Reserve 10-20% capital for experimentation: Quant’s Sandeep Tandon’s advice to retail investors

Sandeep Tandon advises investors to have different persepctives and strategies in order to prevent biases

Sandeep Tandon, CEO and Director of Quant Mutual Fund advised new investors to save 10-20 percent of their capital to do their learning and experimentation in the market while leaving the rest to professional money managers. He reasons learning and gaining experience in the market takes time and hence it's better for investors to not allocate their full capital to their own investment decisions.

In a conversation with CNBCTV18, Tandon says if the investors’ allocation outperforms the mutual fund averages, then they can increase personal allocation. Tandon advises new investors to take time to learn about the markets. “However, if it (personal allocation) underperforms, it signifies that more time and learning is needed before increasing exposure. Learning and gaining experience in the market takes time, and it is important to avoid making costly mistakes by rushing into investing with limited experience,” Tandon added.

Tandon also pointed out the importance of having emotional intelligence while investing as people need to avoid being attached to a particular stock or sectors. “Often, people have stories about certain investments that worked well for them or follow the herd mentality when influential people talk about certain stocks or sectors.”

He added that it is vital “to detach oneself emotionally and make decisions based on a rational and objective analysis”.

Tandon advised investors to not rely on single tools or strategies as they can lead to biases and skewed perspectives. “Using a blended approach that considers multiple tools and perspectives is highly recommended.” Investors can achieve long-term success by becoming unconstrained and avoiding emotional attachments, he said. “The focus should be on staying flexible and open to different investment opportunities and approaches,” he added.

Tandon shared factors he looks at when stock picking. He said Quant Mutual Fund looks at stocks in a VLRT framework, which stands for Valuation, Liquidity, Risk Appetite, and Perception Analytics. He says valuation analytics makes up for one-third of the analysis, while perception analytics which looks at historical data and asses PE multiples helps “minimise surprises based on assumptions”.

Furthermore, liquidity helps understand market dynamics as liquidity is highest when a cycle is at its peak or its bottom, he said, adding that he considers market sentiments and looks for neglected sectors as they provide good investment opportunities.