5 investment lessons from Rajeev Thakkar's recent letter to unitholders

Rajeev Thakkar, Chief Investment Officer and Director at PPFAS Mutual Fund, has offered timely guidance in his recent letter to unitholders close on the heels of the Indian market hitting turbulence. Managing one of India's largest actively-managed portfolios—the Rs 82,000-crore Parag Parikh Flexi Cap Fund—Thakkar draws from decades of market experience to address crucial investment principles often overlooked in bull markets.

His insights mirror the core investment principles that Value Research has consistently championed over decades. Below is a summary of the key points from Thakkar's letter:

Equity is for the long term

Thakkar begins by reviewing Nifty's performance over recent years, highlighting positive returns since 2019, even weathering the 2020 pandemic. While this consistent upward trend might lead some to believe that equities are always a winning bet, Thakkar cautions that stock markets can also experience extended periods of underperformance. Therefore, he advises investors to treat equities as long-term investments with a horizon of at least five years.

Investment vs speculation

Noting a concerning trend, particularly among younger investors, Thakkar warns against the growing attraction to speculative activities like derivatives trading and IPO flipping (reselling shares in an initial public offering shortly after the stock's debut).

Thakkar highlights that such strategies have resulted in significant losses for many. He urges investors to focus on disciplined, long-term investing, emphasising the importance of sticking to a well-defined asset allocation and financial plan instead of seeking quick gains.

Risks of sectoral/thematic investing

Citing Benjamin Graham's wisdom that "obvious prospects for growth in a business do not translate into obvious profits for investors", Thakkar advises against chasing hot sectors. He gives historical examples of such funds not performing well in the past.

Instead, Thakkar recommends diversified equity funds that offer a broader market exposure.

Managing return expectations

Given current high valuations and rising interest rates, Thakkar urges investors to moderate their return expectations. He explains that stock valuations have been rising for years, driven by liquidity injections and low interest rates. But with interest rates now higher, investors need to be more discerning. He states that people who ignore valuations tend to get sub-par returns in the future.

Strategic cash management

In response to common questions about holding cash in a portfolio, Thakkar explains that maintaining cash reserves can be a strategic move.

Drawing an analogy to cricket, he compares his investment approach to playing a Test match rather than a fast-paced T20. Holding cash provides the flexibility to invest when stocks become available at attractive valuations, allowing opportunistic moves rather than attempting to time the market. This strategy is about waiting for the right moment to deploy capital, not predicting short-term movements.

Also read: Interview with Rajeev Thakkar, CIO and Director of PPFAS Mutual Fund

This article was originally published on November 19, 2024.