How this MFD is implementing Warren Buffett’s wisdom in his practice

By Ravi Samalad |  07-02-22 | 

Nirav Panchmatia grew up in Nagpur, Maharashtra. After completing his Chartered Accountancy, he moved to Mumbai to pursue MBA in Finance from Narsee Monjee Institute of Management Studies. Nirav worked with many institutions like Tata, ICICI and Citigroup during his corporate stint.

Inflection point

When Nirav made his first investment, he didn’t realise that it was unsuitable for him. This set him thinking that one should read the fine print before investing in any product.

“When I was working as an investment banker, I was sold a ULIP by an RM. It is only in hindsight that I realised that it is not suitable for me. Being a CA and MBA Finance, if I couldn’t have deciphered an investment product, imagine what investors from other backgrounds are investing into. It was the first time that ULIP was introduced so I couldn’t blame myself completely. But I should have dug deeper.”

Nirav realised that his expertise lies in analysing balance sheets and numbers, and he could use this skill by donning the hat of an MFD. Nirav found his calling and in 2008 he took the entrepreneurial plunge by floating AUM Financials. He set up his firm in his hometown Nagpur, away from the hustle-bustle of Mumbai.  Today, his firm manages assets under advisory worth Rs 230 crore in mutual funds across 500 families.

Nirav likes analysing products and educating people about investing smartly. He blogs, appears on personal finance shows like The Mutual Fund Show (Bloomberg Quint) and Your Money (CNBC Awaaz) and conducts seminars to spread financial awareness in schools, colleges and corporates.

Nirav vividly remembers how he got the inspiration to blog. “My motivation for the blog was Raju Rastogi from the movie Three Idiots. After graduating from college, Raju writes his blog, so I said why not try it. The first few articles got a tremendous response from readers,” recalls Nirav.

He writes from the perspective of people who are new to investing. His blogs try to advocate the wisdom of Warren Buffett, whom he has been following since his MBA days.

While Nirav confesses that he is not a regular blogger, he gets inspiration for writing from his day-to-day experience and interaction with clients. Nirav came up with a novel idea to inculcate the habit of saving, investing and giving back to society in his daughter Ananya when was eight years old. “I gave three (saving, investing and donation) piggy banks to my daughter Ananya. The first piggy bank (saving) has a key and she can take out the money when he wants. I promised to double whatever money she puts in the investing piggy bank. She doesn’t have the keys to this one. She can only open it five years later. The money in the third piggy bank is donated for social causes. Based on this experience, I wrote a blog, and a lot of parents resonated with it.”

Ananya started investing in mutual funds at the age of eight and now her investment corpus has grown handsomely. Nirav will hand over the portfolio to Ananya when she turns 21.

Cut down risk

He has imbibed and implemented Buffett’s wisdom in his practice. When shortlisting schemes for his clients, he looks at the maximum drawdown rather than merely the performance ratios. He forgoes some extra returns for safety, which perfectly sums up this saying by his guru – “The first rule of investment is don't lose [money]. And the second rule of investment is don't forget the first rule.”

“You have to be twice as careful because it is your client’s money. My clients tell me that I take less risk. My recommendations may underperform during good times but can outperform during bad times. I have lost a few clients due to my low-risk appetite, but it is better to under-promise and overdeliver rather than assuring investors of unreasonable returns to get business,” points out Nirav.

Nirav is not fixated on any one category of mutual funds. His emphasis is on helping clients earn better risk-adjusted return rather than chasing the flavour of the month products. He makes sure his clients have an investment horizon of at least five years in equity.

With the fears of Fed tapering weighing high on market, we have already seen FII exit the market in hordes. Going ahead, Nirav predicts that markets will remain highly volatile. In such a scenario, he is advising clients to participate in equities through asset allocator funds, which are an offshoot of BAF.

He believes the era of balanced funds with static allocation to debt may not work in all kinds of markets, especially when we are living in a dynamic world.

He says that investors should opt for Hybrid Funds which can deliver 11-12% in a choppy market and refrain from taking risks by chasing past performers. He is currently taking lumpsum money via Asset Allocator funds, which have the leeway to go from zero to hundred in equity exposure, depending on market conditions.

For allocating money in more aggressive categories like mid and small caps, he is preferring the SIP route.

His inspiration

Nirav’s curiosity about Buffett only grew and he started attending the annual general meetings of Berkshire Hathway. So far, he has attended four meetings till the pandemic. He has also met and asked a question to Buffet during his first India visit in 2011. “Mr. Buffett gave a 15-minute answer to my question. I really cherish that moment,” recalls Nirav. Nirav has around 30 books authored by Warren Buffett.

Like his guru, Nirav is a staunch believer in the power of equity. “Mr. Buffett was not born rich. He was from a middle-class family. Today, he is the seventh richest man in the world. This is because he has been investing in shares all throughout his life. While answering my question, Mr. Buffet had said that when he started investing in stocks, the dollar was at a certain rate and it has depreciated by 90% since he was born. The only asset class that can save you from inflation in currency is equity.”

While the equity cult is growing in India, Nirav believes that there is a lot of ground to be covered. Nirav says that mutual funds are the best vehicle for those who don’t have the time and resources to track companies and invest directly.

Savvy investors

Nirav observes that retail investors have matured now as they don’t hit the panic button when markets turn topsy-turvy. He believes that the investor awareness drives initiated by the industry and advisers/MFDs have helped bring about this change. In fact, in the recent March 2020 fall, Nirav got calls from his investors to increase their SIP commitment. That said, Nirav says that some amount of uncertainty does set in as the pain of loss is more than the pleasure of gains. “Money is a psychological subject. No matter how logical it is, some investors will always panic when there is a correction. SIP is a great way to tide over this volatility. In fact, SIP investors benefit when markets correct.”

Weapons of mass destruction

Nirav believes that investors should steer clear of futures and options trading to make quick bucks. “If you do F&O, you neither have a future nor an option. It is a double-edged sword. You make money quickly and lose quickly,” warns Nirav.

Nirav says that investors should focus on the earnings visibility of a company by analysing their balance sheet and business prospects rather than speculating about the future price. “In F&O, you are betting on the price movement. The last thing you should look at is the price. Most traders don’t make money. Those who do are a few and far between. It belies the basic concept of investing. Share prices are slaves of earnings.”

Study the fundamentals

He is worried about the trend of millennials opening trading accounts even before starting with mutual funds. “The first experience any new investor should have is through the mutual fund route. Mutual funds are a great proxy to equity markets.” Nirav advises new investors to enter the market via mutual funds and dabble in stocks when they have gained experience.

Nirav observes that many of the new entrants in the market are buying based on tips from social media without digging deeper. “If you do a poll of new investors, many of them would not know either the full name of the company, promoter, earnings/profitability or the market cap of the company. I often ask this question to investors in seminars – which stock is costly, one which trades at Rs 100 or one which trades at Rs 10,000. People tell me stock trading at Rs 100 is cheaper. That means, people are buying shares due the recent up or just from taking tips from someone. If you can read annual reports, then don’t invest in direct equity, go via the mutual fund route. Such investors exit at the first sign of trouble.”

Patience

Nirav says that even the most experienced investors fail often, and they should learn from their failures rather than just focusing on success stories.

“History books are written by kings who win the war. People who are making money through trading are experienced. They don’t tweet when their bets go wrong. Investors are only seeing the success examples. If making money through trading was that easy, everybody would have stopped their business and started trading. People can make money in equity but it is a very long drawn game of patience.”  He points out that even Buffett has made many investing mistakes in his life as a long-term investor.

Nirav points out that there are around 5,000 listed stocks only 300 are worth investing in. Among them, 50% must be going through a bad phase, which investors could be completely oblivious to.

Nirav advises that clients should never empty their equity portfolios. “People think of their mutual fund portfolio as a bucket from where they keep taking out water (withdrawing). The real compounding happens after five years of investing. It gets easier to double your money after five to seven years,” points out Nirav.

Advice to investors

“In any field, one should learn from the best. Investors should study Mr. Buffett’s journey. You cannot become rich by staying out of equity. The best proxy to equity markets is a mutual fund and the best route is SIP. There is a lot of choice in mutual funds and not all funds are fit for every investor. So take guidance from MFD/adviser. Even if you invest in an average fund and you remain invested for 7-10 years, it can create humongous wealth. Some Indian fund managers have outperformed Warren Buffet over 10-15 years. You don’t need crypto, F&O and NFTs to create wealth. Don’t run after fast money.”

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Badrinath Iyer
Feb 8 2022 10:58 AM
 HI
The blog says hold for long term to get power of compounding.
I dont agree. I got my second Mutual fund in 2006 which was Tata Tax Advantage Fund. In 2016 I got the email that this scheme is closed and fund wont run further.

So , This is a trick to take money I guess by using a card called long term.

Are you sure that the Mutual Fund's Fund will be open ended or in functional for more than 10 years ? because I have seen in live experience ( 2006 - 2022 is 16 years now ) The fund got closed in 2016.
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