Reader email: How one reader developed his investing approach

Gaurav Palvia wrote to me about his investment approach after reading my request on the OneMint poll results post. I am reproducing his email below (edited slightly), as I think it presents an interesting angle to investing, and how he approached the subject.

My favorite part is when he called up all the agents to meet him, and got free advise from them. Pretty clever.

Here is what he says:

I am writing this as a follow up on your suggestion on “Results of the OneMint poll” to write our experiences about investing.

I am a software engineer working in the software industry for last 10 years.

I started looking into investments/finance around 2008 as a hobby/alternate profession ..something to pass my time if I get bored with my daily designing/coding routine.

I got interested in it, so i am pursing CFA from Cleared level-1 of it in 2009 and now preparing for level-2 in my spare time.

I thought I will share some info/knowledge/experience I gathered during this period.

I recall somewhere I read that “WEALTH GENERATION IS A VERY SLOW AND BORING PROCESS”. I think it says it all…

I mean… one in a million can become Rakesh Jhunjhuwala who accumulated huge wealth at such a young age.

If you think you have that kind of skill then you should just follow your gut; take as much risk as you can the stock trading…whatever…

For the remaining people like us ; we need to clearly understand the above principal of wealth generation…..and not give up.

In a nutshell – the above principal says…”do your homework on a regular basis and have patience”

Though I have a DMAT account since 2001, and I made a little money during BJP’s disinvestment phase by investing in Shipping Corporation in India and then in VSNL, but that time I was a speculator and I made money just by speculation, – and may be I got lucky.

I had bought SCI at 36 and sold it when it reached 91…so made a real cool profit.

But it’s only after 2005 I started taking investment a little more seriously. I inquired with colleages..and someone recommended me an independent financial advisor who suggested me some XYZ mutual fund using SIP. I sold it last year and made no profits out of it even though I kept it for 3 years or so.

So I said to myself that when everybody is making money from mutual funds…why am I not able to do so? I searched various sites but I was still not able to decide which site to trust for information…so I thought of a different plan..and a witty one πŸ™‚

I called CitiBank and asked them for financial planning…in 2 days time their representative came to meet me..and suggested me varios plans and a 4-6 mutual funds.

I did the same with HDFC/ICICI/AXIS and in 2 weeks time i had all the data suggested by all these representatives.

I just zeroed in on those mutual funds that were suggested by all these representatives…the common ones….and then did a SIP on these Mutual funds on my own from my ICICI Dmat account.

And I could double my investment in exactly 2 years of time…last month I sold them as I needed some cash. So this was my first real profitable venture.

But during the time I kept reading…and reached on some conclusions as how investment should be done by a retail investor.

So I am just listing those ideas ……

1. I think for retail investors SIP / Mutual fund is the easiest way, as it shields us from doing all the equity analysis.
Equity analysis is a real full time job, and I suggest let’s leave it for experts. Mutual fund houses spend all their time/money/energy into it so a retail investor should just choose 4-5 well known mutual fund houses and invest money as per his risk appetite.
It also does not mean that choose any mutual fund from these houses. I think one should look for the following qualities in a Mutual fund:

a. Past 3-5 years annual returns. I guess any Mutual fund that gives above 20% return is good enough. But as we compare returns from other mutual funds…we may think even 20% is less so its best to choose a 3-star to 5-star rated mutual fund.

I normally check the rating of the fund from They have rated all the funds.

b. Credentials of the Portfolio Mgr. If the Portfolio Mgr is a C.A + CFA + IIM and has 15 years of exp in the industry and a proven track record..what else do you need? There are very less chances for him to make mistakes than for people like us who dont have that kind of credentials and experience.

c. Net Assets. Its very important to check the Net Assets of the fund. I will never invest in a fund which has say 10-50 crore of Net Assets only. It may return great returns..but it is that risky as well.
I will rather go for a fund which has atleast 500 Crore of net assets; has a established reputation…in the market for quite some time.

2. The second important question when a retail investor starts investing is..which mutual funds he should choose.
We keep hearing abt lot of sectors (Tech/Realty/Power etc) doing good at times…and keep hearing how some made fortunes by investing in these sectors.
But I think some one who is just starting to invest; he should not get bogged down by such stories.
I think if you are  a beginner, and if you can do a SIP in 5 mutual funds then you can choose 3 Equity diversified funds and 2 sector specific funds. But before investing – remember to check their rating/past history from a rating agency.

3. When to invest: I think if you are going the SIP way; it does not matter when you start investing. Because of the regular investing you end up buying units at an average cost…unless one is really unlucky and he bought all the units when the market was doing exceptionally well…and is now not expected to do the same in next 5 years or so.
But I guess it does not happen that way practically..if you choose reasonably well mutual fund and keep invested for 3 years or so will earn reasonable returns.

As I said initially i had invested in a Mutual fund..and kept it for 3 years..but still i could not make much money of it.

It didnt mean that I lost money…I could still recover all my principal. The reason i did not make any money because i was fooled by an independent finacial advisor and I selected a completely wrong mutual fund scheme.

4. When to exit: I can suggest a couple ways as when a retail investor can exit
1. Set a target as when to exit. If i set a target that if i get 35% returns and it is good enough for me; then I should exit when i get 35% returns.

The other way can be that when I will get say 35% return I will just recover my intial amount and keep the remaining 35% to grow.

In this way I will never loose any principal and allow my remaining 35% to grow as well.

One can make it a little interesting as well by first recovering the amount that one could have earned in that much period in a bank F.D and keep the remaining invested. This way one can be sure to earn the bank interest rates on his principal and have the remaining to take all the financial ups/downs. This way I think I won’t lose my sleep atleast.

I think looking at the current times and Indian economy one should be more than happy to achive 35% return annualy and recover his principal when he gets total 50% return. So recover your principal when you earn 50% return and keep the rest of the money invested.

I am not a daily trader and don’t believe in daily trading as my profession is quite time taking and does not leave me with much spare time; but i keep a watch on my funds/economy/markets and I will never sell in panic but I will always sell when I see exceptionally good gains.

Also I am not discouraging some one to not invest directly in equities/commodities. I never found sufficient time to do thorough equity analysis myself …so I cant comment on that. But like an average greedy person I also keep on picking things from time to time πŸ™‚

-Safe Investing
Gaurav Palvia

I thought the email was interesting enough and covered so many aspects that it would make a good read for other readers. More than anything else, it shows that investing is a personal journey, and you need to develop a style that suits you the most.

I’d be interested in hearing more such stories, please leave a comment or email me if you prefer that.

4 thoughts on “Reader email: How one reader developed his investing approach”

  1. Hats off to gaurav. Very sesnsible approach especially the one that advises about exit strategy after recovering FD returns.

    @rupneu1 Gaurav does not have time. He is doing his work for 8 hours and then studying CFA. Where else is the time to study companies? And as he clearly said, it is very boring slow moving thing unlike your self-taught approach which results in exciting calls, exceptional returns and exceptional losses.

  2. Interesting email. But if you are already pursuing the CFA, why don’t you analyze individual companies yourself and buy/sell them? I do not know anything about the Indian market, but in the US 20% is considered exceptional return, because the historical average return (over 100 years) is only around 8-10%. That’s why I am trying to learn more about the Indian market. My investing experience (in the US market) is as follows:
    1. With mutual funds, you can not expect to get exceptional return. The best they do (90% of them anyways) is get the market return, but you’ll have to pay them fees, which will lower your return. Therefore, for people who do not want to deal with analyzing individual companies, index funds are the best options. They have nominal fees compared to managed mutual funds, so you’ll be better off. Just have to have diversified portfolio of these index funds (for example, 75% stocks 25% bonds) and balance them to the target allocation once in a while.
    2. Though I am not in finance/investment field (self studied these), I like to look at individual companies because I feel like I can do better than the market if I spend some time. My investment philosophy is based on fundamental analysis. I study the financials of the companies spanning as long as 10 years. If I like a company based on the financials, then I wait till if becomes cheap to buy. I learned that not all good companies make good investment at any price. Sure, Apple is a great comapnies and I buy their products all the time. But I won’t buy their stock at $250 right now. I will wait till it goes below $200, and if it doesn’t then I don’t invest at all (unless in the future based on their earnings and other stuffs justifies paying $250, but by that time, stock will be trading at $350 probably). Anyways, it’s not a good idea to chase a “hot stock” because just the fact that everyone is chasing it will raise it’s price in the short term, but when the fundamentals don’t catch up, it’ll come down (think dot com era).
    3. Once I find good companies, I try to hold them as long as the fundamental support the price. Just because it goes up 100% doesn’t mean you’ll have to sell it, as long as the earnings are going up. Wait till, stock price outpace the fundamentals to sell it.
    That’s what I do, and I was one of the respondent who said yes to your poll. I do realize that Indian market could work a little differently, so what I say may not apply, so take it with a grain of salt.

  3. Hi Manshu,

    Excellent. I really liked the very down to earth and practical approach of this guy and learnt few things from him.

    Thanks for bringing this out!


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