Raamdeo Agrawal, Director & Co-Founder of Motilal Oswal Financial Services, has a very down to earth approach to investing in equities. His advice must be listened to very carefully because there is a lot of wisdom in them. We have distilled the valuable parts from his latest interview in the ET
Uncertainty is a way of life: Investors have to learn to live with it & take advantage of it:
Raamdeo Agrawal remarked that there was always uncertainty in the environment, both political and economic. Earlier, there was uncertainty about the survival of the Euro and the USA economy and now there is uncertainty about Cyprus. There are also local problems such as the high interest rates, inflation and current account deficit that are troubling the market. If these problems get resolved, then there will be other problems that will come in.
Raamdeo Agrawal explained that these were cyclical things which keep happening and which nobody can ever predict. However, investors cannot stop believing in equities and instead must learn how to take advantage of the situation, he said.
Raamdeo Agrawal cited the example of the beginning of the last year (2012) when everyone thought that market is going nowhere. However, the market gave solid returns in 2012. He also pointed out that there was no reason to get diffident about 2013 because a lot of policy initiatives were taking place and the earnings are not looking bad. There would be slightly mid or high single digit earnings growth at the aggregate level.
Focus on your portfolio of 15-20 stocks & make sure they are good companies:
Raamdeo Agrawal pointed out that he had about 15-20 companies in his portfolio which he understood very well. He had a lot of confidence in these companies and so every decline in prices was a buying opportunity for him.
Buy Your Favourite Stocks Systematically (SIP):
Raamdeo Agrawal pointed out that it was his experience of the past several decades that one can never hope to time the market and buy stocks at their lowest level. “You never know when pessimism can turn into optimism” he said with a gentle smile. Trying to time the market so as to buy at the bottom and sell at the top is the “biggest threat to equity investing” he said. The allocation of funds into equities must be made in a methodical way and the best thing to do is to keep putting money into your favourite stocks in a slow and systematic manner, he said.
Long-term ‘buy-n-hold’ Investing Is Not Dead:
Raamdeo Agrawal cleared the air over the controversy whether long-term investing was still relevant or whether one had to evaluate the stocks quarter by quarter. He emphasized that in his view investing in stocks meant owning a business. One had to hold the shares for a few years, at least a full cycle. A full cycle in India is about seven to eight years, minimum, he said.
Equities are still the best asset class:
Raamdeo Agrawal debunked the argument advanced by some experts that equities were no longer the preferred mode of investment. He pointed out that equities is the asset class which gives the highest rate of return in the long term, post tax adjusted. Most of the other asset classes actually do not beat the inflation and so are wealth destroying. However, investing in equities requires a lot of care, precision and planning he added.
Raamdeo Agrawal had a golden piece of advice for all investors. He pointed out that price changes because of the change of opinion and sentiment. Pessimism suddenly makes way for optimism. When that happens, the beaten down stocks become multibaggers. So, as an investor, you must develop the stomach to bear the uncertainty and to buy stocks when no one else wants to because the pay-off is very good.