Observations of a fund manager
Everyone lives in their own Leela
“Ignorant of their ignorance, yet wise
in their own esteem, those deluded men
Proud of their vain learning go round and round
Like the blind led by the blind”
– Katha Upanishad
Reading the Upanishads has been one of the joys of my adult life. But even within this treasure trove, this excerpt from the Katha Upanishad is one of my favourites.
Recently, this quotation has come to my mind time and again, in various facets of life. However, to narrow a wide spectrum down for this post, I will only focus on my own fraternity: fund managers.
This is true for almost everyone playing this game: from experienced, old, suit wearing types managing money for foreign endowment funds to the young, brash and disruptive kind trying to make a name for themselves. From smug “value” investors to cocky “growth” investors. From Buffett’s Bhakhts to Musk’s Musketeers. Everyone is sure they are right, and the “other” is a fool. For sure, when reading the above Upanishad excerpt, fund managers would think that it perfectly applies to the “other” crowd in the industry.
Here are the broad groups that immediately come to mind. Let’s assume these are fictional characters. Any resemblance to any real person is purely coincidental.
The Academic types: This is a group which includes many experienced fund managers and a professor or two that delight in mocking the newly listed tech companies. “Lipstick on a pig!” one proclaimed on social media when the IPO of a popular fashion e-retailer opened for bidding. There were many others that joined in declaring that Mr. Market is having one of his drunken moments in India. Little matter that the IPO nearly doubled on listing, this group of well-read intellectuals are always ready with a smart quote: “Markets can remain irrational longer than you can remain solvent!”, while gently mocking entrepreneurs, employees and investors that have made a fortune, and secretly wishing for the stock to crash so that they can add it to their next case-study or investor discussion. Forget the Jio-effect with dramatic internet penetration or the Pandemic turbo charging e-commerce adoption. These gurus have seen it all before, and they will remind you of their favourite time period in history: the dot-com crash.
The “Value” guys: Some of these gentlemen (yes they are mostly men) overlap with the first bunch. They are convinced that “value investing” is just about to have its time in the sun. They are bullish on metals (and all commodities really), cheap banks (ideally government owned), infrastructure and real estate. They are convinced that the cycle is about to turn, and can’t believe their luck that other people are sleeping on this great opportunity. Everything reverts to the mean, and this time is no different for these folks. Their favourite period in investment history is the 2003-2008 bull market, and they can’t help but tell everyone that they think today’s set-up reminds them of the early parts of that cycle. Even business news anchors now themselves ask these fund-managers whether “today reminds you of the beginning of the 2003-08 bull market”, full well knowing the answer they are about to get. Forget that China can’t fuel commodities like that anymore or that starting valuations today are nowhere near 2003 levels. Forget also that value hasn’t worked for more than a decade, “apna time ayega” is the song that keeps playing in their head.
The Quality at any Price sect: The antithesis of the value guys. I once sat in on a fund manager’s pitch to a friend of mine where he confidently asserted that “anyone who doesn’t buy Asian Paints at even double of today’s price is a moron!”. This peculiar bunch loves backward tested data, where they show in numerous ways that you could have paid a ridiculously high multiple for their handpicked portfolio stocks 20 years ago and still ended up doing well. Everything apart from their watch list of 50 stocks is not worth investing in. Clearly they have read Dr. Seuss and “are too smart to go down any not so good street” in India; full of crooks or fools running subpar businesses. Forget that everyone knows how good these businesses are now and that their valuations are at all-time-highs or that the law of large numbers is a thing.
The tech bros: While still nascent in India, this group worships at the altar of Lady Cathie. They can’t believe that people still invest in “normal” businesses, and almost feel sorry for those that can’t feel the tsunami of disruption coming. Like their Quality cousins, valuations for this group is an annoying detail best left to the stuffy value guys. Profits? Chill out dude, it’s time to get market share first. They point to the last decade and say “yeh apna time hai!”. Forget that the last decade has seen interest rates go to zero, which is the perfect backdrop for stocks that promise profitability far into the future. Forget also that not every Internet business will become Amazon or Google… think positive!
This is far from an exhaustive list, and I am sure I myself fall into some such bucket. It doesn’t matter who is right or wrong. My point is that everyone lives in their own version of imagined reality (“Leela”). It’s amusing that many of us think that the other side is naive/brash/silly/dinosaur-esque/etc.
The truth is of course in somewhat of a quantum superposition where everyone is simultaneously right and wrong until the event has passed and we know the answer when looking back in hindsight. I try to remember this when I get too excited about something, or think someone else is an idiot. Am I a deluded man, ignorant of my own ignorance? Or is there something more to this? Life is more fun that way, and you get to learn new things.