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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 l.jpg

Portfolio Management 1:01

Presentation at IIM, Calicut


Some key concepts l.jpg
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 l.jpg
Elements of Portfolio Construction

Top Down

Growth

Value

Momentum

Bottom Up


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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


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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


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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


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Think of Cycles!

Nature is cyclical, not linear!

  • Life Cycles

  • Business Cycles / Boom-Bust

  • Seasonality

  • Innovation / Schumpeter

  • Market Cycles


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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




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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


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CHANGING NEEDS OVER A LIFETIME

Equity/Bonds

Property

Art/Misc

Own Business

House

Durables

Daily Exps


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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


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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


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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


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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 !




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Decompose | THEN | Consolidate

  • A good investor is a good businessman and vice versa


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Typical Career Path to Nirvana

Analyst

Head of Research

Fund Manager

Abs. Manager

Own Funds

Large Fund Manager

Marketing Guru

Even Larger Fund Manager


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How is your Portfolio Tilted?

OWN INTERESTS

CLIENT TIME

PROFESSIONAL COLLEGUES

WORK

COLLEAGUES

FAMILY

BUILD A CONSCIOUS LIFESTYLE !


Heaven and hell l.jpg

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 l.jpg
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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