“Unlike a zoo where you probably try to have two samples from each animal species, in an equity portfolio it is fine not to have investments in each new sector or a company. You need not go to every party in town on a particular evening to have a good time,” Thakkar said in a letter to unitholders explaining his portfolio construction approach.
He and his team keep getting asked why they are not invested in stocks from railway, defence, manufacturing, infra, EV, etc, many of which have given multibagger returns in the last few months.
Attractive investment opportunities, according to the value investor, happen when capable and competent managers/promoters work steadily toward creating long term wealth for shareholders.
Thakkar, whose investing philosophies are deeply ingrained in the principles of Benjamin Graham and Warren Buffett, defines a great business as the one that creates good returns on invested capital, which does not need too much borrowing and has some long term competitive advantage.
The third biggest criteria for investment is that the company’s shares have to be available at reasonable valuations.
“When we apply the above filters, there are many sectors / companies which do not qualify. We do not invest in those. Just investing in companies or sectors which are seen to have attractive growth prospects due to policy changes or other sources of volume growth is not a sure shot formula for investing success,” Thakkar said.To make his point clear, he also gave the examples of private airlines and mobile telephone operators after the sectors were open to the private sector.
“East West Airlines, Sahara Airlines, Jet Airways, Modiluft, Damania Airways, NEPC airlines, Air Deccan, Kingfisher Airlines and others have not made too much money for shareholders… Companies like Tata Docomo, Aircel, S Cel, BPL Mobile, Reliance Communications and many more did not do too well for shareholders,” the money manager said.
As the returns in the last 3-5 years have been elevated by the easy money conditions and the post COVID bounce, he has moderate expectations and suggests not being over optimistic while making financial plans for the future.
Unlike other fund houses, PPFAS said it doesn’t believe in launching new schemes from a revenue or profits point of view. Despite handling a few billion dollars, the fund house doesn’t have a smallcap fund – a much-fancied category by retail investors in recent months.
“In my opinion, the small cap and mid cap allocations are best handled under the Flexicap construct rather than launching separate schemes for that segment. Given our current size, we may have some increase in the number of stocks in the portfolio from the small and mid cap space. However this has to be done at an opportune time. Investing in small caps is best done in markets which are in the midst of severe sell off rather than at times of great optimism,” Thakkar said.
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