Of Great Leaders and Godmen


On August 22, 2017 I resigned from the Board of Quantum AMC.

A communication sent out by me to the dedicated, committed, long-term, sensible investors in Quantum Mutual Funds resulted in a flurry of activity on social media. Emails dropped into my mailbox from concerned investors.

The emails proved two important and related things:

  1. Our investors love what we have built; I have not met 95% of them but they are big believers in what we do (to put the spotlight on the tireless striving teams at Quantum, the fantastic delivery of honesty and competency by Team Quantum deserves such a fan following), and
  2. Many associate the cult following we have in Quantum Mutual Fund with my leadership and - though 95% of us have never met in person - they treat me like a Great Leader.

I am humbled.

I am grateful to each of you for believing in this path we have chosen - a path that should be the norm of any enterprise but, in this strange world that we live in, the honest and competent are seen as 'mavericks'.

Baba Dayal?!?

But the comments also made me realise that I had failed in some ways and not made our message clear enough.

Many of the responses were around the question "Is it time to exit Quantum Mutual Funds?"; or statements like "I had vowed to redeem the day Ajit Dayal left".....

Arey, baba: I was never a Great Leader or a Godman.

Two lessons from history:

  1. Great Leaders are not really that great, and
  2. Situations land up that give people the opportunity to be seen as great leaders.

History teaches us that every time there is muck from failed Great Leadership, a solution comes out from natural events.

"Indira Gandhi was a diamond", said Sitaram Kesri and she was beaten to dust by the Janata Party.

"India is Indira and Indira is India", said another fawning Congress leader and Indira is dead and India and our cows are alive.

Manmohan Singh led a dream team and we kicked them out because they morphed into a corrupt nightmare. The BJP won a mandate based on development - 3 years on they are struggling and the economy is probably worse than what it was in the last years of the UPA-2 misrule. This, despite the fact that the price of oil and petrol is 50% lower today than it was during UPA-2.

As individuals, we are lost in a rat race and the Godmen show up with promises of spiritual salvation only to be exposed as Badmen.

We had a thieving mutual fund industry: Quantum Mutual Fund was born out of that.

It so happened that Ajit Dayal gave the speeches from a stage.

It so happened that Ajit Dayal gave the press conferences.

It so happened that Ajit Dayal gave the first Path To Profit talk in 2009.

But there are nearly 200 people now talking the talk and walking the talk in Quantum Mutual Fund. They don't follow me - they have embraced the philosophy.

But what has been done and is being done is an effort to identify, groom, train people - and nurture a culture that is based on the uncompromising focus of doing the right thing for the investors in Quantum Mutual Funds. For the investment side, we are building teams that monitor and enhance disciplined research and investment processes. Note that Ajit Dayal has never been the portfolio manager of any of the Quantum Mutual Funds.

(As an aside, it is these same research processes that have led to a dramatic underperformance of the Quantum Long Term Equity Fund as compared to the BSE-30 Total Return Index. Normally, when a mutual fund underperforms, the Great Leader should be thrown out and investors should rejoice!!! But, then, we don't have those short term investors - we have sensible, committed, long term investors who understand what we do and why we do it and, therefore, want their Great Leader to stay!)

There have never been stars in Quantum, only solid, intelligent, honest individuals to guide a process.

Part of this inherent desire was instinctive or ingrained somewhere in the subconscious: I did not take a plane that crashed on February 14, 1990. That was 14 days after I started Quantum.

With a significantly higher amount of our brethren walking with kitchen knives, driving vans, or blowing up restaurants, it seems like a good idea to build teams - and build systems of back-ups. It is difficult to create a back up to a Star; it is easy to create a back up to a process.

One small example: Subbu and I have not travelled in the same plane for many years. If we stay in the same hotel, we stay on different wings and different floors....simple things...just in case...

Processes rule, people implement.

The other reason we adopted a process - as opposed to the path of stage-propping a star gunfighter who can draw his gun and pick a target within micro-seconds - was for the benefit of you, our investors.

The Indian economy has grown, on average, at 6.3% per annum in real terms (after inflation) over the past 33 years. The stock market has generated a return of over 18% per annum. We believe that, for the next 2 decades, India could see similar rates of growth in GDP and a 15% or so rate of return from investments in shares.

If we can find a process that can generate those sort of long term returns that will be great!

If we can eliminate our reliance on a star fund manager to generate that return that is, indeed, nirvana!

Mathematically with every year that passes by we all get older by one year.

If the bullet does not kill me, old age will.

Hence, we believe we owed it to you to identify and build a process - and have it manned by smart people in a team - so that your savings can aim for long term sensible returns.

The dependence on any one individual is minimised.

Yet, the opportunity to participate in the evolution and growth of the Indian economy via an equity mutual fund is intact.

And we also recognise that our belief and our style of investment may not be the only successful style of investing.

There are many paths to god.

We are value investors: that is our chosen path.

But there are other fund managers who manage money with different styles - the different paths to god.

In the path-breaking Quantum Equity Fund of Funds, we have built a portfolio of these equity funds for you to invest in.

We don't like the way these fund houses may have built their "business" or the way they may have loaded you with unnecessary distribution costs, but we have evaluated how they invest and suggest that you should put 80% to 90% of your equity allocation in that Quantum Equity Fund of Funds and 10% to 20% in the Quantum Long Term Equity Fund.

While selecting the equity funds managed by our competitors, we were evaluating their processes - not the stars who manage them.

Thank you.

I am moved by the overwhelming sentiments that many investors have expressed.

I will always be accessible for my colleagues at Quantum AMC as a guide, if required.

But I know the methodical way we have built the teams to man the processes we created.

I have read how John Bogle, the founder of Vanguard, singularly took on the mafia of Wall Street and launched low cost, index funds. When he retired, Vanguard did not stumble. It grew 50x in the next 20 years because processes were built around a strong philosophy. Quantum AMC will easily grow its customer base by 10x in 5 years: not because we will have changed our "business" model but because more people will have heard of us and will subscribe to the practices we have adopted.

I think India will be far better off if we, as people, did not worship Great Leaders or Godmen but, rather, adhered to an inherent philosophy and demanded more processes to give positive outcomes - and avoid bad outcomes like the constant flooding or train accidents that continue to plague us.

So, thank you for all your praises - but be rest assured that there are others ready to carry these principles and processes way into the future.

NOTE: Ajit Dayal has resigned from the Board of Directors of Quantum AMC on August 22, 2017. Quantum AMC is the investment manager of the Quantum Mutual Funds. As communicated to unit holders on June 2, 2016 there is a strong team in place and a very clear succession plan that has been implemented in phases since 2013. A Charter of Principles is being laid out for the Board of Directors to ensure that the core values and investor-focus of Quantum AMC and Quantum Mutual Funds will never be at risk.

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

Quantum Long Term Equity Fund and Quantum Equity Fund of Funds Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% in total in both; Maybe 20% in QLTEF and 60% in QEFOF 20% Keep aside money to meet your expenses for 6 months to 2 years
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"
Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site.

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3 Responses to "Of Great Leaders and Godmen"

Dr Aniruddha Malpani

Sep 2, 2017

Dear Ajit,

I wish Infosys and Tata had such a clear succession planning process in place, but not enough of our leaders are as straightforward and humble as you are

Congrats on creating such a great culture in Equitymaster !



Dharmesh Shah

Sep 1, 2017

Individuals are equally important as processes. We wish that whoever is in Ajit's role will carry his ethics, integrity and processes for Quantum Mutual Fund investors like us



Sep 1, 2017

Ajit ji,

I do not like your repeated negative reference to Godmen in your piece above. You seem to have an inferiority complex about Indian Rishis, saints and holy people. For the doing of one Ram Rahim, you are tarring all the good work of all other Hindu Sanyasis combined.

I am sure you have huge respect for Mother Theresa; if so, please do read Christopher Hitchens and others.

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