He has been a part of the Capital Market for over a decade with experience across wealth management, research, Institutional desk, marketing, operations, broking, key client management to name a few. Starting his career as an intern with JM Morgan Stanley in 2003, he has been a part of Parag Parikh Financial Advisory Services Limited since July 2004 in various capacities. At PPFAS Mutual Fund, apart from handling key client relationships, he is also entrusted with the fulfillment of strategic responsibilities. Keeping with his legendary father, Parag Parikh's philosophy, Neil believes in Value-investing and is a strong advocate of applying behavioral finance fundamentals in investing. Neil’s academic excellence is reflected in his qualification from prestigious universities. He holds a Masters in Business Administration from IESE Business School, Spain and a BA in Economics from University of North Carolina at Chapel Hill. In conversation with Dominic Rebello, this market wizard espouses the view that “Value Investing is about getting wonderful businesses at reasonable valuations.
A little background about your company and yourself?
Our firm, PPFAS (Parag Parikh Financial Advisory Services) was started more than 3 decades earlier by my father, Parag Parikh. We started off as a brokerage house and were among the first to start formal research reports. This is how we got empaneled with most of the Mutual Funds and FII’s for Institution Broking. We also had a retail broking desk. Our passion lied in managing money and thus we began our Portfolio Management Services in 1996. As a natural progression, we transitioned to a Mutual Fund structure in 2012 and today we run our flag ship fund - . In the meantime we shut all our other functions like broking and debt to concentrate on our passion-which is money management. We have a truly unique scheme designed for long term investors.
At what point had you given a thought to making a career in the financial markets?
Since my childhood, I was surrounded by people associated with the markets and conversations regarding the same. It was always something that was in the back of my mind. But like any teenager, I was confused and didn’t know what I wanted to do. I would change my career everyday from wanting to do Sports Management to Bar-tending to opening my own Restaurant! But all those were just fleeting thoughts and eventually by 2005 I knew this was my calling. PPFAS is my extended family and I just love being here.
How do you pick your investments? Do you use technical analysis, or do you employ fundamental data?
I am not a big believer in technical analysis and we only use fundamental analysis. We are bottom up stock pickers and do not rely on macros too much.
How would you describe your methodology?
Value Investing. I am from the Warren Buffet school of thought where we want to get wonderful businesses at reasonable valuations. As an analogy you can say we want to eat five star meals at Udipi prices. Some of the qualities we look in businesses are management quality, barriers to entry or moats (example: brands, distribution networks, patents, knowledge workers to name a few), no or low debt (low capital intensity), high dividend yields, and most of all they need to be available at reasonable valuations.
What appeals to you about Investing? The short side or the long side?
We are a long only fund. I don't believe in trading, leveraging or shorting. I believe in the Law of the Farm-you can not sow something today and reap the benefits tomorrow. Just like a seed goes through various seasons and time to become a full grown tree bearing fruits, so does your investments. There can be no short cuts to this Universal principle. You might get lucky a few times trading but I do not believe it is a sustainable long term strategy.
What differentiates you from other Investors?
I think in today’s over complicated world, what really helps is having a common sense approach and keeping things simple. Today, we have an overload of information coupled with complicated products and structures which are hard to understand. One must maintain their circle of competence and discipline with long term thinking. That’s what we do and have been pretty successful doing this for over two decades. We have kept things simple by launching only one scheme - which is a Go-Anywhere value fund. There is no need to launch multiple schemes and products which confuse investors.
Is there any applicable lesson to investing?
Do not chase market fancies and current fads. Because when you chase a market fancy, you pay a fancy price, and when that fancy ends, you are only left with a fancy loss. Beyond this nothing happens. Some examples of this are the IT boom in 2000/01 and real-estate, power and infra stocks in 2007/08. Avoid sectors and stocks which are too much in the news or ones that everyone is talking about. They are likely to be expensive and high PE stocks which will not have much upside, but the downside risk will be very high.
How much of what you do is gut felt?
When it comes to my personal investments, I do use my gut sometimes. But when it comes to investments in the fund, we go through our processes and only invest if it satisfies all our fundamental parameters. We need to have complete conviction in the idea.
Do you try to anticipate or follow market trends? What is the basis?
Market trends are usually fads and fancies that I spoke about. As such we do not follow market trends though we do try to anticipate them. We are contrarian investors and prefer stocks and sectors which are currently out of favour with the public. That is where the deep values lie and are usually available at great valuations.
When you put money on a trade and it goes against you, how do you decide when you're wrong? What do you do next?
We are a long only, buy and hold fund. We will sell the stock on following conditions:
- If the valuations have shot up and we are not comfortable with those high valuations.
- Opportunity cost- if we find something more valuable relatively to what we holding and think the prospect of that company is far better than the one we hold
- If the company goes through some structural changes that we are not comfortable with that
- Management quality changes. An example here is if the owner of the company misuses company funds for his personal use or some decisions are made which are not in favour of minority shareholders.
Any positions you ever lost sleep over? What happened...?
What makes an investor successful? Your success mantra?
Be greedy when others are fearful, and be fearful when others are greedy. This might seem easy but it is very tough to follow. It needs a lot of patience and discipline. Sometimes inaction is the best action. It is tough to go against the herd, but that is exactly what is needed to be successful in the markets.
Do you have a scenario about how the current bull market will end? Where do you see the Indian markets five years down the road? Any number for the Sensex in 2017?
There is a saying - Those who predict do not have knowledge, and those who have knowledge do not predict. Therefore I keep away from predictions and forecasting as my guess will be as good as yours. But I will say this; the Indian markets are well poised to deliver good long term returns. By long term I mean if one has patience to be invested for more than 5 years.
What is your take on the current market scenario, Indian as well as global?
Today we live in a low growth, low interest rates and low inflation world. Absolute returns will likely come down with inflation easing. But we need to see what our real returns are.. the difference between absolute returns and inflation. So when inflation was at 10% and if the markets gave you 15%, your real returns was 5%. Today with inflation easing to around 6-7% , making 12% from the markets is not a bad thing. People should not be anchored to past returns from the markets and see it through the lens of real returns. Also, with oil and commodity prices down, India will be a big beneficiary as we are commodity consuming country. With lower input and raw material costs, companies can improve their margins even if sales are coming down. Overall, I am very optimistic about the Indian economy and over the long term I have no doubt we will be able to grow and make good returns from the markets. But again patience, discipline and a long term approach will be needed.
The original article could be seen here.