Be it war or the stock market, never forego your winners. This is a strategy that some of the best stock market analysts swear by including Mahesh Patil, Co-Chief Investment Officer, Aditya Birla Sun Life Mutual Fund. Expert in fund and investment management, Patil oversees the allocation and management of ₹3 lakh crores worth of investment corpus. An investment career spanning over three decades, Patil underscores how one can learn from every boom and bust cycle in the market.
An insight into Patil’s approach that helped him to earn hundreds of crores worth of returns for his clients reveals some unique investing strategies.
- The effect of compounding is palpable when you hold on to a good stock for a prolonged period. If you are sure of your stock’s fundamentals and believe that it still has the potential to outperform its peers, do not be in a hurry to sell them as they reach the estimated target price. Continuous re-evaluation of the company’s fundamentals is important and that is why it makes sense to show your patience with a stock.
- Take time to analyse a company on various parameters than focusing on its valuations alone. Check what other investors have to say. Read the narrative that other experts build surrounding that company. This approach could help to assess the high growth of expensive stocks that you may otherwise ignore. This strategy is best adopted for early-stage growth companies to avoid missing out on the opportunity of buying their shares low instead of having to buy the same stock at high valuations.
- Seek investment advice but make your own decisions. The decision to buy, sell or hold on to stocks should be based on your conviction. This also lends you the confidence to hold on to your stocks even when the company may be going through a temporary rough patch.
- Never marry a stock. Flirt with it as long as it looks enticing, but do not hold on to it for a lifetime just because you had had the conviction to buy it once. Get rid of your stock once you realize that you had made a mistake buying it. Losses are temporary; however, carrying the unwanted baggage can be a huge opportunity cost. Harbouring personal biases is a big reason for many investors to hold on to underperformers, thus, ruining the whole purpose of investing in the stock market.
- Valuation of shares must not be the sole parameter to decide whether a stock is buying or holding on to for a period. Make sure to interpret the numbers aligned in the company’s P&L account, balance sheet, cash flow statement and other asset valuation techniques to overcome the pitfalls of making quick and sudden stock buying decisions. The focus must be more on cash flows than the profits a company earns.
- Diversification of your portfolio is important, especially, if it is humongous. Portfolio risk management is important, especially, if you have bought shares focusing on one sector alone. Refrain from having large sector concentrations even though a sector may have outperformed all others owing to myriad factors. This is because there are strong chances of reversal in that sector during a market correction.
- Management quality scores over most other factors, which is why you must evaluate management ability before making your next investment decision. Betting on the right management is essential to long-term wealth creation. Callous management that overlooks opportunities can be a bane to even some of the best businesses, thereby, destroying value for retail investors.
Portfolio management is a skill that you cannot emulate. However, you can learn a lot by looking at how others manage and make decisions based on the selection and control of the projects at hand.