalore to talk about bugs and features in software parlance. So it’s here to stay. I think the way to benefit from volatility. See the thing is volatility is a is just not a mathematical impact on your portfolio. The bigger problem with volatility is it psychologically taxes you. It’s not that people can’t take hits on their portfolio. It’s just that we don’t have a mental capacity to take the draw downs in a portfolio. So I would say the I would say the only way I can think of where you make volatility your friend because SIP is the way that actually you tend to average down in a down market. So actually volatility is the you can SIP is the only way to benefit from volatility in markets. Now that we’ve rightly put perspective that it’s not a crash or a correction but volatility. From our personal experience, how do you think investors should view this volatility angle? Uh, you know, every time even though they know it’s going to be volatile, but the reaction is different. Yes. You know, everybody wants to do either bottom hunting or exiting at the top. Yeah. And we know it seldom happens. True. But is there something else you’d like to add to this bit? Because people want to only buy at the bottom. See, the problem with uh investing is that while when we save money and invest money, it’s usually for our long-term goals, our kids education, our retirement. It’s a very serious endeavor. But people want to get excitement out of investing. You know, if you want to get excitement out of pick up an adventure, sport, right? Do something else in your life. Get excitement. Don’t money should be boring. Investing should be boring. Number two, because investing is not fundamentally an intellect game. It’s fundamentally a behavioral game at a very core. The reason why do people think have trainers for the gym, not because you need to know the exercise. In fact, there are a lot of YouTube videos to tell you what exercise to do. It’s to make you sure that you do the exercise. It’s a behavioral thing. So I think all of us need an adviser that we can trust who can be our trainer when we don’t feel like going to the gym that day. Someone tells us let’s do it for 10 minutes, 15 minutes, 20 minutes, 30 minutes. So I think everybody needs a great adviser who’s aligned with them. You know that brings to a very very important point that you just said that it’s not an intellectual game but it’s a behavioral game. I wish all of us understood the gravity of just what you said that it’s so much to do with the mental fortitude. I I think it is Warren Buffet who said that you need to not have the mental capacity but the gut capacities and how many of you can you know stomach the volatility. Yes. I I think about this subject I want to ask you maybe one last question about this is that what should the investors avoid or maybe you would have noticed repeated pattern of mistakes that investors are doing in this patches of volatility what is it first of all uh two things first of all the the biggest failure of all investors typically is the for fear of missing out so you are doing what has worked in the past so because three four years small caps did well you want to put money in small cap s you want to put in sectors which have done well it was PSUs real estate capital goods which have done well for three four years it’s like saying I want to drive a car by looking at the rearview mirror right rearview mirror is just to be awareness it’s not how you drive a car the problem is investing does not work that way so FOMO is the biggest problem of all investors number two I think people in phases of volatility forget why are they investing in saving money you because you just become too much aware of today and the problem I would say is just too much easier access to data and information you know which also creates a lot of pressure because today you have just every second awareness of how your portfolio is doing. Nobody thinks of the portfolio value of a real estate house, the property they bought, how much gold they own. Nobody looks at whether gold is up or down, what happened to your property. But because this information is very easy and ubiquitous, there’s so much focused on volatility. So I think the thing I would say is don’t focus on near-term things. That’s how it is. You spoke about the need for people to have a trusted advisor or maybe even a mutual fund distributor. We at Germanade uh we coined this term called the HDI the high trustworth individuals like how we call investors the HNI we believe that everybody whether it’s me or somebody else or some other team that you’re working with there is a group of people that you can trust that can take you through the journey. Yes. Now here again when you trust them it’s not that they’re going to give you superior returns. Yes. It’s just that they they handled you through the journey of volatility. True. And we believe and one of the reasons we are talking with you is we believe that you are that high trust individual as far as money management is concerned. We are that high trust individual that can help you navigate through these uncertain times. as a high trustworth individual, the greatest uh legacy that we can help a client with is navigate the volatile times. True. Right. Because everybody’s seems to lose their cool when the markets are uh you know volatile. All that they need is sit back, relax, don’t worry, this two shall pass. Yes. in in such a uh role that we play uh how do you see the the the mutual fund distributor landscape because there’s a lot of expectation if I go to mutual fund distributor it’ll give me better returns or maybe faster returns or maybe the star funds whereas we are trying to tell you you just have to ride through the the waves and you will anyway make money what is your take on that see first of all in a bull market nobody needs a fund manager or or or or or a trusted adviser because you’re buying stocks and you’re making a lot more money. You think you don’t need professional advice. It’s like saying when I’m healthy, I don’t need the doctor, right? I think the volatility is where our value comes in. So, the irony is we need you only need a nobody remembers a doctor when they’re feeling good. Yeah. I don’t think you ever gave a call to a doctor and said, “Doctor uh I’m remembering you because I’m healthy.” No, you only remember the doctor when you’re not keeping well. If you ever call a doctor, the doctor knows you have problem right. So first of all our a role of a professionals only comes when through this come through this patches of voluntary. So this is given. So this is a core role. I think the advice on the intellect part. The idea is not to make stupid mistakes. The advice we need to give. What is stupid mistakes? Stupid mistakes are first of all trying to buy something that’s extraordinary hot today by looking at the rearview mirror. you know I think help to manage the impulses of the client. So that is actually our role you know not make you don’t need to make very smart decisions you just make those sure don’t make stupid mistakes that that is what other thing I I think I I think strongly Santo I feel about your role is what you’re trying to do is I think when I see the whole IFA industry MFDs and all I think there’s a whole too much focus on equities as a product solution why people call them as IFAS they’re fundamentally independent equity advisor you’re not offering total finan financial solutions for total financial solutions start with I would say first term insurance health insurance you know first protection against bad outcomes long-term planning retirement planning that is something and people are not thinking too much of course few people do a great job of asset allocation which is entirely focused on one product which is equities and often I see people sell a product you should not be in the business of selling products you should are a solution provider. The product choice that you make is your professional decision. Doctor does not ask you doesn’t ask you which medicine they give right. They decide this is your problem. This is the medicine need. They don’t consult you, right? And they don’t tell you or explain you the medicine, right? So I think we have to this industry if has to grow and become partners has to make that transition from independent equity advisers to truly independent financial advisers. Right? You yourself being a charter accountant uh would agree with me that we believe that the CA industry is largely the backbone of a financial services because even today when you ask anybody to do with uh a financial decision that they have to make. Can I check with my chart accountant? Can I check with my auditor? Sometimes this happens even with investment advice. Yes. And uh while many chart accountants very meaningfully help the investor make the right choices, there is also this uh whole uh uh you know requirement for uh the the investment outlook because most chart accountants help the investors you know are on the side of caution. True. Right. It it could be that some charter accountants who are familiar will say yes equity is a great asset class. some who believe in fixed income and say fixed income is a great asset class. So good advice coming from good people but still you know the investor at sometimes gets swayed by it. So you have a take for this? No that’s a great comment. First of all see you know and I happen to be a chartered accountant. The training we get on charted accountant is in audit accounts tax and loss. This is fundamentally what we study and what we part of it is about you know financial analysis you know management accounting that we do that’s only a portion of the courses. So the reason I think charter accounts has a lot of value because everybody needs someone to advise them on accounts and taxation or so that’s they become the area of expertise they become a trusted adviser usually there for a long term and then people tend to depend on them for investing so the reality is the world is becoming complex expertise is needed gets evolved like for example I’m a chartered accountant but I never file my tax returns because I don’t have the ability to understand complex tax laws as they work so even that I handed wrote to another charter. So just because I studied CA does not mean I did tax because I never practiced tax. So this investing is something that you need to build expertise and practice. A few charter accountants do a good job but a lot of them just people go to them simply because they’re trusted people not because they have expertise and often they’re a conservative lot. See uh the whole CA profession is a conservative lot of people. They’re very protective people. Yes. Protective. So often the advice is on that side for the common investor who is now beneficial of so much of advice that is available in social media channels. They are today overwhelmed with information and at sometime it’s good because you at least have access to information. At the other time this also leads to what call paralysis of so much information that now they are worried between long-term short-term chasing a fund versus you know being uh investing in a fund through the market cycles. As much as we like to ignore it, it does create a bit of a confusion saying that who do I follow or what is the right advice to follow. I mean if you notice that this this challenge is real. What is your take on this? See first of all we have moved in the world in the last 20 years from scarcity of information to abundance of information and our DNA is designed around scarcity and we are it’s a challenge to deal with abundance. Uh so there’s too much abundance of information. Now that information comes at various quality levels absolute junk to high quality. And the problem with financial advice is unfortunately the Indian education system except telling you how to learn the math formula of simple interest or compound interest they teach you nothing and in fact it’s one of the most life most important skill. So you grow up you you become a subject matter expert you studying 20 years in your life and you don’t even know the basics of investing. A lot of people even can’t even tell the difference between a flat interest simple interest and a compound interest. I’m talking of very normal people. So that’s the challenge, fundamental challenge. I believe the first thing is it’s a critical life skill. People need to at least give two hours a month to get themselves up to speed on very basics of finance. Find good courses that are available online, good content that’s available, trusted content and get get up to speed on them. Now the problem with this abundance of information on social media is just not to investing. It’s just about everything in our lives. Now just think of the advice you get on eating nowadays. Like every goddamn thing is either causes cancer or you know just imagine on health you know this protein that protein you should eat this you should not eat this this is a problem right and the way to do is just rely on trusted sources it’s hard it’s very hard because it’s very it’s very hard to get away from your WhatsApp group content one of the things I do is I stay away from all WhatsApp groups uh you know even don’t even not even on my family WhatsApp group if they send me all those povert uh so I only stay with very high quality information. uh you had asked me a question on uh for example I like to read long form content very deep content like you love to read books right so I focus on high quality information rather than trying to focus on just the cacophony of noises that come to you correct you know uh this reminds me of the whole concept of how to eat well there was a time where you thought eggs were bad then the time that eggs were good then the time they decided how many eggs you should have in a day then they decided what time of the day and whether you should have the yellow or the white So while everybody’s trying to be uh you know educative or helpful, we have to remember that there’s so much of information overload. I hope people don’t give up on eating eggs. They’re wondering whether it’s good and when it’s bad. True. So the the the idea of asking this question to someone like you is you know at some point time when the markets are doing well we say equity is the answer. When markets are not doing well saying that asset allocation is the right answer and when things are little different you’re saying that you should know what is the right asset allocation. So these things are sometimes uh really uh confusing to the investor provided uh they have an adviser or they have someone that is helping them fix it. That’s where the role that who you follow and how someone is helping you becomes critical. You know like for example I just put a different context on health the most important thing for your health is find a great doctor and then rely on their advice trusted who’s aligned with you. That’s what you should do for financial advisor. spend a lot of time finding the right financial advisor, then stay with their advice. Great. We’re going to try to put you on a spot actually. Sure. And uh let’s see what we can get out of you. Yeah. Uh there are some few questions I just quickly wrote down and I’m reading it. Uh so it’s it’s it’s uh you know premeditated. Let me see how we get a good answer for this. One book on investing that you feel that every investor should read. I think it’s uh the psychology of money by Morgan. Great. It’s available in all languages. I I love that book too. So you can pick out whichever language you love it. You can read that book in whichever language. Psychology of money. Just make a note of that. Yeah. A mistake that you think every investor should at least make once. Try to predict the market and write it down. Write it down. Put a journal. Not like memory and you’ll realize how put put a journal for a few years. Try to predict the market and you realize how much humble pie you Okay. Your favorite investing quote. Time is the friend of the great business, enemy of the mediocre. Okay. One company I mean if you can disclose the name that you wish you could have invested earlier on or never exited. Yeah. Uh so actually in hindsight it has been a stupid mistake. Uh this was way back 15 years ago when page industries gave the IPO jockeying. Okay. Your investment mantra in one line it’s buy quality businesses for the long term at retractive valuations. This is something I don’t know whether you thought about. If you’re not a fund manager or a CIO, what do you think you’d be doing today? I’d be a teacher. Oh, excellent. Okay. If you’re a teacher, what would you be teaching? Oh, that’s a great question. Uh, of course, uh, I I was actually, uh, in my initial years, I absolutely love history. But, uh, I’m I’ve always been very curious. I I really always learn like to learn the core ideas in every body of knowledge whether it’s biology, physics, chemistry, psychology, economics you know and I think we don’t we try to teach each subject standalone but we don’t integrate them for people to knowledge together. So I would teach a subject which picks the core ideas of lot of domains and teach it as one subject. So there you are a teacher hidden in a fund manager and a CIO. What do you think is one of the most widely conformed to myth in investing? Yes. That fund managers should make market forecast and we we get them right or anybody gets them right. It is like a toss of a coin. You know half the time we’ll be right half the time wrong. But problem is like asking Rohit Sharma head eye tail we’ll be right half the time you’ll be wrong half the time. So then let me stretch that question. Yes. Then what do you think is the most unconventional uh investment decision that you made? Well, that’s a great question. Uh you know unconventional investment decision. I have not thought much about it. I think uh it’s an it’s a very different answer. I think I have and this is not an investment decision. I think over the years I’ve tried to learn and lot of different domains of knowledge spend improving my skills learning variety of subjects, topics and all. And that actually has built skills. And other thing of course is I you know okay investment let me put it differently is a lot of people just do equities. In my career I have done where opportunity came whether it was debt whether it was equities whether it was professional investing real estate whether it was investing in distress rate where the opportunity is we should be going there not put yourself into very tight boxes that I’m just an equity investor. You know that leads us to actually ask you one of the questions that came through uh some of our viewers is that there is this theory of high risk high return. Yes. So people ask why should we not you know try this strategy. What’s your take on this high risk and high return? You know Santosh I have spent 20 years in markets have looked at a lot of people when people say high risk return people only mean one thing they want high return. There’s not a single investor in the world who wants high risk. Higher risk is just a statement that only means more returns. I want more returns. So this is a misnomer that people want more risk. There’s only one more. Do you really think that from an investing perspective, there’s a great bunch of difference between an HNI versus a retail investor? Because quite frankly, both want to make money. Yes. Both want their money to be at some level stable or some level earning well. Yes. But at some level the the person with a bigger check feels he’s entitled to more the person with a smaller check feels that even if I get something is okay. Uh do you think there’s actually a difference between apart from the checks they write to the expectation or the entitlement that they have? No. See first of all if you’re HNI you get access to certain investments or can participate in certain investments which a normal retail investor can’t. Like for example, you want to invest in AI if let’s say you want to do a startup fund uh you want to do a private equity fund those you have the access because of chick sizes which a small ticket size won’t get beyond that I think it’s a in finance we love to complex things you know make things very complex and formulated I think investing sometimes very simple things work you know over a very long term in a country like India equities has worked out very well. It it has given good long-term returns. It’s liquid. It has the best taxation. So sometimes very simple investing is not one domain where complex wins over simple. Many times a lot of times actually simple triumphs over complex. So is it fair to say that the HNIs have an advantage but not necessarily the retail have a disadvantage? That’s true. And over time what’s going to happen is as you know through the mutual fund and and the new products that are coming up a lot of the product features that you are getting on the HNI platforms will be slowly available more made more accessible to the retail investors. Yeah. So I think if you are one of those retail investors watching don’t ever feel that you’re a disadvantage and we have so much of product innovation to begin with and you just heard it uh from Mr. Mantry that how uh you know the democratization of financialization of savings is also giving all of us a fair chance but remember all of us getting a fair chance doesn’t mean that we all gamble with our money we be responsible and sensible investors. Moving on so I have a last question. True. And this keeps coming up every cycle. Yes. The stock market versus the real estate debate. True. When the real estate cycle is doing well, you try to compare saying that real estate never actually goes down and you always make money and you have a roof over your head or you’re tangible as it and this gets further amplified when the markets correct. They’re saying see my real estate never corrected. Yes. Uh but every 3 four years there is a winner and a loser camp. What is your take on this? No. So first uh you know when you think of real estate if you’re to buy a house that’s not an investment. Please buy a nice place for yourself. It’s a a place where you’ll spend your whole life. Your family will grow. So that the first house you buy is not an investment and I don’t believe in this idea of long-term renting and all you know it’s a cleverly marketed idea. A home is about community about belongingness. First that’s not there. Now coming to you know investment as I as Santos we talked about fundamentally the problem is the the psychological problem of volatility. Real estate gives you the advantage that you don’t feel the volatility. M so practically for a lot of people it works very well because of the fact that they can’t deal with the volatility they can’t sense it they they can’t sense the volatility but let’s understand and uh this is you know real estate while you can get in often getting out is not easy the liquidity part it’s a it’s a liquid illquid asset and often you should sell real estate when you can not when you want to because the market is going to behave very differently when you want M I I I would say real estate has some role in every portfolio because the fact that the volatility experience is low for a lot of people. So it makes a lot of sense for a lot of people from a behavioral perspective. Equities of course in India has done very well for long term. Those advantages are very clear. But I I concede the point that because of the behavioral aspect a portion of portfolio real estate is fine. This is a question quite specific to you and I’m sure you must have got it quite often which is your portfolios tend to have a long list of stocks. Yes. Now there’s some in your peer group. Now we’re not debating on performance but we’re talking about just a list of stocks. True. Right. Some people you know argue with 20 to 30 stocks. Some people 50 but you seem to have a long list. Yes. Now maybe help us understand why you are comfortable with the long list and how does it really make a difference or what is the end result of that you know so let me answer this first question at a philosophical level and then logical level the first thing I said is the world is not predictable you know that’s a very fundamental idea that you can’t predict the world so people who say very high conviction of something we’re trying to have conviction on things that are beyond a point not predictable so that’s always a mistake that you’ll make mistakes there. Number two, so often this debate if you look at the greatest fund manager and I talked about Peter Lynch because of whom I came to markets, he ran a greatest fund manager by the way ever in mutual fund. His stocks always had more than his portfolio always had more than 200 stocks and was the greatest fund manager ever. If you look at the mutual fund industry, the diversified funds almost always outperform focused funds. M so the data does not support the idea that concentrated funds high conviction funds outperform a diversified fund. First point coming to our context that’s at a philosophical level at a broader level. Coming to our level I think one of the reasons why people can have longer portfolios is have you invested in enough in research if you have a small team you are going to cover a few number of stocks because it’s a capacity problem research and then you only invest in small portion of that portfolio that you cover. If you have very large team, you can cover a large part of the market and a large number of opportunities become open up to you because your team can cover those stocks. The question I always face is let’s say if I find a small company, let’s say thousand cr market cap company, I can only invest 25 bips in that portfolio because of the size of the company. The easiest thing for me to do is just put that money in a large cap and not do that. But if I believe that stock is a multiagger or a five 10 year basis will deliver very high returns. I think it’s still a great idea to put that 25 pips in that portfolio, right? And that happens because we have done the work research. So this long tail is about creating more alpha, delivering more consistent alpha, the ability to go to the opportunities at the bottom. So there you are folks as you hear Mr. Romesh Mantri break down this whole reason why he’s got a long list of stocks against a very concentrated bunch of stocks. I think you put it really well both from a philosophical as well as a fundamental aspect and I hope it really makes a difference to you wonder why a long list of stocks makes sense in a portfolio. So thank you so much for joining us today. uh you almost every question that we asked you gave us a wonderful perspective of what how you think and uh how you uh react to news and uh how you think and how you react to the stuff on ground and I’m sure that people watching this would benefit from hearing this and we’re so glad that you took the time to come you know like I said in the beginning we tried this multiple times and today seems to be the right time that we got you thank you so much for joining us thank you Joshua it was a pleasure and of course you put me on spot I many things I many times I had to think up answers. So, we’re so glad that you spoke candidly and I hope uh that people benefit as much as I did. I enjoyed thoroughly talking to you. [Music]