Science of Investing – VCAP
As you all are aware that we have a Global Investor Conference scheduled on 18th Feb 2017. This is perhaps the first & the largest investor conference across India post demonetisation. The entire conference revolves around spreading the framework of science of investing. And we at Mehta Fincon call it as VCAP. In short this framework of science of investing proposes four pillars around which robust investment decisions should be taken. They are
Vision is seeing a future state with the mind’s eye. Vision is applied imagination. One should have the vision to see the earnings of the company 3 years, 5 years down the line. Price does not determine earnings but in fact earnings determine the price. If one has the vision that the earnings of a company will double in next 3 to 5 years, the same will reflect in price. Hence a smart investor should always focus on earnings rather than the price.
It’s all about buying a stock. Wonderful example of courage is Bajaj Finance. It rallied from 50 to 600 in just a short span of 1 year from 2009 to 2010. A large part of investors will fear to buy a company which has already rallied by 12 times in just 1 year. However since the stock had still a long way to go, the courageous and visionary fund managers added large quantities even at 600 in their portfolios and we today see how handsomely they have been rewarded for the vision coupled with courage. Today the price is 10,500.
Everyone knows what to buy but only few know how much to buy. Many investors have bought the multi baggers of the world like Bajaj Finance, Eicher Motors, Page Industries, etc but have allocated only 0.5-1 % of their portfolio to these multi baggers. The price of these stocks have multiplied anywhere between 10x to 100x in last few years but has made a negligible impact on their overall portfolio returns. However had they known the power of allocation, even while keeping their portfolio reasonably diversified they could have certainly allocated around 6-8% of their portfolio to these multi baggers and that could have made a noticeable upward impact onto their portfolio returns. Hence we firmly believe that vision needs to be accompanied by courage of large allocation.
Last but not the least is Patience. As we know every fruit need time to ripen and every egg needs time to be hatched. Similarly to reap the full potential of your investments, you need to give it time to blossom. And we firmly believe that we must reap the harvest only when it is ready, neither too early nor too late. It requires lot of patience to enjoy the ride in Bajaj Finance from 600 to 10,500. It took 7 years to reach this level.
"Patience is a key element of success" – Bill Gates
In short, these 4 pillars of our framework of science of investing i.e. Vision, Courage Allocation & Patience make an impressive combination of achieving excellent returns on portfolio investments.
It’s fair to assume that majority of investors would lack either of the four qualities during the investment process. Having said that, a professional fund manager adopts scientific methods of investing by following a disciplined process.
I would advice investors to follow all these steps for a healthy & rich experience in direct equity investing. For those investors who can’t spare time for this scientific approach of investing and above all can’t maintain discipline in investments, I would rather suggest them to handover their hard earned money to the portfolio managers.