“Have a focused portfolio but avoid concentration risk,” says Sachin Shah, Fund Manager & Head – Portfolio Management Service(PMS), Emkay Global Financial Services. Excerpts from an interview:

What was your first investment and why did you choose this option?

Since my school days, I was attracted to stock markets and therefore my first investment in Indian equities was in 1998. I bought shares of a company called Hindustan Inks. I was very impressed with the market share, financials and management domain expertise of the business. Eventually the promoters sold out the business to a foreign company.

What are the goals that you are saving for currently and where are you investing for the same?

I have three main goals at this point in time — to own a bigger house, to create a decent corpus for my seven-year old son’s higher education and to create a corpus large enough so that I don’t have to depend on my monthly pay cheque to sustain the lifestyle that the family would like to enjoy.

To achieve the above, I am parking funds in bank FDs the last 12 years (for the house), investing in equity index funds and select direct equity (for son’s education) and am investing in direct equities (for the long-term corpus).

Have you made any mistakes in investing?

Yes. The biggest mistake I made was betting nearly 50 per cent of my personal equity corpus on one single business run by a crook promoter. The even bigger mistake was not exiting this investment despite realising at a very early stage that the promoter is a crook, merely because I was relying on the judgement of my friend. My greed to earn big was also to blame.

What lessons have you learnt from your mistakes?

The learning from my mistake is — do your own homework; do not compromise on promoter quality and weak financials (balance sheet); preservation of capital is of utmost importance; follow purchase price discipline; have a focused portfolio (not more than 15-20 stocks) but avoid concentration risk ( i.e. no single stock more than 20 per cent of portfolio); only invest where you believe there is a compounding possible for the next 5-10 years or more. I have been strictly following these tenets for the last 8-9 years now.

Indians have a tendency to lock money into real estate and physical gold. Would you advocate financial assets over physical assets?

Asset allocation is one of the most critical exercises that every investor needs to undertake and evaluate at periodic intervals. The allocation will depend on the outlook for various asset classes and also the profile of every individual — at what stage of life they are in and what their short and long-term goals are.

How different are the savings needs/goals of HNI investors over others?

HNIs’ goals are very different compared to most of the people. HNIs are already rich whereas others are building small blocks towards creating a sizeable corpus to achieve goals. Most of the HNIs are financially sorted for most of their family goals. The only thing they strive for is to grow their wealth by doing better than inflation.

HNIs also think of protecting their global purchasing power. Therefore they are not only thinking about their wealth in terms of local currencies but in dollar terms or a global basket of currencies. HNIs also have the appetite for adventure, to experiment with part of their funds by investing in upcoming/unproven projects/promoters.

What advantages does a PMS have over mutual funds for HNI investors?

One of the biggest advantages for HNIs under PMS is that it can be customised and personalised as per their objectives, whereas under MFs they are part of a common pool. For eg: A HNI family for whom preservation of capital is of utmost importance could invest in PMS and give discretion to Portfolio Manager to invest only when they believe the risk-reward is in favour of investing, unlike MF investments, which always remain 90 per cent or more invested.

What is your advice to the investor community?

Herd mentality, short-term greed and blind trust are some of the key causes for bad outcomes. Do your own homework before investing and avoid the herd.

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