Why Nilesh Shah, CEO, Kotak Mahindra mutual fund advises investors to focus more on the green zone of the stock market

It’s not enough that you invest in equity markets, says veteran fund manager Nilesh Shah. The quality of holdings and the amount of time you are willing to give to your portfolio is also important

Confused about whether or not to invest in crypto, or stressed about how to navigate in these euphoric, bullish markets? And if none of this, just simply want to brighten your portfolio with the diyas of prudent financial principles? Nilesh Shah, Managing Director, Kotak Mahindra Asset Management has some amazing personal finance insights for everyone. Take a look

You cannot plant a Mango tree right away and expect delicious fruits

“For the last 25 years, I have abided by three common-sense-based financial principles. The first is that little drops of water make for a brimming ocean in the long run. In the same way, small, regular doses of investments make for wonderful wealth-creation opportunities in the long run.

The second is that if you desire sweet mangoes, you have to plant a tree 20 years prior because you cannot grow mango in a time less than that”

Also, read | The Moneycontrol – CRISIL SIP Study; A definitive study that proves that SIPs work and reduce the chances of losses in the long run

The rules are simple; you have to be a long-term investor because just like in life, there are no shortcuts to making it big in your investments as well. Consistent SIPs (Systematic Investment Plans) and a stream of small amounts in the markets might not seem much right away, but then, 5-10 years down, when you will be sitting under the shade of that mango tree you planted, you will definitely not regret it!

Along with financial steadiness, what is also important is to focus on proper asset allocation and diversification. “Don't put all your eggs in one basket” is another dictum one should never lose sight of! It is better to have a solid portfolio consisting of offshore assets, equity, and debt so that you are well-poised to achieve your long-term economic well-being!

Invest in good quality companies. Avoid momentum investing

“Essentially, there are two zones in the market- the red zone and a green zone. In the red zone, you will find both-good businesses, but with concentrated holdings and sky-high valuations, and the other side that of the fundamentally and business-wise lacking class of penny stocks. On the flipside, there is the green zone, where there are quality companies, and where if you buy quality companies and withstand market volatility, then over a long term, you will certainly make money”.

So, what is equally important is not simply the amount you’ve invested in the market, but the quality of the company and the time you are willing to give to your portfolio. “In some sense, investment is like gardening, you plant a good seed, you water it daily through your attendance care and then allow that plant to grow into a tree. Good things like that don't happen overnight, it takes time”, explains Shah.

Research, Research, Research

Should I invest directly in equities or go via mutual funds, is an oft-asked question most of us face!

Shah has some solid advice for them all. “If you have to depend upon someone else, for research or for investment advice, then it is far better that you come by a mutual fund”, says Shah.

But if you are sufficiently confident in your personal research pertaining to the company’s stock, fundamentals, and more, you can opt for the direct route. But if you, like the majority of the market, are operating on random tips received that filter in via relatives or friends or worse, Whatsapp, then it is best to stay away from this manner of investing! Consider this. Why would someone else be invested and interested in your economic well-being, unless, ofcourse, the individuals in question are your parents?

Crypto is a high-risk, high-return gamble

Per Shah, “ When you're investing in crypto, please remember that there is no fundamental value around that. There are many proponents of crypto who have made a lot of money in crypto and they have become billionaires. But for most of us, there is no underlying value. For instance, I can value a company based on its cash flow. But that is not the case when it comes to cryptocurrency. It's rightfully a high-risk high return gamble.”

Also, read | Genuine opportunity or plain greed? What attracts retail investors to cryptocurrencies?

The message is simple; trade only what you can afford to lose. Crypto should not form a substantial part of your investment portfolio, but no harm in dabbling in this space with the surplus money you have, which, if tomorrow, thanks to market eccentricities, turns zero, should not harm your financials significantly.

Don’t live on debt. Live off India’s growth story instead

Shah advises against living off EMI and credit. Having been one of India’s top fund managers across debt and equity, Shah has seen many economic as well as market cycles, dating back to the information technology sector boom and bust of 1999-2000. That is also why he is a believer in India’s economy because he has seen the economy grow. “Today's young generation has a great opportunity to participate in India's growth story. So be a long-term investor.”

And if you think investing is some mumbo-jumbo rocket science, that's not the case. Shah recounts an interesting incident to drive home the point of how investing, fundamentally, is a common-sensical, easy exercise and at heart, a personal exercise.

Shah recounts a tale of renowned global fund manager Peter Lynch who once managed the US-based Fidelity Magellan Fund; one of the world's largest equity funds in the 80s and 90s. One day, Lynch carried his team of professional fund managers to a school and said that the kids in the school are going to build a portfolio of companies, and your job is to correspondingly construct a portfolio that outperforms theirs. Infuriated, perplexed but set to the task, the fund managers picked high-risk high-return companies, because of their desire to outperform the kids. The young children, on the other hand, chose companies on a simple principle-  which manufactured products they used regularly! One year down the line kids' portfolios outperforms fund managers by a handsome margin! Thus, the first and foremost rule of investing is simple- Invest in what you believe, and you are on your way to market success!

To sum it up, as Shah rightly signs off, “We are all students of the market. This market is bigger than all of us. The day we have egos, we will crash to the ground. So be humble, be open, keep on listening to everyone. You don't have to be guided by noise, you should be able to differentiate facts from the noise. Keep on taking the feedback, and then make your own decision.”