How to be a boring investor

Welcome to yet another issue of 'Wealth Insight' which has a boring and dull set of cover stories. Actually, the stories are not boring and dull - you'll find them useful and informational and they will help you make more money from your investments. However, if you somehow have been seduced into thinking that being fun and exciting are necessary characteristics for an investment to be profitable, then yes, it's possible that you may find what we write to be dull.

Good business and good investing can be fun and may be interesting and exciting, but that's optional and just incidental to whether they are good. The common public definition of what a good business is has become severely distorted over the years. As an investment analyst as well as an entrepreneur who has built a business over three decades, I see this change accelerating now. Driven by the relentless cycle of media hype and the need of businesses to make themselves exciting for the stock market, this strange new idea has spread like a disease.

The job of a business is to create a useful product or service, do it at a cost that allows customers to buy it and yet generate a reasonable profit for the business, and do all this in a financially sustainable way. If the business is a listed one, then it must be structured in such a way as to generate good returns for investors, again in a sustainable manner. At any point of time going back since the Indian economy liberalised, there have been waves of overhyped excitement that has ripped its way through the investing world. At every point, some businesses have looked like great and exciting 'bets' for investors. Without fail, these have fallen by the wayside. Remember the NBFC wave, the small IT firms wave, the infra wave and so many others?

During these three decades, the ones that have generated amazing returns have always been duller.

Just to take a few examples, compared to the hype machines of the past and the present, names like Asian Paints, HDFC and even Infosys are decidedly companies with the characteristics that I describe. They soldier on, decade after decade, delivering to the customers as well as shareholders.

In everything that Value Research does, whether mutual funds or stocks, our effort is to link you to such dull investments and warn you off the flavour-of-the-day fad investments that offer excitement, but no solidity. The knowledge, analysis and information that we bring to you will cause a difference to your investments in the long-term, if you work to steadily implement it year after year. It sounds boring and it is. It's like the difference between routinely eating big meals of fast food vs cooking your own healthy and nutritious food. The impact of one vs the other becomes clear only after years. Since equity investors are an optimistic lot by nature, they find it hard to resist the investment equivalent of fast food, but still, it's important to tilt the balance towards the healthy stuff. Even so, it is not entirely fair to describe feverish speculation on the stock market as the opposite of the approach that Value Research advocates.

As you read the detailed analysis of the sectoral business prospects that our team has put together, you will notice one thing which is in sharp contrast with the IPO hype machine. Our analysis looks forward but uses looking back at the past as an important clue to what will happen in the future. In a strong sense, the only actual factual input that you have as an investor is how a sector or a business or even a person did in the past. What companies say will happen in the future is just a story. Unless supported by evidence, it means little. However, the past tends to feel dull and boring and that's actually a good thing because it keeps us connected to the reality.