Concentrated portfolio may not work

Prasanna Pathak is fund manager-equity at Taurus Mutual Fund. Pathak has spent 17 years in the mutual fund space, predominantly in research and management of equity funds. He is an MBA from SP Jain Institute of Management, Mumbai, and a B Tech (Chemical) from LIT, Nagpur University. Prior to Taurus, Pathak worked with Florintree Advisors and PMS.

Investment strategy

Prasanna generally follows a bottom-up approach to investing.  Identifying a structural change in trend; either in terms of earnings momentum, change in management, new product introduction or change in demand-supply equation is the key to investment success, he believes. Therefore, he always looks for a favourable risk-reward scenario.

“But then, every situation is different and dynamic. As a fund manager, you have to live with risk, volatility and uncertainty and manage it properly,” he says.

A diversified portfolio and growth-focussed approach have continued to do well for the fund house. Around six to nine months ago, he positioned the equity portfolio around themes like formalisation of economy, agriculture and cyclicals. The theme has broadly played out well for him. Similarly, his decision to be overweight on mid-cap IT companies has also worked well.

“In my experience, a concentrated portfolio and pure value investing approach may not necessarily work well in all situations. A diversified portfolio and growth-focussed approach has done well for me. Investing in a stock or business is like sitting on a three-legged stool. Management, business and valuations are the three legs of the stool. A proper balance between these is essential. But there are other aspects too,” he says.

“One has to join the various pieces and connect the dots to solve the jig-saw puzzle called investment. Einstein once said, ‘Not everything that counts can be counted, and not everything that can be counted counts.’ This is so true for investments.”

Direct equity investment is not simple and easy as it is made out to be. As per John Templeton, bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. However, it is very difficult to implement the same and not get swayed by emotions.”

Investors should trust various service providers, including asset management companies who are equipped with required set of skills, and avoid investments funded out of high cost debt and leverage. They should ensure regular investment in staggered manner and need to understand the magic of compounding funds over long term.