Building A Winning Equity portfolio Aimed at 10x returns over the next 10 years

Speakers: Rahul Rathi | Chairman & Fund Manager, Purnartha Investment Advisers; Sunil Singhania | Founder, Abakkus Asset Management; Samit Vartak | Founding Partner and CIO, SageOne Investment Advisors LLP;  Rajesh Kothari | Founder & MD, AlfAccurate
Moderator: Kamal Manocha | Chief Strategist, PMS AIF WORLD
Date & Time: 5^th Feb 2021; 5:30 AM to 6:30 PM

This topic is one of the real questions that any and every investor has in mind, at any given point of time as making 10x in 10 years is a return that every investor aspires to achieve.

Mr. Rahul Rathi, from Purnartha PMS believes in the concentrated portfolio approach. To invest 15-20% of an entire portfolio’s capital in a single stock, he looks at two basic parameters— 10% of consistent volume growth which reflects the relevance of customer margin, and a debt-free company, which implies that customers pay for the company’s CAPEX and working capital. He mentioned that 26% CAGR for 10 years means 10x, but for 7 years it means 5x. Thus, it is important to look for stocks that one can hold for 10 years. He further explained in detail as to why, he adopted a concentrated approach. He articulated a simple logic to explain the risk of going wrong with the research-backed concentrated approach that is followed by Purnartha.  For argument sake say 50% of the portfolio falls to zero for general systematic & unsystematic risks. The absolute is Rs 50. But, if the remaining 50% portfolio grows by 20x over 10 years, portfolio value becomes 1000 ( 10x in 10 years ). So, the bigger risk of investing in equity is not protecting the downside, but, missing the upside.

Mr. Rajesh Kothari, from AlfAccurate PMS on the other hand, believes in diversification aimed at protecting capital and then creating wealth. He says we living in a VUCA( volatile, uncertain, complex, and ambiguous ) world. By explaining the business cycle, he asserted that the fact that over 99% of the companies in India are not 100 years old. There are many factors which lead to volatilities like Governance Risk, Tech riks, and Business cycle risks, and all these are unprecedented in this VUCA world. Thus, he explained why the risk of concentrating a large chunk of money into one business is very risky; it is better to spread the money across businesses and focus on delivering superior risk is then adjusted returns.

Mr. Samit Vartak, from Sage one PMS and AIF has a firm conviction of investing in mid & small caps only. He believes that if one aspires to grow wealth at 10x in 10 years, one has to look beyond the top 100 companies as for top 100 companies the base is  very big to expect 10x returns over 10 years is rare possibility. Since mid & small caps in India are way too many, this is better universe to look for businesses which have potential for 10x in 10 years. But, yes, the risk of identifying wrong businesses is also high that is why portfolio is not too much concentrated, but comprises of 15 Small & Mid cap names with an aim to stick with 4-5 multi-baggers for long period of time. He identifies companies in manufacturing and b2b kind of businesses and coming from engineering background, it is his flair. He added, he would invest in businesses that he understands, and believes that can generate earnings of 10x in 10 years, for which he looks to find out best companies with respect to capability of capturing a large chunk of market share over time.

Mr. Sunil Singhania from Abakkus PMS and AIF is seen a one of the masters of Value Investing which is most difficult knack. He mentioned, that value without growth has no meaning, so though he is seen as a value investor, he is always looking for growth foremost, and is averse to investing in companies which are expensive as to him, those look like bubbles where one is being too much positive about the future, which obviously is uncertain. Since disruption is the order of the day, one cannot buy anything blindly and valuation at the time of investing is important. He added that investing at any price in so called quality names, is a trend which has become popular over last 4-5 years, but history shows that it doesn’t work for ever. He explained mathematically, when one invests in a company at 70-80 PE, and if growth rate of earnings is average 10-15%, to achieve 10x returns in 10 years, PE will have to grow to 500 which is impossible. He added that, so called perceived consistent compounders got un-due flows in last 5 years, as economy was on down-trend. He believes in traditional form of investing, where while investing, one aims to become partner in the companies’ earnings, as that is what matters to stock market. He added, in an economy where real GDP is 6-7% and nominal GDP at 10-11%, assuming 26% portfolio’s earnings consistently over a decade, for 10x returns over 10 years is next to impossible at a portfolio level unless, one is lucky with identifying businesses which see PE re-ratings and so, investing in expensive names & hoping for 10x in 10 years is not a logical argument.