PMS: Shree Lakshmi & Shree Vriddhi - First Six Months
Earlier this week I shared our first investor letter with the SRM PMS community.
To invest, get in touch with us at equity@shreerama.co.in / equity@intelsense.in
Firstly, let me welcome and congratulate you on your decision to invest in the Shree Rama Managers fund. Both Shree Lakshmi and Shree Vriddhi are funds that have been designed keeping in mind that opportunities come in different time horizons. Some businesses tend to continue to perform well over long periods of time and others do well in short bursts before reverting back to their mean. The Shree Lakshmi fund tries to partner with those businesses where the opportunity seems to be reasonably long term and conversely, Shree Vriddhi tries to capture the short bursts of business performance.
The two funds are like a marathoner and a 100-metre sprinter. The sprinter will run fast over short distances and the marathoner will cover very long distances with ease.
After finishing six months of the fund, I am happy to say that both the funds have performed reasonably well.
Shree Lakshmi has given a 6.2% return in the last six months compared to 4.3% of the Nifty500 benchmark.
Shree Vriddhi has significantly done better with a 15.05% return in the last six months compared to 4.3% of the Nifty500 benchmark. Be sure that this kind of performance happens more due to chance rather than any great investment strategy. Once in a while, we will see such great outperformance and also similar underperformance as well, although less frequently, I hope!
Thoughts on Benchmark
Every mutual fund or PMS is mandated to have a benchmark. Personally, I am slightly averse to performance benchmarking because in real life it serves very little useful purpose. Our objective as investors is not relative outperformance but simply to have reasonable absolute performance. If the focus is on reducing major capital loss and we are able to compound at a rate higher than the GDP growth rate plus an equity risk factor. Assuming a 12-14% GDP growth including inflation, as long as we get 16-18% absolute return over a rolling 5-year period, then we would have done well for ourselves.
The 1-in-4 Rule
I have this rule that I always keep at the back of my mind. It goes like this.
· 1 in 4 years will be bad where we will lose money.
· 1 in 4 stocks will not play out the way we thought it would.
· 1 in 4 stocks we will get in or out too early or too late.
In addition, once every year, we are likely to see a 10% fall in the markets. Once every 2-3 years, a 20% fall and once every 8-10 years a 30%+ fall.
The problem is we don’t really know which of these we are in now. Is this the one year where we will lose money? Or is this the stock in which we are making a mistake on?
Since we don’t know if this year will be that bumper year or that bad year, the most rational thing to do, if we have a long-term horizon is to remain invested.
Once we understand this, it is easier to handle the ups and downs. Plan for the occasional speed breaker on the road. It is not that you leave your house only when you know that the road to your destination is all clear with zero traffic. You get out on the road and make the journey. Along the way, sometimes the traffic is slow, sometimes fast and if there are diversions you take them as long as they take you towards the destination.
It is exactly the same here. Just keep in mind the destination in this journey is to compound your capital at a reasonable rate over your investment horizon and not make large capital losses.
Thank you once again for being part of our journey of wealth creation.