From a naive investor to a portfolio manager and head of research at Tamohara, Harini Dedhia has come a very long way. Her journey in investment began as a 20-year-old intern at a hedge fund in New York. She got into Indian equities after returning to India at the age of 22, and since then her journey has been upwards.
Sharing a glimpse of her early investing days Dedhia said, "I was very naive at first. Only went by valuations of individual companies- buy cheap companies, single-digit Price-to-Earning (P/E), and sell when they become “expensive”."
"Initially, I used to screen companies first based on valuation and then used to spend time understanding the quality of the business. So single-digit P/E companies with a lot of cash on their balance sheet (that they were perhaps unable to reinvest in their business) formed a chunk of my initial bets. As time went by and I saw what mattered to the markets was growth in real profits, I started focusing first on the business- having a shortlist of businesses I want to own ready. Only after what to buy was identified, do I grapple with when or what price to buy it at. A great business at a fair valuation is preferred over a fair business at a great valuation now," she said.
Changes in share market
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Talking about two major changes in the share market Harini spoke about the fast pace of the markets. She said, "The one stark change I have noticed in markets since I started investing is that with every passing day, markets are becoming faster and more severe in reacting to news/ information. It is therefore becoming increasingly impossible to have an information edge as a researcher. Portfolio managers have to focus more on developing a behavioral edge."
According to the portfolio manager, another corollary of this increasing speed is 'corrections'. She said, while these are more severe, they don’t last very long. "It is therefore important to not get zapped by the velocity of the market moves and just keep buying businesses that you like with a longer horizon," Harini added.
Savings and long term investment
When discussing the option of saving through long-term investment Dedhia explained why this is a safer and more successful option. Dedhia while explaining more simply said that debts can help you save against a rate of inflation but it will not help you create wealth. Similarly, real estate which is a wealth creation tool preferred by many Indians is not a great option as it lacks access and utilization as you cannot access the money when you need it.
She said, "Debt helps you preserve savings against a rate of inflation but can’t help create wealth. Real estate has been a tool of wealth creation for many Indians however, it lacks access and unitisation (you cannot deploy savings as and when you accumulate) and it is still nowhere near as transparent as equity (does your builder report their quarterly progress to you in a prescribed format?) Most importantly, however, it is not liquid. In times of emergency, you can never rely on real estate."
Further, Harini said, "Think of all the monetarily successful individuals in the world. All of them are so because of the value of their equity. Equity that has compounded for them well after the business has outgrown them. Equity is the most accessible tool for wealth creation out there."
Investment strategy
When asked to suggest an investment strategy for a new investor, Harini said, "My only two cents on this would be to try a bit of everything you are curious about but try with your own hard-earned money. No paper trades and no taking other people’s money. You will realize very quickly what your risk appetite is, what your return expectations are, and what kind of investing does not leave you with acidity. Stick to that. The best strategy is to deploy your savings (do keep six months of expenses and any other corpus required for critical time-sensitive goals aside) and learn about yourself and the market using that."
All those who are new to investment are often confused about the right time of buying and selling a share. Addressing this confusion Harini gave two tips that have worked for her. First, never buy companies at peak valuation and peak margins as the margins will not keep improving in perpetuity. The second one is to take a moment and think if you are selling a company only for valuation. Ask yourself if the earnings will continue to compound at the same rate as it has in the past. If the company's growth is not going to slow then the best bet is to hold on rather than sell it out.
Stating another important point she said, "Don’t ever try to time your buying and selling of individual companies/ businesses based on what you “feel” about the market. The market has a habit of surprising the consensus regularly."
Professional help for investment
There has been a substantial rise in demat accounts with three million new demat accounts opened in July 2023, the highest in 18 months, but many of these individuals may not have the time to monitor the stocks they are investing in or they don't have proper professional guidance to improve their investment.
In these cases, the Tamohara portfolio manager said, "If you don’t have the time to monitor the companies you are buying into, why not get a professional to do it? Investing in equity MFs is akin to investing in direct stocks. For some reason, we often seem to forget that in our need for thrill/excitement."
One such platform that is helping investors invest in stocks directly is Tamohara. Using the platform young investors can buy stocks directly in their demat account using its research and risk management approach. Talking about the benefits of using Tamohara for investment Harini said, "Additionally, our weekly snapshots, quarterly letters, and videos that we do as an endeavor to share knowledge are great resources for young investors wanting to discuss their investing style/ strategies."
What sectors should you invest in?
When asked what sectors she would suggest as a portfolio manager at Tamohara suggest for investment she simply said healthcare and manufacturing segment. Going into the details she said, "In both these segments we have started to emerge as a relevant player on the global stage but more importantly, these are businesses that have a growing domestic demand; growth that is higher than India’s nominal GDP."
In healthcare, Tamohara is biased towards those businesses that have relevance for chronic patients in India as this is a segment that sees a more predictable, higher than nominal GDP growth. In manufacturing, companies that enable other industries to go cleaner and greener- so those that help in effluent treatment, creating value out of waste products, or simply making processes more energy efficient are our focus area.
Tamohara's focus on Eco-friendly practices
Tamohara in general focuses on eco-friendly practices, so it is not surprising that the company is looking to invest in companies that are looking to work towards protecting nature. When we asked her to explain how this works she said, "While this may sound like an altruistic cause, it truly isn’t. As a hardcore capitalist, I believe it to be just poor business sense to invest in companies that leave the world worse off than where we are at- be it through pollution or bad labor practices, etc."
"We value companies on their ability to generate cash flows. In any rough estimate of the present value of discounted future cash flows that we may use, a majority of the value is ascribed to the terminal value of the business. A business that harms the environment would have zero terminal value as sooner or later regulators would impose restrictions and norms that would disable the companies from carrying on business as usual. Case in point diesel power generators are being incrementally banned in a couple of states/ UTs in India. Therefore there would be a valuation derating in these businesses despite near-term growth being present," she added.
Artificial intelligence and investment
While focusing on the environment is important we also need to focus on developing technology like artificial intelligence. We will soon reach a point where we can use AI to help decide where we can invest and how much we should invest.
The portfolio manager while agreeing to this said, "I think that it can help speed up research but it cannot take out the human element required in making a decision. In long-term investing more than anything else, you take a call on the management’s ability to deliver on their vision- a lot of that is based on their past execution track record (where AI can help) but a lot of it is based on softer aspects- Is there still fire in the belly post past success? Can a new disruptor come and dislodge them? Are their views outdated? These are not questions that can be addressed by AI. It can augment an investor’s capability but in the long term, cannot replace them."
Since Harini is an avid reader we had to ask her for some recommendations for investment books that would help new investors. She had two book suggestions that will help cover all the important topics for a fresher.
"To me, being an avid reader is almost a prerequisite for being a good investor. Investing is fairly simple in theory, just difficult to adhere with discipline to those simple principles. Two books cover everything I would want a fresher to know about investing. First, ‘One up on Wall Street’ by Peter Lynch for the simplicity of idea generation and second, ‘The Most Important Thing’ by Howard Marks for understanding how to view market cycles. All that is required for learning is in those two books. Beyond this one should just focus on reading a lot of history," Harini said.
Talking about the seriousness of investment and how it can benefit the young investors she said, "Be hungry for knowledge. Be curious. This is a field that has no right or wrong answers, so be open to suggestions and ideas, wherever they may come from. Please don’t do this half-heartedly. Get a professional wealth advisor to help you plan your finances and wealth planning. Investing is not for your entertainment but for funding all the aspirations/ dreams that you may have for your life. The best way to enable that is by saving and investing more in equity as an asset class and by not touching your allocation to the asset class for as long as your situation permits."
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