‘Don’t overstay your welcome’: Fund manager with Rs 260 crore AUM shares lessons for investors

Siddharth Oberoi, the Founder and Chief Investment Officer of Prudent Equity

The legendary Warren Buffett once famously said, 'risk comes from not knowing what you’re doing.' This timeless utterance has evolved into an investing mantra in the world of investments, where fortunes ebb and flow like tides.

Siddharth Oberoi, the Founder and Chief Investment Officer of Prudent Equity, finds his North Star in Buffett’s philosophy. Guided by the adage 'don't overstay your welcome,' Oberoi says he tactfully exits positions when they attain fair valuation.

With assets under management of Rs 260 crore, Oberoi follows a strict checklist approach where stocks are filtered based on various parameters including the assessment of risks at both the company level and price levels.

Launched in December 2022, Oberoi's Prudent Equity ACE fund has delivered a return of 41 percent.

In an interview with Moneycontrol, Oberoi unveils the essence of his investment philosophy, sheds light on his top picks, and offers insights into the stock selection process.

Edited excerpt

What do you think is the reason for your recent outperformance in the market? Share the key factors or strategies.

The fund has been cautious in its approach since inception. While the fund was launched in December 2022, it took a good 5 months to fully deploy capital. We have been very selective in our approach while choosing stocks and especially with regard to valuations. The fund uses a structured approach while allocating capital, categorising investments based on the risk-reward probability. This has ensured both capital protection as well as substantially higher returns.

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Managing funds worth over Rs 260 crore is no small feat. How do you maintain a disciplined investment approach?

We follow a strict checklist approach. Stocks are filtered based on certain parameters. We ensure that risks are estimated at both the company level and price levels. Ensuring timely entry and exit into positions has been the forte of the fund. Evaluation of the fundamentals of each company and figuring out the intrinsic value of a company ensures that we remain disciplined around that approach. It also enables us to not venture into companies where we are unable to understand their business economics.

During the recent bull rally, many sectors witnessed significant growth. Which sectors or industries did you focus on?

Our top picks have been from the infrastructure and the banking space. Infrastructure for obvious reasons is bound to deliver substantial growth. Companies are sitting on record high order books. Banking, on the other hand, is still available at reasonable valuations. Companies in this sector can still deliver double digit growth in the foreseeable future.

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The market can be unpredictable, and risk management is crucial in fund management. How do you assess and mitigate risks while seeking opportunities to outperform the market?

Our investing criteria incorporates our risk management strategy. We make sure that there is adequate room to manoeuvre if the tide were to turn against us in any of our positions, just in case. This is evident from our 11-year experience, during which we have been successful in around 90 percent of our positions. In simple terms, margin of safety is of utmost importance while investing in any stock.

Investors are often concerned about the impact of macroeconomic factors on their investments. How do you keep track of macroeconomic trends?

Macros generally are a secondary aspect for us while analysing any business. Our focus is to look for companies outshining even during a tough macro scenario. For example, in the current scenario, sectors which seem to be struggling are chemicals and IT, but if one looks closely and ahead of what may happen in the near future in terms of outlook for these industries, a lot of opportunities are available to invest in that area as well.

With the current market scenario, how do you strike a balance between chasing high returns and ensuring a stable performance for your investors?

As the saying goes, 'Don't overstay your welcome', we ensure we move out of a position when we think it's fairly valued. We also ensure that returns are not chased. Only when the risk-reward is in our favour, we make the investment. When there is a choice between near term returns and protection of capital, it's the latter that takes precedence.

Looking ahead, what sectors do you think will outperform in the medium and long term? What's your strategy for IT companies?

Our fund always follows a stock specific approach. We are generally agnostic to sector allocation. However, if we dissect the results that companies have announced, there is a clear growth demarcation between domestic and exports. Companies focused on the domestic market have done reasonably well.

 Who is your favourite stock picker? What's the absolute return of your fund house since its inception? Which stocks gave you the maximum return?

Prudent Equity has been operating since 2012. We launched our fund in December 2022, which has delivered a return of 41 percent in the first seven months of operation. The fund has beaten its benchmark by a wide margin. Our top three positions are Time Technoplast, Power Mech Projects and Welspun Enterprises, all of which have delivered over 75 percent returns individually.

My favourite stock picker is Warren Buffett. Not only are his returns consistent and superior over the last 70 years, but more importantly, he has been able to remain consistent in his approach to investing and has been able to skirt most downturns effectively.