Talking to ET Now, Rajeev Thakkar, PPFAS MF, says do not get into the market because of fear of missing out as past returns are not indicative of what comes ahead. Edited excerpts:
Rajeev Thakkar: Largely it will remain the same with may be one or two additions or exits. So, nothing dramatic per se.
ET Now: So let us talk about firstly the global names that you have exposure to and recently there has been that concern regarding Apple that a) iPhone X sales have not been all that great, there has been that lawsuit which perhaps is in the pipeline that they are deliberately slowing down older iPhones because they want their new model sales to be pushed up higher. Is that an investment that you are relooking at?
Rajeev Thakkar: We have exited Apple last month. It does not form part of the portfolio anymore but maybe it is time to get a new phone, it is Christmas season!
ET Now: But why did you exit on Apple?
Rajeev Thakkar: We had no insight into the lawsuit coming. It is just a matter of chance that it happened. Our original Apple purchase was a valuation call, the no growth was priced in. There was plenty of cash on books and the stock almost doubled in slightly more than a year. So, it went to the other side. Now that the tax reform has happened, they are expecting cash to come back. See the issue with a company like Apple vis-a- vis the other companies say a Facebook or a Google is that Apple has to keep running to be in the same place. They are heavily dependent on the upgrade cycle and that is why this slowing down of the phone. They cannot let you be happy with what you own. You have to continuously fall in love with the new shiny device that they come up with and get rid of the older one. Arguably, the smart phone cycle is peaking. This holiday season for example the fancy new gadgets were Amazon echo, Google Home and the voice assisted devices and the changes in the smart phones are incremental these days rather than something very dramatic.
ET Now: It is interesting you say that because I was reading an article a couple of days back about how Warren Buffett invested $6 billion in Apple in mid 2016-early 2017 and now he is sitting within with about $21 billion and he does not like to sell a share of Apple!
Rajeev Thakkar: He has been adding so...
ET Now: But your conviction with Facebook is because they are an advertising machine now in a way, right?
Rajeev Thakkar: A couple of decades back, you could buy advertising on Doordarshan, in Times of India and you could be done with. Today with media fragmentation, reaching the right audiences is very challenging and in this environment, you have Facebook with billion users globally and they keep on adding more users and they can deliver a targeted audiences -- male, female, age group, time of day, education level and that is really helping them. So essentially, in the digital space.
ET Now: The fact is that following Facebook, you have twitter also trying to dabble with that sort of advertising model. YouTube has done its own thing with targeted advertising but they have not been able to break Facebook's set up in a meaningful manner. How long can Facebook enjoy this competitive advantage at a time where now everybody knows this is a model that is in the works and is working for them?
Rajeev Thakkar: YouTube is of course a part of Google Alphabet. So, they are getting it right. They are also growing decently well. Facebook has got it right. For Twitter, the challenge has been that they are not getting meaningful engagement with their users. There are a few people -- celebrities or business leaders, politicians, who use it as a broadcast medium to send out their messages and some people just come in quickly consume the data and log out. So, they have been having their own challenges. Let us see whether they are able to work it out or not. One company which is getting it right is probably Amazon because that is the place where people go with the intent to purchase and that is the new equivalent of a store placement where you are searching for a particular product item and your ad appears right next to it. The chances of getting a purchase are higher. So, Amazon is an advertising giant but people think of it as just an e-commerce company.
ET Now: When will we see PPFAS investing into Amazon, Netflix and may be a Tesla as well?
Rajeev Thakkar: I cannot value any of these companies. Tesla loses money on each car it sells, it is changing the auto world but we do not know whether it will be a very profitable business for shareholders. A for Netflix, people love their shows but Amazon gives that away almost for free in Amazon Prime. So they will probably spend more on original content going forward as compared to Netflix. Having a subscription may be a question mark for a lot of people. Amazon probably earns a lot of profit in some of the segments and so I have difficulty in figuring out what is a right valuation to enter it into.
ET Now: I am reading your outlook 2018 and the top avoid is crypto currencies. Why would a top fund manager talk about avoiding crypto currencies?. You were not even investing in that space. Why is that a big avoid for you when it may not be an investment case in the first place at all?
Rajeev Thakkar: I would not be talking about it if the media were not to be full of stories about it. It is just that the environment today is that everyone is feeling left out and that is when the worst mistakes happen. Whether it is equity or whether it is bitcoin, do not invest in something you do not understand. Let your neighbour make money. Do not worry about it.
ET Now: Use that money perhaps to add on to your investments in equities?
Rajeev Thakkar: Also if you understand that it is in tune with your financial plan, in tune with your allocation. Everything is going right for the mutual fund space. Just one word of caution, do not get in because of fear of missing out or do not drive a car just looking at the rear view mirror.
ET Now: Why is that?
Rajeev Thakkar: Past returns are not indicative of what comes ahead.
ET Now: You think it will be challenging for you to beat your own record in 2017 and give that 30% return or are you confident of how the market returns -- both globally and domestically -- are going to be because complacencies are setting in also?
Rajeev Thakkar: Average returns from equity markets have been far lower for the industry and so last one year's returns have to be taken as exceptional. They cannot be taken as representative of what the future will look like and no one knows what the future holds but if I had to guess, I would guess it would be far lower than 2017.
The original article could be seen here.