With crores of Indians hooked to their screens to watch ICC Cricket World Cup matches, there are several parallels that can be drawn between the worlds of sports and investing. Naveen KR, smallcase Manager and Senior Director at Windmill Capital recently sat down with ETMarkets to talk about how asset allocation can help pick a winning portfolio as well as survive a tough pitch.
An ideal mix for a great world cup team is an all-rounder, bowler, batsman as well as a great fielder. What should be one’s preference in terms of asset allocation while selecting for their portfolio?
There is no one size fits all answer when it comes to asset allocation. However, that being said, a basic combination of equity, debt, and gold is a no brainer. With perhaps anything in life, putting all your eggs in one basket might not be the best idea. Also, it depends on one’s age as well. The risk appetite of an investor in her 20s versus another in her 60s would be polar opposites. We, at Windmill Capital, value the importance of asset allocation and various smallcases that revolve around the very concept.
Now that we understand the history of why gold became so popular in our culture, let’s shift gears and understand what’s happening with gold prices at the moment.
Technological innovation influences all sectors and fields. Today, in cricket we see Stump bails with LED lights, LBW decisions with smart tech innovations etc. Similarly the investing world has seen a lot of changes and improvements over the years and especially since COVID. What do you think is one tech innovation that has benefitted your business?
Smallcase! Leaving aside the endowment bias, we reckon that a simplistic platform like smallcase is one of the best ways to encourage the investing culture in India. You see, in today’s day and age, simplicity is all one looks for given the clutter in the market. So, there is no doubt that smallcase has been one of the best technological innovations in Indian markets. The plethora of options that an investor gets to choose from along with the transparency would certainly bring in more folks to the markets.
Just like pitch conditions that keep varying, we see volatility in the market conditions all the time. What do you think should be an ideal strategy to counter the market volatility?
Exactly what we spoke about earlier – asset allocation. If your portfolio is diversified amongst different asset classes, you will be able to navigate market volatility with much more ease than someone whose portfolio is concentrated. It’s quite simple to understand. Historical data shows that equities and gold have negative correlation. Meaning to say, that if equities perform poorly, gold will do well. Debt also has its cycle during a high interest rate environment. Hence, prudent asset allocation is the way to counter volatility.
In cricket we have scenarios like KL Rahul’s 97 vs Australia would be valued more than Rohit’s century against Afghanistan. Similarly, an investment strategy’s higher returns in the bull market would be valued more than those performing well during a bearish market! What would be your take on such scenarios? Would generating alpha twice in 6-8 years be valued more over constant return? How would you value a performance and what would be its significance?
This is an easy one to take – consistent returns. One of the key problems with investors is patience. The moment they see red on their screen, they hit the panic button. And if the red prevails for longer periods of time, they fold their cards. Therefore, consistent returns over a period of time is much more valuable than expansive alpha once in 8 years.
How do corporate governance, ESG parameters and stability on board amplify the fitness of a firm assure its performance in the market and help uplift the investors’ portfolio?
The key aspect from a stability standpoint is management quality which in turn leads to good/bad corporate governance. Stability in key managerial positions ensures that the business is expected to function smoothly. We have examples of this as well. When Interglobe Aviation was witnessing an open feud between its two promoters, investors preferred to remain away from the stock, purely on the basis of instability. On the other hand, companies like Asian Paints, HDFC Bank have had a huge contribution from their governance side to their success.
This article and interview were originally published in the Economic Times. All views and opinions given by the experts are their own. These do not represent the views of The Economic Times or smallcase private Technologies Ltd.
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