Last month ie April 2024, the Nifty and Sensex reached dizzying levels once again. Later in mid May with uncertainty (anxiety rather) about the election results, the markets fell four days in a row before recovering somewhat at the time of writing this.
From a broader picture, as we see the stock market reaching new peaks, it’s not the golden era for every investment style. It is a time to reflect and see if one needs to fine tune the strategy, to one that acknowledges the stark shifts in market leadership and investment styles reminiscent of the 2003–2008 bull run period.
A decade ago, investment management was arguably more straightforward. A robust sector rotation strategy could generally keep you in good stead. But now, the dynamics have evolved significantly. The sectors that once led the bull charge, like capital equipment, heavy-industry and infrastructure, passed the baton to technology and consumer-driven sectors. These sectors not only held the promise of robust returns but also offered agility to navigate through market volatility.
Investment styles have also transformed over the last decade or two. Where once capital was king, now the focus has sharply pivoted towards sustainable revenue growth and cash flow efficiencies. The so called ‘consistent compounders’ are no longer the default heroes in this era. Instead, agile and innovative enterprises that can pivot at a moment’s notice are capturing the spotlight in this age of Generative AI.
For a portfolio manager like us, these shifts present both a challenge and an opportunity. The challenge lies in continuously adapting to these rapid changes without losing sight of the foundational investment principles of allocating one’s assets to: liquidity, safety, and growth — what we at Jama Wealth call the “LSG framework”.
Investment Philosophy Still Matters, ‘Roots & Wings’ For Us
The importance of adhering to a well-defined investment philosophy cannot be overstated, especially in turbulent market conditions. Let’s admit that when new peaks are conquered, turbulence ensues. The Roots and Wings investment philosophy, guides the building portfolios that are not only resilient but also primed for growth over the long term. This philosophy is distinguished by its dual focus: “Roots,” which emphasises investing in companies with robust fundamentals—such as strong balance sheets, low debt, high return on equity, and exceptional management teams; and “Wings,” which seeks companies displaying consistent revenue and profit growth, alongside market leadership.
Adopting the Roots aspect ensures that the investments are safe and stable, providing a solid foundation much like the sturdy roots of a banyan tree that support the immense structure above. This part of the philosophy acts as a safeguard against market volatility, ensuring that the portfolio remains robust even in downturns. On the other hand, the Wings aspect allows the portfolio to soar, capturing the potential upsides from emerging market leaders and innovators. This is simialr to having a kite that can ride the wind’s changes, leveraging updrafts to climb higher.
One feature (not a bug) is that this does not try to predict new themes or sectors and try to ride single ponies. There are many fund managers who launch 15 to 20 schemes each riding a sector. One or two will outperform and will then get out-marketed. This is something we wish to avoid and instead stick to diversified portfolios that ride out tough times and dont get too carried away in good times. The net result is a healthy long germ Cumulative Annual Growth Rate (CAGR). We see investing as a marathon and not a sprint. After all it mirrors life.
Together, these elements enable a portfolio to not only withstand the test of time but also to thrive. They ensure that investments are not just surviving market fluctuations but are also positioned to benefit from the growth trajectories of leading enterprises. Over long periods, this approach aims to compound wealth effectively, turning what might seem like modest gains in the short term into substantial returns over decades. The philosophy’s balanced attention to both preservation and growth is crucial for any investor looking to build a lasting legacy in the financial markets.
Thus, embracing a philosophy like Roots and Wings is not merely about selecting stocks but about crafting a comprehensive strategy that evaluates each potential investment through a lens of both quality and growth. For investors aiming to build a durable and thriving portfolio, understanding and implementing such a philosophy can be the key to unlocking sustained financial success.
Adapting Strategies for Success
Portfolio managers these days are being forced to think more critically and act more strategically. The old playbook of banking solely on sectoral performance has given way to a more nuanced approach that values adaptability and foresight. There are still some fund managers and online warriors who will conjure about 20 sectoral strategies knowing fully well that atleast 3 or 4 of them will outperform at any given point in time. The trick is in entering and exiting those sectors at the right time which the conjurer himself or herself does not know when. They are happy taking investors for a ride as long as some ‘schemes’ are performing.
The converse of this approach, and one that is investor friendly is to look at long term portfolios that are not designed for topping some charts, but for creating genuine long term wealth. Such fund managers (which includes yours truly) hold conviction and wear through storms with an aim to create wealth that achieves and retains financial freedom. Investing for them, is much beyond simple stock picking. It requires a deep understanding of market cycles and waiting through them, understanding investor sentiment so that one can guide through turbulence, and above all, a steadfast adherence to quality and consistency in investment decisions.
Conclusion
So to conclude, what does this mean for you, the investor? It’s essential to stay engaged with your investment strategy and be prepared to adapt as the market evolves. Whether you are managing your portfolio with a SEBI Registered Portfolio Manager, or working with a SEBI Registered Investment Advisor, staying informed and responsive to change is crucial. For those looking for guidance, consider engaging with a trusted advisor who can provide insights and strategies tailored to these changing times. At Jama Wealth, we specialise in portfolio management services and investment advisory that align with the Roots and Wings investment philosophy—ensuring strong fundamentals and potential for growth.
