Most of us who are individual investors are not subject to too much of scrutiny of our portfolios. So we have no clue about how we constructed our portfolios. There is no way how we will know how much is luck and how much is skill.

Imagine in 1980 if a fund manager had broken his rules and bought 20% of his portfolio as WIPRO…do you think he would still be holding it? Even if he had predicted that it would be a multi bagger..he would have been forced by “prudential investing norms” and forced  (by his Trustees who else) to sell a part of Wipro to buy Crest Animation, Himachal futuristic,….etc.

THUS BEING RIGHT IS NOT ENOUGH. YOU HAVE TO BE RIGHT FOR A LONG TIME. If you are a fund manager you need to be right many times, and consistently. Now imagine I had invested Rs. 10,000 in WIPRO,  I could have been still holding it for 49 years and got an awesome return.

Can a fund manager do this? No. He cannot. He can come out of a fund to buy a mediocre stock – which will be known only in retrospect! Is there any point in saying that over a 25 year period a fund has given 23% p.a Cagr? Well if it saw a 40% fall in one year and a 59% growth in one year…most people would have heaved a sigh of relief and sold off. Nothing too wrong either. So those who talk only about CAGR and not about the discrete returns of a fund scheme, are missing the bus on how people behave. I have stayed on in a few fund schemes from 2001 or 2002 and do not have much regrets. However, my direct equity portfolio has surely performed better. Not saying that I am a better fund manager, but trying to say that the fact that I could run concentrated calls without having to answer a Trustee surely helped. It is also imp to thank God that I did not need any “urgent” money over the past 40 odd years of memory recall. That is plain luck.

So should I say I was skilful to make my luck? sounds too corny, right?

Funnily, in the above example, if the fund manager had just sat tight on Wipro, he would have been a top fund manager. All he had to do was to have the guts to sit tight. However, just after a fall he would have been taken apart by the other board members – and they would have FORCED him to sell as soon as it went up from its previous low. Seriously investing is not a ‘committee’ effort.

Actually in real life if you get 5 shares which become 100 baggers, your life is done. However, in fund management you have to get many things right, and almost nothing wrong. Have we not seen Sachin and Virat being hauled over the coals? In our own context Santosh Kamath, Prashant Jain, Naren, Manish, Mahesh Patil,…etc. have been taken to task for various acts of omission and commission. This is despite the fact that they all have had long years of good fund management track record, have a clean image, have generated some alpha etc. In many cases they may have identified a nice scrip, identified its entry price, holding period, and exit price. However, sticking to it would have had many a constraint.

If you have not guessed by now, even Graham made a lot of money by breaking some of this own rules. The share he bought was GEICO – his multi multi bagger idea. Smart? I am not sure. Skill? Yes. The skill to hold on to Geico for an extremely long period.