‘Recent History’ – an oxymoron, as history is typically measured in decades if not more.
However, given that most PMS funds, hedge funds and all kinds of investors proclaiming their vision and CAGR all over the place by choosing a very convenient 2009-2011 start dates/years to calculate their CAGR, I think ‘recent history’ would serve as a good reminder for all of us that mortality (in investing, as in life) is a good idea to revisit now and then.
Take a look at this snapshot and spend some time reading through the image:
An emerging STAR fund. Or you can call it by any other name. Portfolio as of Jan 2008. The name of ICICI is not even relevant here, as most mid-cap and small cap funds (and other funds masquerading as value funds) ended up in a similar fate in the great crash of 2008.
Look at the holdings of this fund in detail and ponder. Ponder for a moment, and especially on these lines:
a) The holdings in the portfolio were THE emerging names – with ‘quality’, ‘management integrity’, ‘scale of opportunity’ written all over them – back in 2008. Like we have many names now. With all three adjectives being attached to many of the names.
b) Access to Investing wisdom is not new (already available in 2008). Even the fund managers of ICICI STAR fund had access to a lot of investing books and Buffett’s letters.
c) Scuttlebutt is not new. Fund managers have had access to managements for as long as one can remember.
d) Access to networking is not new. Fund managers have always been widely networked. Only that networking has got more democratic because of technology (and especially whatsapp). Previously, there might have been panics in bursts. These days, there is a panic every day because of costless distribution of any written word.
d) Asset heavy businesses got massacred. Oh, well. We “know” about this now – we never invest in asset heavy businesses, right? Wait till the replacement cost bull market takes over.
d) Asset light businesses also got massacred. Either because the management turned out to be fraud or their industry turned out to be irrelevant.
e) What you don’t see in the snapshot is the price multiples one might have paid for those businesses. Given that ‘infra’ was all the rage back then, the P/E multiples were also high, pretty much with similar explanations that we are attributing to some sectors these days.
There are many more points to ponder just by looking at this image, which is basically a snapshot of the investing theme/rage back then.
Now ponder:
i) Why do you think your portfolio of 2015 is not like the STAR fund portfolio of ICICI of 2008?
ii) What makes you ultra-confident (dare I say, cocky)? [I pretty much assume all of us are going to say ‘nope’ to i) above]
iii) What are the steps one might want to take/plug your learnings to not repeat i) and ii) above? [Hint: Whatsapp/Investing forums is definitely not the answer]
George Bernard Shaw made an epic statement when he said – “We learn from history that we learn nothing from history”. The history of markets is replete with same mistakes repeated over and over again, each time with a different twist (mostly unimaginable/black swan).
Given the proliferation and access to information, let us atleast attempt to learn from history this time? I started with an oxymoron, and I think I ended with one 🙂
P.S: Post inspired by a conversation with a friend who chooses to be anonymous, but is bloody brilliant.
P.P.S: If you think ICICI STAR fund didn’t really tickle your senses, and you are craving for more, here is a more elaborate chart on an assortment of businesses – more varieties than you can find in a Walmart store – quality, scale of opportunity, management integrity, vision, mission, goal, rags-to-riches, first generation promoter – choose your poison – and the current market value is not even 1/10th of what it was.
Quest for Value 