Direct Equity vs Mutual fund

Both are good and have their own advantages and disadvantages.

If someone does not want to take headache of research, mutual fund is a beautiful tool to invest.

Question comes ... Shall I invest in active or passive mutual funds ?

Over a long term, 9 out of 10 funds will underperform the benchmark. For large and midcap index.

For small cap funds, chances of under performamce is slightly lower.

Does it mean that index funds are better.

Recall what Rajeeb Thakkar said once..


All the index funds underperform the index itself. Bcz of cost.

Mutual funds are good with right expectations.

It gives you a slightly lower return than the index.

This must be the right expectation.

P. S. Mutual funds can beat the inflation comfortably without doing any hardwork

Facts

Nifty small cap 250 has come out of the base after almost two years. And it is now touching at an all time high.

Big mutual fund managers are calling out this index at higher PE multiples. And they are anchoring their funds with a large cap water base.

Valuation matters. With earning.

People has been calling out Nvidea in bubble. The stock has printed money bcz the earnings have been equally fast. Recent quarter, the guidance has been further upgraded.

Valuation matters. With earning.

Don't miss out the "with earning" part.


P.S. Only 30% of The IPOs In the last 2 Yrs have outperformed Nifty 500 by 5%. With Nifty smallcap 250 zooming now, the IPO will fall from the sky like rain. I will remain cautious and never apply in a quick money scheme on listing gain , aka IPO.

Active Mutual funds

Active mutual funds in large and medium cap space will underperform the benchmark. In 10 years. With 85-90% of the mutual funds.

Still, to feed our ego, the majority of the people will do SIP in these funds.

If you think , this is a wonderful theme to make money.

AUM business. It is easy to track. Check the fast growing mutual funds.

If industry AUM is growing at 15%, and any AMC is growing at a faster pace, it is shouting out loud. I'm gaining market share.

The AUM will be bigger with time. And cost will not increase at the same rate... Activating the most deadly denonator, called operating Leverage.


Track AUM growth and Equity share. And it takes less than one minute for each AUM business.

And there are only handful companies in this space.

1. Largest: SBI
2. ICICI prudential AMC
3. HDFC AMC

You will see a weird pattern here. Bigger gets bigger at a faster pace.

And smaller AMC keeps showing historical data because their AUM growth is slower than Industry growth!

You just need 30 min in a quarter to track all these AMC businesses.

Now experts will scare you uttering one matra. Repeatedly. Valuation.

Take three years forward earning here and calculate PEG. It will make sense.

Another set of people. They will tell you that how will I know my X AMC will remain market leader.

Answer is...you don't have to know. Because no CEO or manager or guru knows it. You have to track. Every quarter. And assess.


Remember?

When fact changes, I change my mind. What do you do, Sir ?

Interesting Develops


Hero motors are having Vida in EV 2 wheelers.

Additionally, they are around 32% owner of Ather Energy. Rival companies taking stakes at competitors are very interesting. Worth observing.

P.S. Tomorrow is Ather's Community day. It will be interesting to see their product launches.

Many investors are still doing long term investing through ITCs, HDFCs of the world. They cannot digest any new developments. Remain flexible.

Powerful thoughts


When you are fine and healthy, you have many problems in life. But you are not fine and have health issues, you have only one problem.

-
Shaolin Warrior

I have heard so many good praises from this book. Time to read...

Today's world attention is the most rare commodity. Thumb is doing endless scrolling without gaining anything. Dopamine rush is killing our intelligence and making us dumb.

A beautiful way to break the loop is to read books!

There is no good day to start something than today. No one is stopping you !

Internet business

Many of the app-based internet businesses are profitable. Don't ignore them because you cannot live without them.

These are new raising giants. Check for revenue growth more than 20+ %. Operating Leverage will be an in-built feature here.

These are moated businesses because there is no alternative.

Remain flexible. The fact has changed. They are not loss making anymore!

AI-generated.

Retail Edge now cuts sharp

Earlier, only a big or institutional team could do this after reading hundreds of pages of Concall and PPT. Now, retail investors can access these types of resources almost for free.

Thanks to AI, I can track 100+ companies. It was almost impossible few years back!

Here is a new Age Internet Business

Urban Company. Understand how to read the numbers!

https://youtu.be/HBXJfIqh6n4

Urban Company - Why you should track.mp3

Recently Listed company

Milky mist management - Concall Notes

95% of the paneer sold in India is from unorganized sector. Only 5% is organized.
Also, a high proportion of the paneer sold in unorganized sector is analogue paneer (a cheap, factory-made imitation of traditional dairy paneer that uses vegetable oils, starches, and chemical additives instead of pure milk).
Govt/FSSAI is planning to ban Analogue Paneer.

Milky Mist is having almost 20% share of organized market.

Their capacity utilization is just 50%, can generate 3X revenue from the current plant.

Mental Model - Milky Mist.mp3

Years of reading and learning are distilled in this audio.

Do listen for learning. And try not to multitask while listening 🎧.

Pure knowledge!

A very Boring Routine

People are mocking my process often saying that it is dead compounding. Well, I have nothing to defend.

I am a simple person with a plan. My routine and process are boring. Here it goes..

1. Get up and drink water and go to daylight before checking the phone. Non-negotiable.

2. Go for a walk for at least 20 min. Non-negotiable. Run weekly once at least. Non-negotiable.

3. Return, take bath and have a healthy breakfast. The menu can change but not the concept

A. Protein 25 gm
B. Nuts (almond, Kaju) for healthy fat
C. Milk or some dairy products
D. Any one fruit based on session
E. Chia seeds for fibre.

It's at no scale cheap, in fact, a very expensive one.

But my thought process is clear that I get only one body in this birth. I have to take care. Cars, Bikes, Netflix, movie tickets are not my priority. No OTT subscription I have currently. Only Claude and ChatGPT subscription for boosting my work and research.

You may criticize my routine. It is very monotonous. The fact is...I do not gulp any pill and plan to not gulp any in coming at least three decades.

P.S. The biggest challenge I face is... getting separated from the community because my approach is different. I have to learn to live with this.

Read three times.

Especially, the last point

JEFFERIES ON BANKS

• FCNR-B mobilisation crossed $60 bn in just 10 days, taking total flows to $136 bn, ~4x the 2013 scheme flows.

• Strong flows enhance banking-system liquidity ahead of the festive season and may help keep rates lower.

• RBI may absorb some liquidity via repo operations; Jefferies sees a lower probability of a CRR hike.

• FCNR-B could lower NIMs, but remains accretive to NII.

• Better liquidity expected to benefit NBFCs and smaller private banks.

Proof

If you have listened to the last audio, you will know that companies from India are expanding to other countries...have a low probability of success.

Here is another example.

TATA CHEMICALS:

Kenya's president orders Tata Chemicals to end operations in the country , Says its presence had failed to benefit the country.

PS: If you have not listened yet, you are missing something very important. Do listen.

Interesting Updates

Sterlite Tech


Management said business is at a pivotal moment with scale of opportunity enhanced significantly by AI data centers (DC).

AI DC needs are very different from traditional DC, including higher AI density driving multi-fold growth besides interconnection between DCs.

In addition to US DC opportunity for STL Indian market will also see 10G by 2030 from the current 1.5GW.

India’s DC market will provide an added opportunity for STL to extend global relationships to the home market

STL is targeting Rs200bn revenue by FY29 (vs estimate of Rs104bn with margin of 27% (vs estimate of 23%).

STL will be expanding capacity to 1.5x to enable the next growth phase and will invest Rs10bn annually including a new greenfield manufacturing facility in India

Management said business is at a pivotal moment with scale of opportunity enhanced significantly by AI data centers (DC).

AI DC needs are very different from traditional DC, including higher AI density driving multi-fold growth besides interconnection between DCs.

Trap of Retail Investors

If you find yourself in a hole, first thing that you do is STOP DIGGING.

-Buffet

We spent a lot of time to debate if IT sectors or big private sector banks are coming back.

The share price falls and the retail investors keep buying. We don't check the allocation and anchor ourselves to share the price. The concept of allocation does not exist in our mind.

I keep interacting with fellow investors and they keep buying HDFC/Infosys/IEX because they think that these shares are trading at discount.

I have no problem with buying any companies for whatever reasons that they believe.

If someone believes that the business will turn around and share price will go up eventually, fair enough.


But allocation must be on check. My limit is 15% of portfolio on the turn around story.

No matter how much the share price falls off those companies, I won't keep adding. Because allocation will hit the brakes. If you don't like 15%, pick your number.

Importantly, build a system in place. No youtube video will talk about such systems. It will either advocate to buy or convince you to sell.

PS: No buy or sell recommendations on any of these stocks. I have the MFI segment as a turn around bet. AU bank was in this list totalling 14%. No recommendation. This is to illustrate the concept.

Average Height

This is one a bit long post. You dopamine will try hard to stop you from reading this long post. Try it 😊


The concept of average height is very handy to understand a lot of concepts.

For example,
European average height is higher than the Indian. Similarly, average height of Indian is higher than Chinese.

In India, men has an average height of 5 ft 5 inch.

It doesn't mean that all men are of equal height. Many are average 6 ft while good number of people are on the lower side of 5 ft 2 or 3 inch.

In India, GDP growth data is known to us. That means, some sectors are growing at faster than GDP and some sectors are growing slower than GDP.

For someone is investing through direct equity, instead of Index, he/she must focus on the sector that are growing faster than GDP growth. In growth term, higher than the average is alpha!

If you are focusing too much on the sector that are growing slower than average (GDP), you are designed to underperform with high probability.

If the whole market is growing at 10%, you cannot grow more than 10%. This is what index investors will tell you. Over long periods, it is nearly impossible to beat the index. This is their narrative.

This narrative miss a big point. If you can avoid slow growing or stagnant sector, and move to fast growing sector, place yourself on high growing segment, you will outperform.

If people are moving to stagnant sector, you will underperform.

These two segments together will make average index levels return.

If you think deeply, you will understand that alpha of one segment comes at the cost of someone's underperformance.

Well, this may sound a bit depressing, isn't?

If you think, interview is held for one seat where candidates are more than 10, 20 , even 50 or more. Only one person gets the offer. Rough reality.

If that convince you to invest through index mutual fund or ETF, you have to know one thing.


No index fund beats the index. So, you are designed to underperform the index.

Well, many of the index fund investors will argue that we don't have to buy and sell and pay tax in capital gain.

That is also theoretical, not practical. Index fund investors also suffer from choosing a few index out of many.

And look at the SIP return on index for last five years. You may debate with yourself, FD could have been the better choice. Index fund investor will show that they are cool and volatility does not bother them. This is a fiction.

All the big and successful investors will advice you to do index investing. Truth is...they will never do index investing.


What I am trying to tell you then ?

No option is easy. Fun fact is nobody promised you that earning money is easy!!

Choose your road carefully. All the roads have their own advantages and limitations. No roads full of promises. It comes with its own dark sides.

PS: I have been doing direct equity investing lately. At least for the last two years, I have not put a single penny to mutual funds. My incremental money is moving to direct equity and my portfolio is doing good (alpha). Last two years, my portfolio has moved up more than 25% when the market remained flat. Without any commodity.

I have a framework in place. If my strategy doesn't work over three years timeframe, I will modify the strategy and come back again.

I don't have to worship my strategy. If it doesn't work, I will accept the mistake and move on.

For me, I am curious and love to do research. I enjoyed my journey so far. My alpha is not out of performance. It is the Joy of the journey.