‘The toughest thing in the business of investing is to stay alive’: Deepak Shenoy of Capitalmind

I’ve been an entrepreneur since 1998, so starting up isn’t new for me. My first company, Agni Software, made accounting software for customers in India and abroad, and in the process of building them I learnt a little bit about accounting and finance. My father was, of course, an investor in stocks, so I knew the concept but it’s only after I realised there’s a link between accounts, profits and share prices that I realised this was a fascinating field. I started writing about it in 2005 or so, and in 2007, after my company was acquired, I put all of what I made into another start-up that would marry tech and finance: Moneyoga. We built algorithms to trade the Indian markets, and our algos made money through a bitter 2008 (Lehman etc). But it wasn’t enough to scale the company meaningfully, and there was no external capital available then. Longer story: I then started Capitalmind (in 2013) which then grew to become a fintech-based portfolio manager and we manage around ₹750 crore in Indian markets.

It was ICICI Technology fund. In an IPO, which is what mutual fund new offers were called then. I stood in queue because I was, like any neophyte, enthralled by the returns in tech stocks. The boom went bust in two months and in a year, the fund that I had bought at ₹10 was now worth ₹2. Eventually it went back to ₹10 but took many many years - I sold it at "cost".

What I learned: Don't "panic" buy the markets. Markets can be brutal on the downside, and I lost 80 per cent in a year. I didn't put more than 10 days of my monthly income into it - but it was a valuable lesson nonetheless.

I'm still very happy to be primarily in equity - currently I might be 80%+ equity and 20% in debt. Simple principle is: Allocate according to your risk profile, and goals. Each goal I have - my kids' education, my retirement, etc,. has a different equity:debt allocation, and I manage that through the Capitalmind PMS (which allows you to visualise and do this meaningfully). It's not rocket science, but it does need some strategic thinking.

I don't like gold. I will buy it for a short term trade perhaps, but no need for long-term allocation.

I don't believe in real estate for investment. I don't own the house I live in, but at some point in life I might choose to buy one for living in it, like I'd buy a car for driving. But I don't like real estate as investment in India at all.

The only major change is that when I get closer to my goal end-dates, I go more into debt. That's why I have 20 per cent debt too. Also, don't count your liquid emergency fund as your asset allocation - it's not useful for emergencies.

In general, in our equity strategies in the PMS, we treat cash as a position. That is, when markets are weak and we are unsure, we might sell and build cash to be deployed at a later stage. So I may have that cash but it's more tactical in nature, not strategic.

Financial freedom is when you work because you want to, not because you have to. I’m certainly working because I want to! But I wouldn’t call myself financially independent just yet, and you might call it greed or ambition, but there’s much more to come before I hang my boots. 

Financially, I was in bad shape in 2005, when I was just married. A company I’d started had been through financial turmoil, and it had kept me awake at night many times. I decided I won’t ever get back there, and I’ve been lucky enough to not do so. I’m the kind of guy that is willing to take a lot of risk personally, so I wouldn’t recommend my style to anyone: I believe in building great long-term assets, such as Capitalmind, the company I founded. It’s enormously rewarding to be able to help a company grow from very little to what I think will be a very large business. 

There is an illusion of high-risk, because of the word. But if you watch cricket, you will always bet on a batsman who is currently “in form”, and think of that bet as low risk compared to a rookie. The “in form” analogy of stocks is momentum, but you don’t bet on a single stock, it’s a portfolio approach. Like even good batsmen will get out for a duck and lousy ones will get centuries, you will find some stocks behaving badly or unexpectedly. You have to think of it as a portfolio, do the checks and balances, and ensure you exit stocks that don’t meet the criteria even if you like the companies. This is what asset management is about: it’s more important to do the right thing than to be married to your stocks.

In the long term, have you achieved your financial goals? If so, you’re a success. This is about 50% luck, 40% persistence and 10% skill. No matter how good you are. Success in investing is much about getting the right opportunities and grabbing them. 

Individual stock positions may look exciting but the main thing is that I'm on track for my goals for my kids' education and my own retirement.

The biggest investing successes are really when you get to achieve a goal or reach a target. Individual stock returns are great for showing off, but that gives the wrong impression that stock picking is the big deal. It's not. No matter what you do, 20 per cent to 40 per cent of your positions will give horrible returns, and about 40 per cent will be decent returns and the remaining will be the few lucky ones to give you outsized returns. There's not much point harping on those - but remember this: never sell the winners to buy the losers: I learnt this the hard way.

So many that I'd write a book about those too (my second!). But the points:

- Don't sell winners to buy losers

- Buy on the way up, not on the way down

- There are stocks that look good but will do nothing at all for years. They are perpetual value traps.

- Don't read what management says - look at what they do. If they tell you they want to sell something believe them when they sell it, not in advance.

- Be honest with yourself when there are losses and take them early. You’ll end up taking them late otherwise

- The toughest thing in the business of investing is to stay alive. If you live it through without giving up, over a long time you'll make enough.