Coffee Can investing with S Naren

Tuesday, August 7th, 2018

Nice interview of S Naren by Saurabh Mukherjea on Moneycontrol in their new Coffee Can Investing Series.

A few excerpts from the video:
On the importance of a support system to help improve your investment calls:

So, what I guess Mr. Kamal Chaddha did was he got together a set of people like alcoholics anonymous. These were all people who made mistakes in investing. And it was anonymous at that point of time and got us to discuss our sorrows of losing money. What interestingly came out of that is the realisation that in investing, you sometimes go wrong, sometimes get it right.
When you go wrong, you need the equivalent of support system. A formal organization provides such a support system by the virtue of the number of people in the team, but when you are investing on your own, you don’t get that. So, a group really works. So, it’s like some kind of a psychiatric help which is required to… or a coaching, you can call it either which will help you to make very good investments decisions over a period of time.

 

On how to value real estate:

No one understands the valuation of real estate. So I looked at rental yields and at mortgage interest rates. In the US, at the same time when Indian property prices were high, rental yield was much higher than the mortgage interest rate. Whereas in India there was a 7 percent gap. That means the mortgage interest rate was nine and a half percent, rental yield was 2 percent. I said the seven and a half percent gap can’t continue.

 

The hurdles to long term investing:

The problem with the best investing decisions is that the near term is very painful. When Warren Buffett invested in Goldman preference shares or GE preference shares in 2008 the near term was very painful. The long term was very good for him but the fear of the near term is a big problem. So, recently my company did something in December, January of returning money in small cap PMS (portfolio management schemes).

 

Timing the market:

Actually I must tell you how flows happen, so, if you look back at the last 20 years, which were the best years to invest in equities, it was when both FIIs and local mutual funds were sellers. The worst years to invest in equities was when both of them were aggressively investing.

 

How generating alpha today is far more difficult:

Once they became famous you could track their portfolios that give you additional insights, so,  these were  clear leads and I think the advent of the date and the advent of the data being available, so many companies and their shareholding patterns gives you such valuable insights over a period of time but I tell my colleagues, in the 1990s, we had nothing and that’s why it was easier to make money whereas today you know what every big investor has done, every quarter because his shareholding is very visible to you.

 

And, as this ability to create alpha goes down, the importance of asset allocation becomes even greater:

Increasingly the market is going to be more efficient, making it much more difficult for people like us, which is the reason why I believe that multi-asset construct where you are selling equities as the market goes up and buying equities as the market goes down is a much better way to try to create alpha for the customer because it is in pure equity funds, where actually this problem of Michael Mauboussin calls, efficiency is going to become more and more a problem

Check out the full video on the Moneycontrol website.


About the author

Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.

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