Wealth is created by keeping good investments for a long time: Vinit Sambre

New investors get a taste of volatility these days. They also learn about the ever-changing nature of the market. Most investors take these things in stride. However, some investors are totally lost to the wild swings in the market. That’s why ETMutualFunds decided to talk to mutual fund managers to find out how they handle these tricky market phases. This week we present to you
Vinit Sambre
, CIO, DSP Mutual Funds. Sambre, which has been in the market for more than two decades, vividly remembers the frothy reviews that some IT companies were ordering back then. “It was quite interesting to see IT companies being valued at 100 and 200 PE, there was so much euphoria and then suddenly it all fell apart. This episode had a lasting impression on my mind and brought important lessons about how markets can go crazy at times, and the importance of rational behavior during these times.” Learn more about his investment journey and the important lessons he learned along the way.

When did you start your stock market journey? Do you remember your first years in the market?
My stock market journey began in 1999 when I joined a brokerage firm KR Choksey as an analyst. The first years were very exciting and full of learning. The company valuation process was the most intriguing to me as I always wondered why a company was trading at a particular value. Is there science behind this or is it just coincidence? With that in mind, it was pretty interesting to see IT companies being valued at 100 and 200 PE, there was so much euphoria and then it all suddenly came crashing down. This episode had a lasting impression on my mind and brought with it important lessons about how markets can sometimes go crazy and the importance of rational behavior during these times.

What was the first thing you learned during your first years in the market?
In the early years, I understood the importance of reading company annual reports. The annual report is a wealth of authentic information and, if read correctly, it offers real benefit. I also learned how to create detailed financial models which helped me appreciate the importance of numbers with history. I consider it a privilege to have been associated with such a fundamental investor as Kisan R Choksey. The focus has always been on fundamental research rather than news-based trading ideas. I was guided to read Warren Buffet which helped me develop a solid fundamental perspective on how to analyze a business and more importantly how to value it. The role of patience was also magnified when I saw few of our non-tech ideas barely perform during the tech boom, but massively outperform after the 2000 tech crash.

What was the first bad phase in the market that you remember clearly? How did you navigate it?
Generally, a bad run is associated with the bear market. However, I have always found bear markets to be the ones that provide a great opportunity to accumulate big business at the most attractive prices. Rather, I would say that rising markets without corresponding fundamentals are the ones that troubled me. With this in mind, the 2017 bull market tested my patience as our mid cap fund underperformed due to our exposure to sectors such as pharmaceuticals and chemicals which did not participate in the rally. . However, over the next 2 years, these same sectors performed extremely well and allowed us to come back strong. Having learned the virtue of patience, we sat in our positions and calmly waited for the tide to pass.

Can you tell us one mistake you remember clearly from your early years? What are your learnings from this mistake?
There are many mistakes that I made that have become a source of learning for me over time. A big mistake was in 2010, when the power sector went too far, we invested in a handling business that was awash with a strong order book. However, we did not realize that this company’s receivables depended on the completion of projects that were being delayed, resulting in sticky receivables and stress on the balance sheet. We finally had to take a wide haircut on this name. The main takeaways for us were the importance of looking at leverage/debt on the balance sheet and the company’s ability to easily meet its obligations.

How do you see today’s market in the context of your own journey?
Markets are becoming more efficient because the availability of information has become very quick and easy. When I started, the information was not very easily accessible and reading the annual report early was an advantage. These days, information arbitrage seems to be diminishing and what remains is time arbitrage that can be profited from. One must keep the investment long-term versus the usual behavior of recognizing benefits early.

If there is one thing you would want young investors to learn from your experience, what would it be?
I see a lot of young, smart investors who take a fundamental approach and are also tech-savvy, allowing them to use technology as an advantage to quickly analyze relevant company information and get a head start. I really like this young breed. I can probably add one thing from my experience that wealth is created by holding onto good investments for a long time. The tendency of investors is to generate investment quickly, which often proves to be detrimental to the wealth creation journey.