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Memoirs of a fund manager

The real fun happened when a client indignantly called up to demand why a couple of the top performing stocks in Wealth Zoom were not present in her portfolio.

Dipen Sheth | Print Edition: July 10, 2008

Dipen Sheth

One year after challenging Money Today to shun the temptation of publishing stock tips and instead carry a running model portfolio, I’m still trying to chew what I bit off. Life as a portfolio manager for real clients was bad enough, but this magazine added a vicarious twist to my agonies by agreeing to publish not one, but two portfolios. Thus were born the most dissimilar twins: Safe Wealth and Wealth Zoom.

It’s fine to be subjected to the occasional (and now regular) grumbling from clients about how little justice one is doing to their money. After all, my firm charges them a hefty 2% or so for my (mis)deeds. But the two MONEY TODAY model portfolios— one focusing on large and safe companies, the other on aggressive mid-cap stocks—were visible to all readers at no great expense other than the cover price of the magazine, and were attracting the kind of fortnightly scrutiny that would put my “worst” clients to shame.

Jolted, embarrassed (and often humbled) by my readers in full public view, I grew in stature not only as a “fund manager” but, more importantly, as a “manager”. My stock picking became a little more serious, and my diligence with companies turned a shade deeper. I grew more patient (as also a whole lot more demanding) with my analysts, pushing them to find out more about companies before falling in love with them.

Even with my real world clients, there was an increased traction and engagement as some of them began to track stocks from the Money Today portfolios. Marketing or operations, finance or personnel, there was no function where my managerial skills were not sharpened, thanks to this magazine’s editorial team and its ever increasing flock of readers.

By the way, our decision to trade for the portfolios only on alternate Wednesdays turned out to be an accidental master stroke. At once, the focus shifted from timing the buy/sell decision on a particular day to the quality of the decision. Given the inherently volatile nature of the stock market, this added a (welcome) whiff of genuine stock picking to the portfolio exercise. What seemed like a quirky decision ended up ensuring that I identified real value or growth, rather than tracking prices, when deciding what to buy or sell.

So well has this policy turned out for your fund manager’s temperament that I have introduced a similar (though not identical) process with respect to trading for the real portfolios at my firm. If there is one big lesson that Money Today’s model portfolios have taught me about fund management, it is this: buy businesses that you think have a future, don’t just buy into their price.

To complete the genuineness of our “virtual” portfolio, we decided to introduce in all the transactions an all-inclusive “brokerage load” of 0.5%. Innocuous as it seemed, the brokerage imposed a very legit charge that ticked away every time we traded in stocks. Those of you who have, quite justifiably, questioned my frequent trading will find some consolation in the fact that this brokerage load has been devised to dis-incentivise the tendencies that you criticised.

The real fun happened when a client called up indignantly upon spotting the two model portfolios in full bloom (sometime before the crash in early January this year, I think). She wanted to know why a couple of the top performing stocks in the Wealth Zoom portfolio were not in her portfolio! I had no convincing answer, but silently cursed the randomness that stockpicking is inevitably loaded with, especially over shorter time horizons.

As our two models enter their second year, I can’t help but look at the fairy tale ride that we have had. At one time we were up over 62% in Wealth Zoom and nearly 40% in Safe Wealth. Only to come crashing back to terra firma, as oil and other macro-economic realities caught up with the India story.

Not all stocks were backed with world-class or even moderately deep conviction and research. But, with the passage of time, I must confess that public glare did to my stock-picking conscience in a few months what real clients could not in years—I turned more of an investor and less of a trader. Ironically enough, this led to troublesome results! I grew more like an investor exactly when I should have traded out of the market.

But the numerous investing lessons that I have learnt, even if at the expense of the short-term performance of my model portfolios, are sure to stand me in good stead as I embark upon another year as your “virtual” fund manager. Do I still have the job?

Readers’ responses to Model Portfolios excerpted from ‘MT Blogs

In Wealth Zoom, there is a mismatch as there is no mid-cap financial stock. I think some space should be given to Yes Bank or IOB or City Union Bank.
— Janaki Sridar, 15 December 2007

How does the performance of these portfolios compare with Sensex, Nifty or other benchmark indices? If we can’t beat them, then we might be better off buying index funds.
— Santosh J. Gharpure, 5 January 2008

Your approach seems to be churning investments instead of staying invested to ride the growth that a well-run company can achieve on a long-term basis.
— Lakshmikanth, 9 March 2008

The Sensex is likely to breach the 10,000 mark in the next 18-month period... and then likely to go up to 40,000 (at least 25,000) by September 2013 and 80,000 (at least 45,000) by 2016.
— Amar Harolikar, 23 March 2008

It would be nice if you mention the 52-week high and low also. How about comparing your performance with the portfolios when they were launched?
— Sameer Saksena, 23 March 2008

There is a need to exit telecom; ARPU is going down due to intense competition. Maruti is affected by competition and high interest rates. Also exit McLeod Russel as tea is not a good commodity to bet on. Exit Chowgule Steam Ships and enter Great Offshore, which has a very strong growth in off-shore oil exploration.
— Pramod Palathinkal, 8 April 2008

Lakshmikanth (a blogger quoted above), what you say is factually correct. But I think you are missing what needs to be learnt from Dipen’s work. It’s less about buying and selling tips and more about having a deeper understanding of the markets through the acts of a person who is a professional.
— Ram Saran, 8 May 2008

I agree with the theory of cashing out at the Sensex level of 17,500. In future, many stocks will be available at very low values for everyone to buy in small amounts.
— Randeep Singh, 1 June 2008

 

Dipen Sheth, Head of Research, Wealth Management Advisory Services. He can be reached at dipen@wealthmanager.ws 

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