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Portfolio Management 1:01. Presentation at IIM, Calicut. Some Key Concepts. Approaches to Portfolio Construction Top Down v/s Bottom Up Value v/s Growth Think of Cycles… nothing is linear Client Requirements Match Needs, Requirements and Abilities Risk Use Math & Computing as tools

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portfolio management 1 01

Portfolio Management 1:01

Presentation at IIM, Calicut

some key concepts
Some Key Concepts
  • Approaches to Portfolio Construction
    • Top Down v/s Bottom Up
    • Value v/s Growth
    • Think of Cycles… nothing is linear
  • Client Requirements
    • Match Needs, Requirements and Abilities
  • Risk
    • Use Math & Computing as tools
    • Make Bets Explicit
    • Why are you diversifying?
  • Your OWN Portfolio?
elements of portfolio construction
Elements of Portfolio Construction

Top Down

Growth

Value

Momentum

Bottom Up

decomposing approaches
Decomposing Approaches

Top Down

Asset Class

Country

Sector

  • Equities
  • Bonds
  • Currencies
  • Property
  • Commodities
    • Oil
    • Precious metals
    • Natural Resources
  • Developed Markets
  • Emerging Markets
  • Regional markets
  • FMCG
  • Pharma
  • Services
  • TMT
  • Manufacturing
  • Cyclicals
decomposing approaches5
Decomposing Approaches

Bottom Up

  • Volume
  • Price
  • Efficiency:
    • Costs
    • Assets
  • Restructuring
  • Technical Charts
  • Reflexivity
  • PE/G
  • Option Value

Value

GARP

Momentum

  • Dividend Yield
  • Price/BV
  • Replacement Cost
  • Payback
  • EV/EBIDTA
  • P/E
  • DCF
some lessons from history
Some Lessons from History
  • Japan V/s UK in 1944
  • Korea V/s India in 1950
  • Singapore!
  • Hero Honda V/s Kinetic Honda
  • Bharti V/s IDEA
  • Infosys V/s HCL
  • HDFC Bank V/s SBI

There is NO trade-off between Top- Down and Bottom up

think of cycles
Think of Cycles!

Nature is cyclical, not linear!

  • Life Cycles
  • Business Cycles / Boom-Bust
  • Seasonality
  • Innovation / Schumpeter
  • Market Cycles
valuation approaches
Valuation Approaches

Value

Growth

Momentum

  • Illiquid
  • Misunderstood
  • Hated/Uncovered
  • Appraised value
  • Institutional Favorites
  • UVG Stories
  • Imagine it!
  • DCF or Option value
  • Max Volume
  • News Flow
  • Volatile
  • Technicals

In Reality, there is no distinction. Growth and Momentum are LongTerm/Short Term Value catalysts

think client management
Think Client Management
  • WHO is the CLIENT?
  • WHAT does he want from you?
  • HOW are you shaping his expectations & mindset?
  • WHY should he stick to you?

“Most clients would rather have their fund manager fail conventionally than succeed unconventionally.”

— Marc Faber

changing needs over a lifetime
CHANGING NEEDS OVER A LIFETIME

Equity/Bonds

Property

Art/Misc

Own Business

House

Durables

Daily Exps

kyc and thyself
KYC and Thyself!

Relative

Pvt. Banks / Pension Funds / Macro Funds/ Fund of Funds

Asset Allocation

Country Allocation

Regional Funds

Sector Allocation

Country Funds/ Mutual Funds

Large Cap

Small

Cap

HNW / PMS / Absolute Return Funds/ “Hedge” Funds

Absolute

key success factors
Key Success Factors
  • Institutional Marketing
  • Deployment of Large Pools
  • Capital Preservation

BCA GLOBAL

Pvt. Bankers / Pension Funds / Macro Funds

BCA EMG MKTS

  • Marketing Scale & Scope
  • Economist

Regional Funds

  • Fund Manager
  • Technician

BCA CHINA

Country Funds

INDIA FUNDS

Absolute

Return

Funds

  • Stock Picker
risk mitigation
Risk Mitigation
  • Formulas / Computers are tools, not cast in stone
    • Sterling Crisis
    • LTCM
  • Markets discount the rate of change ; most metrics measure history
    • Understand logic of EMT, CAPM and Beta; do not be bound by it.

“Risk is something I manage between my ears.”

— Warren Buffett

make explicit bets
Make Explicit Bets
  • Asset / Sector / Class
    • Use Computing to make interrelations and risk explicit; scenario modelling
  • Catalyst
    • Reflation ; Upgrading Debt Rating ; Margins…
  • Valuation
    • Payback, DCF, etc
  • What will make you change your mind?
  • Your weightage should not be led by overconfidence !
decompose then consolidate
Decompose | THEN | Consolidate
  • A good investor is a good businessman and vice versa
typical career path to nirvana
Typical Career Path to Nirvana

Analyst

Head of Research

Fund Manager

Abs. Manager

Own Funds

Large Fund Manager

Marketing Guru

Even Larger Fund Manager

how is your portfolio tilted
How is your Portfolio Tilted?

OWN INTERESTS

CLIENT TIME

PROFESSIONAL COLLEGUES

WORK

COLLEAGUES

FAMILY

BUILD A CONSCIOUS LIFESTYLE !

heaven and hell
AMERICAN SALARY

ENGLISH HOME

GERMAN CAR

CHINESE FOOD

INDIAN WIFE

AMERICAN WIFE

ENGLISH CAR

GERMAN FOOD

CHINESE HOME

INDIAN SALARY

HEAVEN AND HELL

YOUR REAL WEALTH = YOUR HAPPINESS = YOUR STATE OF MIND = WITHIN YOU

summary
SUMMARY
  • UNDERSTAND YOURSELF OBJECTIVELY
  • UNDERSTAND THE INVESTMENT LANDSCAPE
  • UNDERSTAND THE UNDERLYING INVESTMENT
  • UNDERSTAND THE MARKET PARTICIPANTS
  • FOLLOW BASIC PRINCIPLES AND STICK TO THEM!
  • BE HAPPY!
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