ET OnlineBy Amit Jain
In a world where new disruptive technologies and emerging business ideas are challenging traditional businesses or even questioning their existence every day, can you keep sitting tight on your investments forever? We believe If an investor seriously wants to make money on his Investment, he should discard old school of “holding too long” and should switch to the new line of thinking: “invest right, switch at the right time.”
This new Investment philosophy is applicable to all economies, asset classes and businesses. I always believe numbers speak louder than words, so I shall share some numbers to build on this theory.
If you go back to late 1990s, the top four economies of world were the US, Japan Germany, and UK. They were in a competition of exporting manufactured goods to each other. Their economies had underlying business models of manufacturing which was an “asset heavy” business model with too much of capital invested in land, labor, plant, machinery, and so on.
Those days the US and Japan were in close competition. In that race, the US Economy had made the “timely switch” from the asset-heavy business model to the asset-light model of IT Industry, after the dotcom bubble in early 2000s. This timely shift had made the US a Superpower. Today the US GDP is almost 400% higher than Japan. Today all leading companies in the world are from the US, right from Apple to Google to Microsoft. This is what I call the power “timely switch.”
Even Indian Economy has transformed its business model from the agriculture-based business model to industrial to service economy from 1950s to 2020s. This is what made India the fifth largest economy in the world from the 13th largest economy in late 1990s.
Even stock markets and large corporate houses do follow the timely switches. If you observe the NIFTY composition, since 1996 to 2008 , it was dominated by asset-heavy business model companies like ONGC, GAIL, Reliance, DLF, JP Associates, etcetera. If you see the NIFTY composition from 2009 till 2020, it is dominated by asset-light business model companies in the service sector like HDFC Bank, HDFC, TCS, Infosys, etcetera.
If you followed the theory of holding for too long and remained invested in these stocks since 2008, you hardly would have made any serious money in the stock market. That is why you should opt for timely switches to sectors and companies, keeping in line with the economic shift. Even the BSE Sensex also followed same strategy of 'investing right and switching on time,' and generated a CAGR of close to 14% in last thirty years. Interestingly, only 7 stocks have stayed in the Sensex from 1989 till date, the rest of 23 stocks were switched out of Sensex due to declining Industry cycle and changing business models.
Take the examples of large corporate houses like Tata. Even they changed their business models from “Capital Intensive Sectors” ( Tata Steel, Tata Motors, etc ) to “ Knowledge Intensive Sectors” in early 2000s (TCS). Today TCS profit is equivalent to all other 20+ Companies of TATA group. Even Reliance Group is also switching timely from “ Oil & Gas business‘ to “ Retail & Technology business.”
For Reliance group, the new-age business of Reliance Jio had built the same valuation in the last six years what their traditional business of oil & gas had done in the last 40 years. If we closely observe these corporate giants of India, they are also following the school of investing right and making timely switches.
Now, we will discuss investments in various asset classes. In my view, there is nothing called good or a bad asset class. It is your entry and exit that make them good or bad investment for you. Each asset class has its own cycle, weather it is equity, gold, real estate, commodity, precious metal or any other asset class. You choose your entry & exit points carefully, with help of advisors who understand global economic cycles and their impact on various asset classes. A good asset class may become bad, if you don’t exit timely. Real Estate is a classic example Any Investor who entered in real estate after 2013 had hardly made any money.
If you closely observe mutual funds as whole, you will find this as universe of various investment themes like large cap, mid cap, small cap, multi cap, accrual debt, duration debt, arbitrage, equity saving schemes, and so on. Can we use the new theory of investing right and timely switches here? Of course, you can.
I will explain this with a recent example of a client. On 16th January 2020, at very initial stage of Covid-19, we were very cautious on stock markets. We advised all our investors to move from equity mutual fund category to arbitrage funds to protect their gains till that date. This worked as magic as this timely shift within investment themes has not only saved all their gains till that date, but also with timely exit on 16 January and timely entry on 24 March, they generated an additional 52% ROI in just five months, compared to anyone who did not exit from equities.
(Amit Jain, Co- Founder and CEO, Ashika Wealth Advisors, a wealth management firm based in Mumbai)
In a world where new disruptive technologies and emerging business ideas are challenging traditional businesses or even questioning their existence every day, can you keep sitting tight on your investments forever? We believe If an investor seriously wants to make money on his Investment, he should discard old school of “holding too long” and should switch to the new line of thinking: “invest right, switch at the right time.”
This new Investment philosophy is applicable to all economies, asset classes and businesses. I always believe numbers speak louder than words, so I shall share some numbers to build on this theory.
If you go back to late 1990s, the top four economies of world were the US, Japan Germany, and UK. They were in a competition of exporting manufactured goods to each other. Their economies had underlying business models of manufacturing which was an “asset heavy” business model with too much of capital invested in land, labor, plant, machinery, and so on.
Those days the US and Japan were in close competition. In that race, the US Economy had made the “timely switch” from the asset-heavy business model to the asset-light model of IT Industry, after the dotcom bubble in early 2000s. This timely shift had made the US a Superpower. Today the US GDP is almost 400% higher than Japan. Today all leading companies in the world are from the US, right from Apple to Google to Microsoft. This is what I call the power “timely switch.”
Even Indian Economy has transformed its business model from the agriculture-based business model to industrial to service economy from 1950s to 2020s. This is what made India the fifth largest economy in the world from the 13th largest economy in late 1990s.
Even stock markets and large corporate houses do follow the timely switches. If you observe the NIFTY composition, since 1996 to 2008 , it was dominated by asset-heavy business model companies like ONGC, GAIL, Reliance, DLF, JP Associates, etcetera. If you see the NIFTY composition from 2009 till 2020, it is dominated by asset-light business model companies in the service sector like HDFC Bank, HDFC, TCS, Infosys, etcetera.
If you followed the theory of holding for too long and remained invested in these stocks since 2008, you hardly would have made any serious money in the stock market. That is why you should opt for timely switches to sectors and companies, keeping in line with the economic shift. Even the BSE Sensex also followed same strategy of 'investing right and switching on time,' and generated a CAGR of close to 14% in last thirty years. Interestingly, only 7 stocks have stayed in the Sensex from 1989 till date, the rest of 23 stocks were switched out of Sensex due to declining Industry cycle and changing business models.
Take the examples of large corporate houses like Tata. Even they changed their business models from “Capital Intensive Sectors” ( Tata Steel, Tata Motors, etc ) to “ Knowledge Intensive Sectors” in early 2000s (TCS). Today TCS profit is equivalent to all other 20+ Companies of TATA group. Even Reliance Group is also switching timely from “ Oil & Gas business‘ to “ Retail & Technology business.”
For Reliance group, the new-age business of Reliance Jio had built the same valuation in the last six years what their traditional business of oil & gas had done in the last 40 years. If we closely observe these corporate giants of India, they are also following the school of investing right and making timely switches.
Now, we will discuss investments in various asset classes. In my view, there is nothing called good or a bad asset class. It is your entry and exit that make them good or bad investment for you. Each asset class has its own cycle, weather it is equity, gold, real estate, commodity, precious metal or any other asset class. You choose your entry & exit points carefully, with help of advisors who understand global economic cycles and their impact on various asset classes. A good asset class may become bad, if you don’t exit timely. Real Estate is a classic example Any Investor who entered in real estate after 2013 had hardly made any money.
If you closely observe mutual funds as whole, you will find this as universe of various investment themes like large cap, mid cap, small cap, multi cap, accrual debt, duration debt, arbitrage, equity saving schemes, and so on. Can we use the new theory of investing right and timely switches here? Of course, you can.
I will explain this with a recent example of a client. On 16th January 2020, at very initial stage of Covid-19, we were very cautious on stock markets. We advised all our investors to move from equity mutual fund category to arbitrage funds to protect their gains till that date. This worked as magic as this timely shift within investment themes has not only saved all their gains till that date, but also with timely exit on 16 January and timely entry on 24 March, they generated an additional 52% ROI in just five months, compared to anyone who did not exit from equities.
(Amit Jain, Co- Founder and CEO, Ashika Wealth Advisors, a wealth management firm based in Mumbai)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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