Don’t follow the herd, cautions Apoorva Shah, Executive Vice President & Fund Manager, DSP BlackRock. One should never pay too much for growth, which is the situation with many stocks currently, he adds. Edited excerpts from an interview:

When did you first start investing?

I started investing when I was 28. That was two years after I joined the institutional sales team of a broking firm. I had not made any big investments until then.

What was your first investment?

Equity was my first investment, though I don’t recall the exact stock. On the professional front, Kirloskar Oil Engines was the first stock I had recommended to my clients.

What was your best investment?

I had invested in Gruh Finance, and that gave me handsome gains. As an asset class, equities have been my best investment.

What is your current asset allocation?

I have invested about 60 per cent in equities which includes shares and mutual funds; the balance 40 per cent is in debt. I haven’t invested much in gold and real estate.

Why have you shied away from gold and real estate?

Unlike equities which have an intrinsic value, it is not easy to predict the direction of commodities such as gold.

I had invested in gold ETFs around four years ago as they seemed interesting then. But I don’t have a view on them now and, hence, have not made any fresh investment.

As far as real estate goes, it is an interesting asset class for those who understand it and can deal with the regulations. Though the space has seen stagnation due to huge unsold inventory, we have experts who can spot some good opportunity in this space.

What have you learnt from your mistakes?

Being an investment professional, most of my time and effort has gone into identifying opportunities for my clients or investors than for my personal investment. And during this journey I have realised two important things.

First, we have to identify and sell when we feel that extreme bubbles are drawing to a close. For instance, we have had two bubbles in the last two decades; the dotcom bust in 2000 and the infrastructure and land bank bubble in 2007.

The collapse in many cases coincides with a rising interest rate scenario, as the cost of speculation goes up with a rise in the cost of money. So, if you can identify the missing connection, then your portfolio is safe. Second, you should not worry about valuations at the bottom of the cycle, when things are at their worst. Valuations tend to be very expensive, but the cycle can reverse. Likewise, at the extreme top also, valuations appear to be fine as people have rosy projections. So, what you need to identify is the change in trajectory — if something is peaking or bottoming out.

What is your advice to investors?

One, don’t follow the herd. And don’t overpay for growth. Right now, many growth stocks are being over paid for, which can mar long-term returns. So, when something is highly fancied and everyone loves it, keep away from that idea. Be mindful of the cyclical changes and don’t be complacent. Likewise, don’t get into the value trap and buy something just because it is trading cheap.

What is the minimum horizon for equity investments?

The longer you are invested in equities, the better. But a minimum of three-five years is necessary to make reasonable returns.

What is your investment philosophy?

I don’t invest in businesses that I don’t understand. Also, I try to go for companies that have good quality — management, business and balance sheet.

Talking about the quality, I focus on the promoter’s execution capability, strategic thinking and corporate governance.

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