Market veterans and new age fund managers go head to head on value investing style

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New-age fund managers seem to have a different view about value investing as compared to market veterans like Raamdeo Agrawal of Motilal Oswal and Bharat Shah of ASK. Market veterans believe in the business model and hold on to a conviction but some new-age fund managers think that they need to optimise an opportunity and find other bets when there is a lull, in order to create large wealth.

On a discussion about investment style between market veterans and new age fund managers, a difference of opinion was visible at PMSbazaar’s Alternative Investment Summit.

Jigar Mistry of Buoyant Capital differed from the value-based long-term investment style of the duo--Agrawal and Shah.

Mistry highlighted that a great company may not necessarily turn out to be a great investment. “I think the fundamental place where we differ is the fact that for far too long, a lot of people have believed that once you identify a great company, that's where the job ends. And the distinction between a great company and a great investment is not materially different”.

He said Coca-Cola made great wealth for Warren Buffet between 1988 and 1998, but nothing thereafter for 20 years, even though earnings grew.

This led to the question of what is the wisdom in holding on to a great stock to only see one’s own outperformance diminished over the next 20 years. To this, Agrawal said one has to harvest their bargains and move on.

Agrawal believes “we need to correct as we go along”. He is of the view that high growth is not possible for an extremely long period of time. Even a high-growth company, after three-four years of 35-40 percent growth," gets tired", he said at the event.

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Shah, who is one of the most renowned investors in India, said that ultimately, in any investment or in any opportunity, if it does "wonderfully well" for a long time, it lulls you into a sense of "complacency". He added, the story and narrative behind buying a stock could hold you back.

At the same time, Shah believes even if there is a temporary blip in sales but the long-term trajectory is intact then one could continue to hold on to the stock.

A key point that Agrawal emphasized on was, risk-taking and long horizons are dependent on whether it is public or private money. An important element of Agrawal’s investing style is growth.

Talking about the right sell strategy, views of Amit Jeswani of Stallion Asset differed from that of value investors like Agrawal and Shah.

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Jeswani believes in cutting losers out of his portfolio. If there is a change in the terminal value of a stock, he would sell the stock on day 1. He indicated that in his firm, they cut out the worst 10 percent underperforming stocks every one-two years.

“If the stock starts doing well again, the fundamentals start doing well again, we will come back in the stock. There is absolutely no emotion in our decision making stocks,” he explained.

This brings up a question about how much conviction does one have on an investment idea.

Jeswani suggested never go for conviction, because convictions will change based on new information that will come in the market.

Meanwhile, Kanika Agarrwal of Upside AI said it was impossible to determine which is better for future returns – growth or value. So, she believed machine learning-based stock picking without giving into emotions would tell her what was suitable at any point in time.