Let’s dive into the wealth of knowledge amassed over three decades by Sankaran Naren, a seasoned veteran in the finance world. Through trials, triumphs, and tireless dedication, Naren has uncovered three profound lessons that illuminate the path to financial success. Come along as we explore the valuable lessons learned from Sankaran Naren’s impressive career. Through his experiences, we’ll uncover practical insights that can help us explore the world of finance more effectively.
Lesson I: Investing is not a zero-mistake world:
It is NOT possible to avoid mistakes in investing, and it is foolhardy to think otherwise. Never walk into the investing arena assuming that you will never make a mistake.
Even the legendary Warren Buffett has erred, which he humbly and graciously talked about- IBM, Tesco, Precision Castparts, Dexter Shoe Co., and airlines for instance.
If mistakes are inevitable, it is futile to sweep them under the carpet. Every single time you make a mistake, never fail to introspect honestly. Learn from it so that you never make the same mistake again.
The key essence in all my 34 years in the market can be distilled to an important principle: Make fewer mistakes and get many other aspects right.
Lesson II: The most important decision is not what to buy:
In fact, I would go so far as to say that buying is the easiest part of investing. Nearly all investment literate is focused on this aspect of the process: Look at the balance sheet, annual report, the business, valuations, and try to understand what the company will do over a period of time.
When I started my investing journey, 1989 and 1990 was such an easy period to buy stocks. Then came the bull run.
We are in a bull market now. This cycle started in 2020. There have been a lot of advantages for investors who started their investing career in 2020. Their timing was inadvertently impeccable. They bought stocks cheap. Made phenomenal money. That was the easy part. The difficult part comes now.
Recognize that the situation in 2023 is very different from what it was in 2020. Hence, the possibility of making mistakes shoots up.
Lesson III: Use extremes to your benefit:
When the market goes to extremes, you need to move fast. In such times, you have to act in a very decisive and relevant way to capitalize on it.
This is not a something that happens frequently. In fact, it is very rare when such opportunities come knocking. I have seen them in 2002, 2008 and March 2020. When Warren Buffett visited India, he touched upon this and said that such opportunities come around once in a decade. He mentioned five such opportunities over 50 years.
Extremes can be used to generate phenomenal returns. Infotech in 1999, Infrastructure in 2007, Pharma in 2015, FAANG in 2021 are all examples. In 2021, at a talk at the CFA Institute, the extreme was that PSUs as an aggregate market cap was extremely cheap compared to most large caps. No one would have envisaged the kind of outperformance that would come from PSUs. It was not that large caps did badly, but that the PSUs outperformed them.
The point I am making is that it is not that the market cap that is high that needs to go down. It is the market cap that is high that needs to be sold or switched into the market cap that is low.
Market caps in extremes have displayed huge ability to deliver alpha.
I reiterate, this strategy can’t be used on a daily basis. It can be implemented only when extremes present an opportunity, and then must be acted upon boldly and resolutely.
There are more lessons that Mr. Naren mentions; we can explore additional points in next month’s newsletter,culminating in a wealth of knowledge for our readers.
Source: MorningStar