Unpacking Investment Strategies with a Veteran Fund Manager

30 min with $7Bn Fund Manager, 25 Years of Investing Revealed | 1% Club Show Ep 59

Estimated read time: 1:20

Summary

The 1% Club Show's Episode 59 features a stimulating conversation with Ashi Somaya, a veteran in India's mutual fund industry. Delving into the nuances of investment psychology, Somaya discusses his unique portfolio balance between equities and real estate. Challenges like balancing risk aversion in investments and timing the market are discussed, alongside insights into India's evolving economic stature and how it will impact future investors. Through personal anecdotes and seasoned advice, the episode provides both informative and engaging perspectives on navigating the investment landscape.

Highlights

The Nobel Prize awarded to those studying investment psychology highlights its importance in markets 🧠
Ashish Somaya emphasizes on having a balanced portfolio of 50% equities and 50% real estate 💼🏢
The episode explores India's transition to a middle-class economy and its investment implications 🌍
Unique insights into amortizing commercial real estate investments for future retirement plans 🏗️
Practical advice is given on adjusting asset allocations based on market valuations 📊

Key Takeaways

Investment psychology trumps complex mathematics in market success 🎓
Youngsters should leverage real estate as an initial investment asset 🏠
Human emotions heavily influence investment decisions 🎢
Real estate and equity markets are closely linked; diversification is key 🔀
India's economic growth presents exciting future opportunities for investors 📈

Overview

In a lively discussion on the 1% Club Show, Ashish Somaya, a veteran fund manager, brings to the table over two decades of experience in the financial markets. Listeners dive into the oft-overlooked psychological aspects of investing, a crucial element that can make or break financial success. Somaya makes a compelling argument for the early adoption of real estate investment, especially for younger investors seeking leverage that traditional stocks can't offer.

The talk takes a deep dive into portfolio management strategies where Somaya shares his unconventional balance of 50% equities and 50% real estate holdings. Positioned as a contrarian amongst his peers, he elaborates on how both sectors are economic barometers, thus reinforcing the importance of diversification. Also discussed is the juxtaposition of risk-seeking entrepreneurs vs risk-averse salaried individuals—and how both can optimize their investing approaches.

A focal point of the conversation is India's journey toward becoming a significant economic player. With the demographic dividend in its favor, young investors today have opportunities unimagined by past generations. Somaya gives practical tips on asset allocation and timing, emphasizing how future financial goals, coupled with disciplined investing and market awareness, can lead to substantial gains.

Chapters

00:00 - 01:00: Introduction to Market Psychology The chapter 'Introduction to Market Psychology' emphasizes that success in the financial markets relies more on understanding human psychology than mathematical calculations. This perspective is supported by the fact that, over the past two decades, the Nobel Prize in economics has been awarded twice to researchers focused on human psychology. An essential piece of advice given is to be contrarian in your investment approach by being 'greedy when others are fearful and fearful when others are greedy,' highlighting the role of others' emotions in market dynamics. The chapter also offers a glimpse into the author's portfolio comprising 50% equity and 50% real estate, noting the unconventional nature of including real estate in an investment strategy that traditionally might discourage it.
01:00 - 02:30: Real Estate vs Market Investment The chapter discusses the differences in investment strategies between real estate and the stock market. It explains why young investors often opt for buying a house, highlighting it as the only asset for which they can easily obtain financing. The chapter also touches on the inherent risks, using a spring analogy to describe market volatility - when compressed (prices fall), there is potential for significant recoil (price recovery).
02:30 - 05:00: Interview with Ashi Somaya The chapter features an interview with Ashi Somaya, the CEO of VTO Captain, who has 20 years of experience in India's mutual fund industry. The conversation highlights his career journey, starting from ICICI Prudential Mutual Fund to becoming the youngest CEO at Motilal Oswal AMC. It also focuses on the comparison between stock market investments and real estate investments, emphasizing the challenges and indicators for timing investments in real estate, unlike the more predictable stock market corrections.
05:00 - 08:00: Market Psychology and Investment Strategy The chapter delves into the journey of a leading asset management professional who oversees assets exceeding ₹73,000 crore. It explores his transition from managing billions to establishing White Oak, highlighting the mindset required for retail investors to create wealth. The discussion further covers the evolution of India's investing behavior with insights into the future potential of India's market over the next five years as a key indicator for investment decisions.
08:00 - 12:00: India's Economic Future and SIPs The chapter discusses the psychological impact of market fluctuations on investors. It highlights that during booming markets, investors are optimistic and have a long-term vision, even more than company promoters. However, in downturns, they become skeptical, questioning past data and the company's financial health. The text also touches on the influence of psychological factors in economic trends, noting that behavioral economics has been recognized by the Nobel Prize twice in the past two decades.
12:00 - 15:00: Understanding Base Rates and Market Returns The chapter titled 'Understanding Base Rates and Market Returns' emphasizes the importance of psychology over mathematical analysis in the context of investing. It highlights the fact that while investors often spend extensive time analyzing a company's financials, understanding human psychology can provide a significant advantage. The discussion suggests that controlling emotions is crucial for successful market participation.
15:00 - 18:00: Asset Allocation and Market Timing In this chapter titled 'Asset Allocation and Market Timing,' the analogy of a roller coaster ride is used to illustrate emotional responses to market changes. Just as a roller coaster brings a mix of fear and excitement as it climbs, investors often experience similar emotions when facing market fluctuations. The key takeaway is that having conviction, even during market volatility, is crucial. This means not losing confidence at the first sign of trouble, akin to staying calm despite the highs and lows of a roller coaster. The chapter highlights the importance of maintaining a strategic approach to asset allocation, without being swayed by short-term market movements.
18:00 - 23:00: Market Corrections and Psychology This chapter metaphorically compares market corrections to a roller coaster ride, highlighting the psychological experience. It describes the exhilarating climb and peak - akin to market highs, where one feels on top of the world, only to be followed by an inevitable decline, similar to market corrections. The narrative captures the emotional highs and lows investors experience.
23:00 - 26:00: Impact of Global Markets on India The chapter titled 'Impact of Global Markets on India' uses the analogy of a roller coaster to describe emotional and market volatility. It illustrates the excitement and thrill during market climbs, akin to the joy of reaching a peak on a roller coaster. However, the descent represents the fear and discomfort during market downturns. These emotions reflect the unpredictability and emotional toll of global market fluctuations on investors, especially in the Indian context. The narrative captures the exhilaration and regret experienced by investors, akin to the decision to never ride again, symbolizing withdrawal from volatile investments.
26:00 - 29:00: Current Portfolio Insights and Strategies The chapter discusses the psychological aspects influencing financial decisions, particularly focusing on how emotions can lead to mistakes in investing. It highlights that individuals who opt for salaried positions often do so for the stability of a monthly paycheck, intrinsically aligning them with a fixed income mindset. This intrinsic psychological orientation towards fixed income should guide their investment strategies.
29:00 - 32:00: Real Estate Investment Insights The chapter discusses the dynamics of investment strategies, particularly focusing on real estate investment. It distinguishes between different types of investors: entrepreneurs/businessmen with fluctuating fortunes tied to business market values and those with fixed incomes. The narrative suggests that while the former should consider stabilizing their investments by putting money in the bank due to their exposure to market volatility, it is often those with fixed incomes who avoid risks. This creates a contrast between expected and actual investment behaviors.
32:00 - 35:00: Equity Portfolio Management The chapter discusses the natural tendency of individuals to be either risk-averse or risk-seeking when it comes to financial decisions, specifically in equity portfolio management. It highlights the challenges people face in balancing these tendencies. An anecdote about someone expanding their business by setting up a third factory and taking loans is used to illustrate the hurdles in maintaining this balance. The chapter also touches upon optimism about the future, particularly for younger generations in the age bracket of 25 to 30 years, who are considered to have promising prospects.
35:00 - 38:00: Private Equity and Venture Capital The chapter titled 'Private Equity and Venture Capital' discusses India's economic transformation towards becoming a middle-class nation. The narrative emphasizes the demographic dividend that India is poised to capitalize on in the coming 20 to 30 years, highlighting that the country's population will mainly be of productive age. This demographic shift is expected to occur as the younger population transitions from being primarily children 15 years ago to becoming the main workforce before eventually aging towards retirement. This context sets the stage for the discussion on private equity and venture capital within the framework of India's economic progression.
38:00 - 42:00: Rapid Fire Questions The chapter delves into two contrasting viewpoints regarding Systematic Investment Plans (SIPs) amidst India's evolving economic landscape. As India emerges as a leading consumer and labor force, one perspective advocates for maintaining SIPs regardless of market fluctuations, emphasizing the advantage of buying at lower prices during market downturns. Conversely, the alternative viewpoint stresses the importance of market timing to optimize investment outcomes.

30 min with $7Bn Fund Manager, 25 Years of Investing Revealed | 1% Club Show Ep 59 Transcription

00:00 - 00:30 Making money in the market is less maths and more psychology. This is why if you see last 20 years twice the Nobel Prize in economics has been given to people who study human psychology. I I often remind people that when you know when you say be greedy when others are fearful be fearful when others are greedy. The important words are not greed and fear. The important word is others because the brownie is for being what is your portfolio looking like today as we speak. give or take 50/50 plus minus 5% 50% equity 50% real estate which is sort of like kryptonite for your industry saying that hey don't put
00:30 - 01:00 in real estate put here in the markets so why do you have such a different investing strategy why I speak about buying a house it's the only asset for which a youngster can get finance because there are cons also it's not just pros see what is the cons in this if there is a spring which is 10 cm you compress it 50% it'll become 5 cm if you release it how much will it recoil At least you'll recall 100% right. Correct. Yeah, that's the correct visualization because when stock prices fall it it there is a limit to how much it can
01:00 - 01:30 fall. See, I understand in the stock market is easy to understand when it's a good time to invest when the market corrects. In real estate, how do I know that this is a good time to invest in real estate? Uh in today's episode of the 1% club show, we sit down with Ashi Somaya, CEO of VTO Captain and a vet with 20 years of experience in India's mutual fund industry. After working at ICIC credential mutual fund, Somaya became the youngest CEO at Motilal Oswal AMC. Today, Ashish is one of only 45 CEOs
01:30 - 02:00 leading India's top AMC's overseeing assets exceeding rupees 73,000 cr. We dive into his journey from managing billions to building white oak, the mindset retail investors need to create wealth and how India's investing behavior is evolving. So what is your expert opinion of the future of India for the next 5 years? Because that is a very good uh indicator for investors that should I continue to invest in the market. On a lighter note,
02:00 - 02:30 I tell people a lot of times that when the markets are booming and when returns are looking great, investors have more vision or longer vision than even the promoter of the company. But when the stock prices are falling and markets are doing badly, forget the future and the vision. People start questioning the past also like you said. I mean was that data correct? I who was the auditor? I mean was it just inventory and receivables or was there actual cash flow and the profit? Right. Right. So uh you know this is all about psychology. This is why if you see last 20 years twice the Nobel Prize in economics has
02:30 - 03:00 been given to people who study human psychology because making money in the market is less maths and more psychology. Right. Yeah, that's a very interesting point, right? Because like you said, um I can spend hours and hours looking into the financials of a company and making an investment decision. Uh but what you're saying is that there is more um benefit or there's more advantage to understanding human psychology when it comes to investing. Uh can you go deeper on that? Yeah, because you know it's more important to control emotions. See
03:00 - 03:30 I can like you rightly said I can I can have the best of analysts or I can myself be a great analyst but at the first hint of trouble if I lose all my conviction and start questioning man why why am I here right right I think the best proxy like I told you spring the best proxy is a roller coaster and you and me all of us have been on a roller coaster right when you know just think of it now feel this when a roller coaster is going up and up and up and up how do you feel I feel the the fear increasing little bit little bit the or the excitement increasing excitement
03:30 - 04:00 increasing that I I even remember that when a roller coaster is going up at some point in time it can't go up further the gears crank and it pushes you further and next round of climb begins at the peak you know if you're in Hong Kong Disney you will see the whole ocean and you will feel wow man great decision we should come here once in a year right you know you say nice things to your partner or wife or mother or whoever you are with right but what happens after that like you're right there what happens after that after that is when you know it starts going down
04:00 - 04:30 And then what's your emotion? First it was excitement, ecstasy. What is the emotion when it's hurtling down? When it's hurtling down to the same partner, you say, "Man, I came here because of you. Next time, please don't push me to get onto a roller coaster. I just hope this bloody thing stops and I get out of it." The moment it stops, I'm going to get out of here, right? And let's just go for a meal. I'm never coming here again. Correct? So emotions like why did I give you this example? Because the peak is a extreme and mean hurtling down is a extreme. When human beings are
04:30 - 05:00 exposed to extremes, that is when their emotions get triggered. Triggered and when emotions get triggered is when people make mistakes. Especially when it comes to finance, investing. So anybody who's a salaried individual, they did not become entrepreneur. They did not start a business because they want a monthly paycheck. Correct? So by psychology, intrinsically you're a fixed income guy. M if you're a fixed income guy intrinsically by profession you're fixed income your investment should be
05:00 - 05:30 equity right because that is what gives you growth and upside correct in fact I can argue that people who are entrepreneurs or businessmen whose entire fortunes are linked to the value of the business which is listed in the exchange and goes up 5% up and down practically every day they should be putting money in the bank because you know they are fully exposed correct but what happens in the real world the guy who's fixed income is the one who says I can't take risk. Correct. And the guy who's a entrepreneur, businessman, he's setting
05:30 - 06:00 up his third factory. Right. Right. So there are and taking loans for that and taking loans. So what happens is that people by nature is very difficult to balance. People by nature are either risk averse or risk-seeking. But I think you know when you were mentioning about I think somewhere I interjected you were mentioning about the future uh you know uh of the country and correct. So look, I am very very uh excited. The reason being that people who are 25, 30 years old today, their
06:00 - 06:30 investment journey and their careers are going to coincide with the phase when India becomes at least a middle-ass country. Yeah. You know, we've been poor and lower middle class up until now. And in the journey of any country, there will always be that phase where maximum number of people are of productive age. You know, because 15 years back in India, most people were kids, right? And I believe that 30 35 years later most people will be older or nearing retirement. Right? But next 20 30 years what's going to happen is that most people in India will be between 20 and
06:30 - 07:00 60 and at the productive age. Correct? So in the next few years it's well known that India will be the biggest consumer force and the biggest labor force. Now going back to the question on SIPs, there are two schools of thought here. One school of thought says that no matter what is happening in the market, don't stop your SIPs because even when the market is not performing well, you are getting you know your investments at a lower price. Yeah. But there's another school of thought which says that hey if you do a little bit of effort you can do uh proper timing right basically like if
07:00 - 07:30 the FIS are leaving India right they're doing it for a certain reason they're thinking that okay Chinese market is more attractive or because the US bonds are more safer and you know more you know return generating than the Indian market so why will I put in the Indian market so is the thinking that if you are a amateur investor just invest and forget but if you have some time and you know um interest you can do some research and you can time the assets really well. Maybe not time the stock
07:30 - 08:00 but time your asset allocation really well like maybe you need to you should have realized that you know the Indian market was overvalued maybe four five months back you should have exited your investments you know kept it in cash or maybe invested in the Chinese market because that was looking very attractive. So which school of thought is correct and what would you recommend? So what happens is that people need to be mindful of base rates. By base rates what I mean is that if you go India's liberalization 199192 so now we are 32 33 years down the line in 33 financial
08:00 - 08:30 years India's nominal GDP growth is 12 1/2%. Say 6 and a half% growth and 6% inflation roughly. Yeah. So basically if the um uh growth of the Indian economy has been 6% uh you need to add inflation on top of it because the relative price has increased and when you add up those two things it becomes 12. What is that called? Real nominal. That is called nominal. Nominal. Fine. Nominal minus inflation is real. Right. Right. Got it. But uh so you know what happens is that
08:30 - 09:00 uh if that's the nominal growth, the fact is that for Sensex, Nifty, all these indices which we track the earnings of their companies is also in that vicinity 12 to 13% over last 30 years. Growth of earnings. Earnings means profits. Profits. Profit growth has been 12 13% of the biggest companies in Nifty and Sensex. Absolutely right. And the fact is that the price movement of Sensex and Nifty meaning the growth in the index itself. So GDP growth, profitability and the stock price that itself has also compounded about 12%.
09:00 - 09:30 Plus these companies you know there is 1 and a half to 2% dividend per year. So the actual movement of Sensex and Nifty itself is 14%. M so what happens is that you know if you invest in good mutual funds you may have got 16 17 or you know somebody says forget mutual fund index itself is 14 why I said base rate means that if you get 14 15% that's the long period average that's how it works that's how it does but if you saw September 2024 and then
09:30 - 10:00 we are talking this asset allocation discussion at the peak you take 3 years you take 5 years you take 10 years people were sitting on 18% % 20%. You know so when people get returns much more than past averages when people get returns much more than what was originally expected or guided for then they should know that okay it's not like I am a star you know it's just that you know right now this frenzy it's there is a frenzy see if the long period
10:00 - 10:30 average is 15 how can you earn more than 15 basically how can you how can you earn more than what the country itself has got yes yeah so it will only happen that you know like look the long period average is 15 but last 5 years I am earning 20 so at some point in time it has to go well below 15 for the average to match up right correct so this is sort of like the buffet indicator as well right it looks at the ratio of the GDP and the market valuation of the marketap companies so yeah so you know
10:30 - 11:00 if next 3 4 5 years of GDP growth corporate performance if everything is being factored into the market cap that is when you get much more than the base rates. So let me I have ask a question. Let's say I have uh 10 lakh rupees invested in the stock market. Now as per what you are telling me, I've realized that okay now the market is looking overvalued. Uh is the implementation plan to exit that entire 10 lakhs or is it a certain percentage of that 10 lakhs because I know I'm not sure 100% sure whether I'm good at timing. Yeah. So
11:00 - 11:30 timing also you know see you should never do blatant timing if you so the answer short answer to your question is not the if 10 lakhs is your corpus right and you started by putting everything into equity and you know suddenly you are finding that boss in a matter of 3 years 10 has become 50 you know and it's you know given you like so you know if 10 sorry 10 has become 15 in 3 years it is up by 50%. Which means it has been like a 16 17% which is fine but if say 10 had become 20 in 3 years right so it's 25% compounded it's a very high
11:30 - 12:00 number so out of the 20 you at least put 10 into fixed income and let only 10 remain there correct only then when the market falls you will have some available to plow it right back makes sense correct now what happens is that uh it's easier said than done and that is why Mr. Buffett had to say be greedy when others are fearful and be fearful when others are greedy. Right. Right. He said it for this only because what happens when 10 becomes 20 people think all trees go to the sky. Is me I am a
12:00 - 12:30 super brilliant guy. It was my decision to put everything into equity. See what a great thing I have done. So when 10 becomes 20 people think this is how it works. You know what's the song and dance about? 20 is going to become 30. But it never happens that way. Right. Right. So that's what the whole point is. I always I I often remind people that when you know when you say be greedy when others are fearful, be fearful when others are greedy, the important words are not greed and fear. The important word is others. Mhm. Because the brownie is for being not
12:30 - 13:00 being part of the others. Now when 10 becomes 20, who will exit? So what happens is that when you have a situation like March 2020 where in one month the index falls 40%. During CO during CO if you were not part of the others you would be investing but what was the others doing when COVID came when COVID came everybody said man this is where it ends you know we are
13:00 - 13:30 all going to become dinosaurs and you know otherwise why will it fall 40% in one month because there only sellers there hardly any buyer right why will everybody sell because they can't see they can't look beyond you know like in Hindi they say meaning that you know this this is the night where it all ends you know I can't see the morning so when when there is a 40% fall when there is fear on the street when you when one should have been greedy one actually starts believing like the others that this is where it all ends we are going to become
13:30 - 14:00 dinosaurs how what were you feeling like that time when uh the market corrected by 40% during covid what was your thought process I can tell you the exact words on 19th March just before the market hit a down circuit uh I wrote wrote a blog or on on the website I wrote a blog I wrote a letter uh to all investors and intermediaries channel partners that you know usually in the world or in markets usually there is a a bare case a bull case and a b case base
14:00 - 14:30 case b meaning the average base case the way the market is currently behaving there is only the world will come to an end case or the world will not come to an end case. So you decide right because it actually felt like that. So who will invest amidst that kind of scenario? Only that person who has one small window open in his mind that yeah you know look all of this looks crazy but what is the lived history of this world
14:30 - 15:00 that human beings are pretty much invincible you know we haven't been destroyed for ages correct so something will come of it correct but in the in the throws of the frenzy that's not how people think people see each other and get more scared and you know Sharon there is if you understand it there is maths behind it okay see look at it this Uh I'll tell you a very very common anecdote. When 100 becomes 50 and you must have seen it on social media, you must have seen people talking about this. Whenever 100 rupees becomes 50,
15:00 - 15:30 it's down 50%. You know how people scare each other? They say, "Man, for 100 to become 50, it's down 50%." But to recover, I need 100%. Right? How will it go up 100%. That's absolutely the way you scare people. Right? You know I always tell people that how you will react to a situation depends on how you visualize it. So if you visualize that 100 has become 50 it's 50% down and 50 has become 100 it needs 100%. So it's not going to happen. The correct visualization like a spring
15:30 - 16:00 right now engineer to engineer if you if there is a spring which is 10 cm you compress it 50%. It'll become 5 cm. If you release it how much will it recoil? Maybe slightly more than what it was like when it recalled. Yeah. So maybe because of force but at least it'll recall 100% right. Correct. Yeah. That's the correct visualization because when stock prices fall stock prices are not some you know it is backed by earnings. Yeah. Correct. So if it falls below
16:00 - 16:30 their earnings then it means that it is there is a limit to how much it can fall because you know if a company's earnings per share is 20 rupees and the price is 100 you compress 100 to 80 60 50 but the earnings is 20 correct if I have no reason to believe that earnings is going to become zero let's say 20 will become 16 15 10 but the price which is falling there is at least some earnings right beyond the point the So a spring becomes
16:30 - 17:00 valuable when you compress it because when you compress a spring stores energy correct interesting. So that's the correct visualization. So I never get scared of markets falling unless I genuinely believe that the world is coming to an end and the history suggests that it's not yet. So, so right now we see a lot of panic with just the 15% correction but you have lived through 2008 when there was a 60% correction 2001 2008 2020 and 2013 also was quite a crisis but right but the
17:00 - 17:30 worst was obviously 2007 2008 absolutely there was a 60% correction so what can you tell us about your learnings during that time uh which could pacify people in 2025 when they're seeing a 15% correction because you came from a point where there are 60% correction yes so you So see 2020 uh thanks to you for bringing it up. We covered now let's talk 2008. You know what was my learning in 2008 first of all US is the thousand point gorilla. Every time the US market falls we all just in sympathy we just
17:30 - 18:00 give up right but it needs it needs understanding that in short periods the global market the stock market globally there's lot of sympathy in short periods the market gets correlated. But if you have a slightly longer perspective, their market follows their economic performance, our market follows our economic performance. So biggest learning in 2008 was that just because stock market falls doesn't mean that our economy is going to the dogs. So our
18:00 - 18:30 market on many days is nervous purely because NASDAQ is falling 3%. Correct? So these are the times when foreigners sell in India for reasons which are beyond India's economic issues that will create a buying opportunity and you're saying right now that is kind of happening right now it's panic in Indian market because of what's happening in US right now it will pers I think another 3 to 6 months it will persist that way we will keep yo-yoing based on what is happening there so it's a sideway while our domestic conditions are slowly and steadily improving we are still dancing
18:30 - 19:00 to their tunes on many days I think we will keep dancing to their tunes in the next 3 to 6 months but ultimately panic out there will create opportunity out here. So now let's ask you the million-dollar question. What is your portfolio looking like today as we speak? If you ask me, I'm not the ideal investor. I'm a highly risk-seeking kind of investor and uh people should not do what I do because my portfolio is fully either equities or real estate. There's no third thing. Okay. So what is your asset allocation looking like today? as
19:00 - 19:30 we speak I would be more in the vicinity of you know give or take 50/50 plus minus 5% 50/50 would be real estate 50% equity 50% real estate which is really uh contrary to what other you know CEOs of AMC's would be doing right they're they're mostly propagating equity investments but you are someone who is only 50% in equity and 50% in real estate which is sort of like uh you know kryptonite for your industry saying that hey don't put in real estate put here in
19:30 - 20:00 the markets. So why do you have such a different uh contrarian uh investing strategy? So you know a couple of things. One is if you really ask me for for me uh real estate is also a you know it's a factor of production. It's a bet on the economy. It's not like uh you know it's not like a very safe investment that I look at it really it is also a derivative or it is linked to the economy. It is very closely linked to equities. In fact, a lot of people believe that the equity cycle and the real estate cycle are closely correlated. Even just last 2 days, I was
20:00 - 20:30 reading this news that in last 6 months when the stock market has been under pressure, real estate velocity has kind of slowed down. You know, people make such statements. But my personal opinion is see two or three things I need to say. One is that I invest in commercial real estate for example. Okay? Right. Which is like office spaces and shops and all of that. Not like residential flats. No, I I do have residential investment but the primary the major part of investment in real estate is actually commercial real estate. So let's say for 1 cr rupees invested in
20:30 - 21:00 real estate. How much is in residential? How much is in commercial? Yeah. So you know if I leave my house 80% would be commercial only. Got it. Yeah. I mean I wouldn't count my house as investment. Other than that I mean you know everything is So I'll tell you why I said commercial. uh because Sharon what happens is that you know if I look at say retirement planning correct by the time let's say 15 20 years down the time down the line sometime if I want to retire I'll remove the leverage so how how commercial real estate works you're
21:00 - 21:30 putting three 3 rupees 32 1/2 rupees the bank is putting about 6 to 7 rupees right I don't need the rent right now but the rent pays the EMI so basically and plus you are you only have to put in a small amount of capital from your own the remaining amount the bank gives you borrow and then the rent pays for the EMI but isn't it risky that what if the rent stops like what if the tenant goes away yes so there are so there are a few risks and there are a few advantages so the risk clearly is risk of vacancy so
21:30 - 22:00 then you know you need to see uh whether it is grade A where is it located are there enough offices out there I mean is it lower parel or is it tana or where it is you know that matters so there are those risks uh if there is vacancy then you need to be ensured you need to ensure sure that you have the working capital to kind of pay up for those 2 3 months. So what happens is that when you invest right uh ultimately these are all yield plays correct I mean I'm holding a property which is giving me rent and
22:00 - 22:30 what is my return the rent divided by the value of the property correct so that's so so it's a yield play correct right now obviously all yields are linked if the if the government borrows at 7 12% then some of these properties should should deliver you eight 8 and a half or maybe nine meaning what you're trying to say is that if the government bonds yes is giving doing a 7 and a half%. Real estate interest yield should be more because the government is safer than real that's what it so all yes so all yield everything which is yield based in some ways is priced off or the
22:30 - 23:00 floor is the rate at which the government borrows and the government people don't understand this because most people look at it as just fixed deposit so the government also gives these bonds absolutely from which a common man can invest yes and get interest like sovereign bonds yes government of India you know GC or treasuries or whatever we call So let us say if the if the government bond uh 10-year government bond goes to 6 and a half then everything you know like for example there's this notion that when
23:00 - 23:30 yields fall even equity multiples start to get inflated. So when yields fall for commercial also the yield will fall if the yield falls it means that the property price would actually appreciate because the rent remains the same. So for the rent to remain the same if the yield has to fall the price has to increase appreciate. So now the government bond the government borrowings will reduce right the interest rates is it's already on the downtrend it's already on the downtrend meaning you're saying the real estate will spike now commercial real appreciate will appreciate because the government yields are reducing and this
23:30 - 24:00 is that uh correlation that we are seeing it it plays out you know see it's like REITs invit all these products also work in a similar fashion so you can just think that instead of buying a real estate investment trust you can just imagine that a private individual like me is doing my own investment instead of buying a real estate investment trust. So, but everybody cannot afford buying a commercial space because the minimum ticket size let's say 3 4 crores. Uh if somebody cannot do that, what should they do? Then they should consider investing in a real estate investment
24:00 - 24:30 trust. Okay. Which is like a mutual fund for real estate. Absolutely. Where the minimum investment is like 300 rupees, right? It's 2 lakh rupees right now and I think there's some proposal to reduce it or something like that. Okay. Okay. Got it. And Okay. So that is your real estate side of investments. Now let's come to uh what you do which is equity. So what does your equity portfolio look like? So you know like I said this uh just to clarify this real estate is obviously like a retirement plan right because over the number of years I would repay the uh borrowing completely and it
24:30 - 25:00 would just become a rental income. Now as far as equity is concerned and obviously uh it's mix it's private and public uh for public we have a very clear rule that I invest public means your Indian stock market private means you're investing in startups and companies are not listed yet. Absolutely. Yeah. So when you say uh so when you say equity it is again half and half. It is half private equity half public. Oh really? You you're quite risky in that manner. Yeah. So that is why it started that people should not invest the way I invest. Okay. A lot of people see when you ask a lot of
25:00 - 25:30 professionals uh they say that okay you know I have 65% equity 35% debt and I have 10% in liquid for a rainy day. So I have obviously some liquid for a rainy day. everything else I think my time horizon is long is all risk-seeking is all return maximizing but I think people should generally try to optimize they should not try to maximize that's the factual position and how do you sort of look at risk management like um of of course you have a very aggressive investment strategy but I'm sure you also are managing risk in some form or
25:30 - 26:00 the other so how do you look at risk management for your own personal portfolio so you know look if you see for example uh when I talk about uh the uh the real estate part of for instance, I mean it's not like I'm putting 10 rupees and borrowing 90 rupees, right? I mean where we are sitting now I would be more like 3540 rupees would be my capital by now and 60 rupee would be bank's money bank's money correct and it is generally by and large it is uh termed to be reasonably safe except for what you said vacancy risk and putting
26:00 - 26:30 in some money now when it comes to equity for instance uh because of the way I've invested see when you invest in private equity correct you're investing for 8 10 8 10 years and I don't necessarily go invest in startups myself I invest funds which I have a respect for. Correct. Uh why Azopia doesn't manage private equity which means it has to be somebody else's funds which have a good track record. Oh, so there are funds which invest in startups and you invest in those funds. What are these funds called? Uh so there could be so the
26:30 - 27:00 startup variety is obviously venture funds. Yeah. Right. Do you invest in venture funds? Yes. Any notable names that you can any names that you can disclose? Any VC funds that you're investing? I don't mind sharing. Say for example, one of my classmates runs a VC fund. It's called Roots Ventures. Which Ventures? Roots Ventures. Roots Ventures. Okay. That's a classmate of mine. He runs a fund. I mean, he has a great track record. Okay. Uh what kind of returns do these VCs generate? So if you look at a period of say 7 to 8 years, my sense is about 4x 3 to 4x is
27:00 - 27:30 what I have experienced. Wow. Really? In over 7 years, they'll forex your money. Yeah. I mean, as we speak right now, for example, one of the funds I have invested four years back is currently 3x. And and usually these funds have a minimum investment of 1CR if I'm not wrong. Yeah, one CR. Yes, absolutely. Because all all alternate funds have a minimum investment of 1CR. So typically one would make say venture investing and I have a sound reason why I invest in private equity you know uh so venture investing or say sometimes you know we make say uh late stage like say just
27:30 - 28:00 something which is say 24 to 36 months before the IPO for example. Huh? I've heard a lot about this that for example when Swiggy went before IPO a lot of HNI and ultra HNI friends of mine had the investment in Swiggy and because it was such a obvious thing that it's going to go up because of so much of retail frenzy they all made a lot of money. Yeah. So you know so see that is like you know making taking a bet on something which is kind of hot. Do you know what is your overall portfolio CG over the last 5 10 years? Have you calculated it? If you take equity, my
28:00 - 28:30 sense is it would be about uh 18 19 20% compounded. 19 20% compounded. Got it. See, I mean people uh if you see five years, say 2018 19 onwards I because there was a liquidity event and I remember 2018 19 onwards. I can't claim that I invested everything at the bottom of 2020. Real estate I made lot of investments in 2020 and 2021. So that's why there's different. So how to know? See, I understand in the stock market is easy to understand when it's a good time to invest. When the market corrects, you
28:30 - 29:00 look at the relative valuations and all of that. In real estate, how do I know that this is a good time to invest in real estate? Because everything is cheap because it never feels cheap, right? So, how does it how do you know it? No. So, you know, you're absolutely right. Uh the timing, the location, all of those things really matter. Uh see, I'll I'll give you an example. There's a book called Capital Returns. You know the book says that which sector do you think will do very well in the times to come when people invest a lot of capital into a particular sector it's set up for poor
29:00 - 29:30 returns because the denominator becomes very very big and bloated. M so in 2020 if you look back and saw which sector had the least amount of capital investment in the previous 10 years and which sector saw the highest consolidation that you know number of players folded up competition went down this sector was completely dissed nobody thought it would ever recover that was real estate in 2020 so what happens is that when uh this this is how cycles
29:30 - 30:00 play out for long point in time when nobody looked looks at a particular sector or a segment and no capital goes there. In fact, capital is being pulled out then a minor change in numerator results in a big spike in returns. Perfect Ashish. Now I think let's do something fun. Let's do a rapid fire round. I'm going to ask you five questions. First question is one book that every investor should read. Yeah, I think there's a book called investing the last liberal art by Roger Hackstrom.
30:00 - 30:30 I think that's a very interesting book. What's so special about this book? So this book actually is about multi-disiplinary thinking. Basically, it is explaining investing through other fields of science, not just mathematics. Interesting. What is the biggest myth about creating wealth? I think people, you said it brilliantly somewhere in the conversation, people think it's math. Uh the only math you need is that if something compounds at 14 15%, it will double in 5 years. That is one piece of math you need. Okay. The other piece of
30:30 - 31:00 math you need is that if something is valued at 100 bucks but it's available to you 5 years down the line and you know if the current rate of interest is say 7%. Then what is 100 bucks 5 years down the line should today be valued at say more like 60 or some such number. So you know present value future value how many years it takes to double an investment. I mean those are the kind of mathematics you need. You don't need like complicated mathematics as what people yeah you definitely don't need what we studied derivatives you know those kinds of things. You don't really you don't need that kind of math. You
31:00 - 31:30 need more uh it's more about discipline, not so much about talent. Got it. My next question is um rent a home versus buy a home. What is your go-to option? Yeah, I've always been in the buy camp. I mean, that's how I have practiced myself. So, well, I'm on the opposite camp, right? And I wanted to understand why you think that way. And I will um pose my question from the lens of a 25-year-old person today. Sure. So a 25 year old person today
31:30 - 32:00 earning let's say 50k per month, 60k per month. That's the average income. Uh now the common uh societal norm is that by the time you turn 30 you should have your home, right? You're getting married and you have your home. Now this person probably barely has let's say 10 lakhs of savings. Yeah. Now why would you recommend this person to buy a house at such an early age? Sure. So you know uh clearly I'll tell you where I where where where where was I coming from and what was my personal experience also I'll tell you. Sure. Uh what I have seen is like for example I bought my first house when I was 28 27 or 28. Wow.
32:00 - 32:30 Right. Where in Mumbai? In Mumbai in how much was the value of the house when you bought it at 26 27. This was probably 25 years back. 23 years. It was in 2004 when I bought it. In 2004 yeah the value of the house was about 80 lakhs. Now what happens is that why I speak about buying a house is for two reasons. It's the only asset for which a youngster can get finance. Nobody's going to give you money to put money in the stock market.
32:30 - 33:00 Correct? Right. The only asset, it's the only asset where you will get leverage at a young age. Uh what will happen is that if you bought a house at the right place, at the right location, at an appropriate juncture, at the right time. Yeah. at appropriate junctioning time what will happen is that I have 57 lakh rupees of investment because of the contribution and stamp duty registration if I make uh you know if I have made the correct choice and the
33:00 - 33:30 house appreciates what happens is that that 80 lakh can become 1 cr or 1.2 2 cr or 1.3 cr or whatever over a period of next 5 6 7 years. M so my five lakhs has a chance to become plus the EMIs. Okay, don't discount five lakhs because when I when it was 75 lakh rupees of borrowing I think I was paying some 60,000 rupees of EMI. So bulk of what I was earning a lot of it was actually going in EMI of course I was giving some money to my mom and of course I was paying EMI right so
33:30 - 34:00 what will happen paid a lot yeah I mean 2004 you could afford 60,000 EMI per month. Uh so in 2004 I must have been earning like say 15 lakhs or 14 lakhs or 13 lakhs or something like that. That is definitely considered a high salary back then. Yeah back back then it would be yeah I mean uh it would be in that vicinity definitely 12 lakhs or some 12 13 lakhs or something like that. So bulk of so what will happen is that if you invest like that what will happen is that your capital has a chance to really
34:00 - 34:30 multiply and that level of certainty if you made the right decision level of certainty is higher than the level of certainty of equity. M so it's just that two or three things one is it gives you leverage because at a young age there's no other asset class for which you get leverage second by and large the rate of interest on that borrowing is lower than the rate of interest which you will get in your SIPs or equity third is that if you are ultimately going to buy a house then better that you get it get your foot in the door the other extreme is to
34:30 - 35:00 say I'm never going to buy a house and I don't care for all this logic that's a different thing because there are cons also it's not just pros see what is the cons in this you can't dare to leave your job. You can't think of fire, right? Even before switching a job, you'll think, you know, is this stable, unstable? I have EMI to pay. It ties you down. So, there are pros and cons. I understand that. But what what about the current situation? Like you mentioned about you at the age of 26, 27. You were making 15 lakhs peranom, which is like making probably 30 40 lakhs peranom as
35:00 - 35:30 per today's value of money. You were making that at the age of 26 27 and you bought a 80 lakh car house. Mhm. Today if I fast forward a 26 27 year old person let's say optimistic scenario this person is making 10 lakhs peranom okay right today's value of money the value of a house in the area that you're living in is 2 and a half crores 3 crores maybe more so the math doesn't make sense to me right now yes of course so see you'll have to see two three things you'll have to see the location like see when I bought a house in savory it was back of beyond there was no trans
35:30 - 36:00 harbor link and it was full of mills so you need to be okay with finding a house in a not attractive Yeah. So, so it is all contextual. I don't think I'm not even saying that necessarily somebody can replicate the same strategy right now. Second is you have to do it at a certain level of earning or at a certain by then I was already working five six years, right? So, you'll have to do it at a certain uh point in time. Last thing I'll tell you, you know, even before you ask me about this, I'll say one thing truthfully is that I am a
36:00 - 36:30 reasonably, you know, I'm a risk taker. people should not be doing what I necessarily do. So there's a reason why I have a particular thought process and I think if you're ultimately never going to buy a house then I don't think it's worth even bothering about what I'm saying. Eventually if you're going to buy a house then some point in time you got to make this call. That's the point. My notion is that uh I would like to buy a house maybe eventually but then it should not feel like it's a big purchase right because for most people when they buy a house today it feels like they've given you know everything that they
36:30 - 37:00 possibly have for this house. See, you are a rock star. You're a entrepreneur yourself and I think you will I think you know you will do great and you will buy a house the day you decide to buy it something like in your 40s maybe that's what because you're an entrepreneur and I I think there's every chance that you will easily buy it but I was a salaried individual and I'm talking about salaried individuals right so somewhere they'll have to make the uh so it's like a sense of security for people yeah some somewhere if you see again I'm sorry for repeating but if you're ultimately going
37:00 - 37:30 to buy a house then somewhere you have to make the beginning and you have to start thinking that you know it's a fast running train where is it that I exactly no but the way that the country is evolving and the world is evolving um it becomes also kind of difficult that hey is this the city that I want to have the house in for the rest of my life right maybe back in the day that was not even a thought absolutely that I don't know where I'm going to end up right but today the youth generation is like I don't know where I'm going to end up that's a that's an important point to keep in mind I agree with you perfect Ashish I think this was a fantastic
37:30 - 38:00 conversation uh we try to keep it as simple as possible. Uh I hope uh for uh you know uh the people watching this video. Uh but thank you so much guys. If you've been watching until so long, it really means that you have focus and interest in finance. So thank you so much for giving us your time and I'll see you in the next one.