In life the toughest journeys are made alone. Investing is one such journey especially in direct equities. You start off on your own and then seek the help of Buffett, Graham, Fisher, Lynch, – but remember these are not the theory guys, these are the “applied” guys. You still need the theory guys. For example you need to know the relationship between interest rates and asset prices. I would never ever have believed that the world could hold the cost of money at zero for 20 years. Such things should have led to runaway inflation – but the commodity boom ensured that commodity prices did not go up at all. Really tough to believe it even as I am typing it. Nobody in the US would have thought that 2 billion people would be willing to work on a wage less than US $ 1 a day. Makes a mockery out of the Minimum wage in the US for work which could be pushed off shore.

With all this confusion, what is the most important thing that as a fund manager you should do?

Find a person who can  pick holes in your portfolio. Somebody who can see my portfolio and scream about concentration risk, about having commodity stocks (have made money in the past), of not selling Nbfc fast enough – or whatever.

Finding the CONTRARIAN. Contrarian means a person who does not like my portfolio at all – and is willing to say that.

Why do I need that? simply because one’s own head is a “Yes Man” – it goes out to seek information that one wants. So if I buy EiD Parry, I want the Brazilian crop to be poor so that the international market does not crash. The world over sugar consumption is not a worry, but sugar substitutes are. How do I tackle that? I go by world population and console myself. Now if I meet a contrarian, it would help.

I should meet some relative return seekers (fund managers) who will review my portfolio. Remember I am an absolute return seeker willing to look like an idiot for big parts of time. It does not bother me that I am nor participating in the small cap boom or mid cap boom. Of course I do have good shares which participate, but since I am not answerable, I have been able to hold on to Franklin Prima for 18 years. No, it has not bothered me. However, a contrarian may have improved my returns in my direct equity portfolio. I may have traded more than I have done in the past 3-4 years. Which means my ‘contrarian’ is somebody who should have known some trading techniques too – I am too much of a buy and hold investor. My trading is restricted to meeting my day to day expenses – but letting it lie in the portfolio – and paying Income tax from my current income.

When I saw PJ’s portfolio containing  Icici bank, Infosys, and SBI – I did invest in that fund. Simply because these 3 shares had no role in my portfolio and I was using PJ as a contrarian. Using such strategies is useful because you ask yourself one important question – “Yes you are right, but what if you are wrong”. This is a difficult question, but asking myself “how long will PJ be wrong” is far easier. I know his strategy, and I know it is worth riding. Ditto Mahesh Patil. ditto Anand Radhakrishnan. Ditto Naren.

So having a friend who will rip open your strategy, your portfolio, your portfolio styles, your assumptions is useful. If you are a direct equity investor, find a good mutual fund picker. If you are a 99% in equity guy (or gal) find a person who has debt as his mainstay. He will provide you with a different perspective WHICH WILL NEVER EVER BE visible to you….

Why does this happen? Simply because we are Rationalizing animals far more than being Rational animals. We look at our mistakes as “near misses” instead of saying “we screwed up”. The greatest rationalizing you do for poor business decisions (portfolio decisions are a subset) is to say “but I don’t need that money”. This is stupid because if you are in the market, you have to earn well. You can give it off for charity, but it makes no sense to keep Rs. 83 L in the savings account for 4 years..saying “it does not matter”. Of course you can turn to me and say “it is better than keeping it in a FMP and having it rolled over for 7 years”.

Watch this space!!!