Vaibhav Sanghavi from Avendus shared his insights on Risk Mitigation at PMS AIF World Summit 2021

Session: Role of Alternative Investment Strategies for Better Risk-Adjusted Returns in 2021 and The Decade Ahead
Speakers: Vaibhav Sanghavi | Co-CEO, Avendus Capital Public Markets Alternate Strategies LLP
Date & Time: 5^th Feb 2021; 04:00 PM to 04:25 PM

Mr. Vaibhav Sanghavi began the session by highlighting the risk adjusted return parameters and gave a world view of Investments in stocks and how risks and behaviour are intertwined. In this regard, he first shared a few interesting quotes mentioned below:

“It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” -Charlie Munger

“Invest for the long haul. Don’t get too greedy and don’t get too scared.” – Shelby M.C. Davis

“The investor’s chief problem – and his worst enemy – is likely to be himself. In the end, how your investments behave is much less important than how you behave” – Benjamin Graham

“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices” – Warren Buffett

A few takeaways from these quotes are: returns are high when invested for super long terms, early investments into multi-baggers will help generate wealth in a sustained manner, and that equity is one of the best asset classes, in terms of return.

The questions that then come up are: How many investors today do haul their investments for more than 5 years or 15 or 25? How many investors today have multi-baggers in their portfolio? and despite equities being the best asset class, why has the investor experience been so negative, in general?

The answer to all the above questions is Risk. Even though returns are the central aspect of any investment, most of us often forget an inherent factor which is risk. It is very important to be able to assess the risk that one needs to bear along with being able to be objective with the risk.

We should look out for risks, have the ability to assess risks, and we should counter our behavioral aspects to independently and objectively, evaluate the risks.

Taking a cue from ‘The Game of Dice’ story from The Mahabharata, he shed light on three things. Just like Yudisthira participated in the game without really knowing the risks of the game, he bet against all odds, had no control over his premise, and lost all stakes. Three learnings for the market from this story are: betting against odds (investing at high valuations) is unreasonable, no control over psychology [not having a discipline of stop loss] can make one lose a lot of stake, no risk mitigation strategy [hedging- derivatives or put/call options] is likely to lead to losses. These mistakes destroy wealth in search of returns.

With the help of 2 charts: Nifty Index since 2006 to date and Net subscriptions by Investors in MFs, he explained risks and behavioral aspects. What one could observe was that at the peaks, people would come into the markets and at the bottoms, the redemption cycle would begin. At the end of the day, human beings will let emotions come into play, and to mitigate such emotions, risk-adjusted strategies are important. Risk mitigation is one of the cornerstones for investment and this will lead you to invest in strategies which are adjusted for risk. It is also important for each investor to understand the various risk nuances associated with his investment.

Thus, to build wealth over the long term, “Sustenance” is the key because one has to have control over one’s emotions and remain invested. And, this where comes the role of Alternative investment strategies that focus on risk-adjusted returns and not just absolute returns. At Avendus, this is the foremost differentiation offered across products – be it one of the most popular AIF – Avendus Absolute Returns Fund (CAT 3 Long Short Fund) which has a phenomenal track record of having generated one of the best risk-adjusted returns in the category, or be it the newly launched PMS – Avendus ESG Portfolio which is focused on investing in those businesses which are compliant to the environment, society and score high on corporate governance. All in all, the ultimate objective is to mitigate risk and deliver superior risk-adjusted returns.