From 248 to 7 - in 5 days! - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
From 248 to 7 - in 5 days! A  A  A
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30 OCTOBER 2009



Thankfully, we did not fire the Fund Manager!

And - my good fortune - the Board of Quantum Asset Management Company Private Limited did not fire me.

And - great judgement on your part - investors like you in the Quantum Long Term Equity Fund did not bail out and put their money in some other equity mutual fund

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Remember, once we stop taking in members for The Value Investor, it may be MANY MONTHS before we even think of re-opening the service to new members. If and when we do take in more members, it will most definitely be at a much higher subscription price.

So, don't delay. Act NOW and make the most of this wealth multiplying opportunity! (Only 3 days remain...)

---------------------------------------

It is time to celebrate.
And maybe send a garland to the Fund Manager of Quantum Long Term Equity Fund.

The ranking of the Quantum Long Term Equity Fund (for a one week period) surged from 248 (out of 248 diversified equity funds) on October 21st to 7th (out of the same 248 diversified equity funds) on October 28th. (click here to read the previous HT)

Hmm, I thought, I know we did not change a lot in the portfolio.

Does your portfolio have a heart beat?
In fact, the Fund Manager informs me that we did not do a single trade.

Yes, you read that correctly: there was not a single trade done in those 5 working days.

In nearly 28 hours of trading, there were no trades done by the Fund.
Of course, the market was trading and was open.
Over Rs. 550,000 crore worth of trades were done in those 5 trading days.

And not one paisa from Quantum Long Term Equity Fund.

And our ranking for the week surged from 248 to 7.

Table 1: Quantum Long Term Equity Fund surges to a 7th rank for the past one week!
Returns (%) 1 Week Ended October 28, 2009 1 Month Ended October 28, 2009
Quantum Long Term Equity Fund -2.11 +0.06
Category Average (Equity Diversified) -4.45 -1.08
     
Quantum Long Term Equity Fund Ranking 7 69
Total 248 248
How many funds have we done better than? 97.18% 72.18%
(Source - www.valueresearchonline.com) Returns for Growth Plan

But what caused this surge?
Again, someone's perception of the "correct" price of the stocks owned in the portfolio of the Quantum Long Term Equity Fund.

The fact that there were no trades done does not mean that the investment team was sleeping.
Far from it: they continue to monitor the companies and managements of businesses.
They have a pulse.
They have a heart beat.
Their decision to do nothing was a conscious decision.
Nothing significant had happened during that Rs 550,000 crore of hyper-active trading over that 5 day period.

Table 2: QLTEF stocks did better than some others this week!
The Top 10 stocks owned by the Fund Their weight in the portfolio as of September 30, 2009 How did they perform between Oct 22 and Oct 28?
HDFC 6.20% -0.9%
TCS 5.93% 1.4%
Infosys 5.55% 4.2%
HDFC Bank 5.30% -2.4%
Hind UniLever 4.48% 1.7%
ONGC 4.40% -3.8%
Bajaj Auto 4.38% -2.7%
Container Corp 4.04% -3.9%
Zee 4.03% -1.3%
BPCL 4.01% -4.7%
     
BSE-30 Index   -4.3%
     
Reliance Ind Not owned -6.7%
ICICI Not owned -12.8%
L&T Not owned -5.1%
Unitech Not owned -18.0%
DLF Not owned -14.6%
Source: Bloomberg, BSE

As we highlighted in the previous Honest Truth for the week ended October 21st, the stocks we owned did not "rise" in price.
The stocks we did not own, did a lot better.

So, we suffered.
For that one week.

And now we have done better.
Much better.

A repeat lesson for all of us
The way stocks are researched for the portfolio of the Quantum Long Term Equity Fund has not changed.
The way stocks are picked for the portfolio of the Quantum Long Term Equity Fund has not changed.

But the way the markets price the stocks we own changes every minute!
The last time we checked, the managements of the companies we own still run the way they ran their businesses last week - or last month.

But, on some days, the stock markets love the share prices of certain companies.
And on some days it loves some other stocks!

This similar portfolio gave the Quantum Long Term Equity Fund a pretty good track record for the 1-year, 2-year, and 3-year time periods ended October 28, 2009.

Table 3: Read our Offer Document carefully to decide where to park your savings for the long term
Quantum Long Term Equity Fund - Performance Data
Returns (%) 3 Month Ended 6 Month Ended 1 Year Ended 2 Year Ended 3 Year Ended
Returns upto 1 year are absolute and over 1 year are annualised. As on October 28, 2009  
Quantum Long Term Equity Fund 13.45 65.67 101.20 3.57 13.18
Category Average (Equity Diversified) 8.70 55.81 88.79 -7.22 8.45
Quantum Long Term Equity Fund Ranking 28 49 47 10 33
Total 236 221 210 186 156
How many funds have we done better than? 88.14% 77.83% 77.62% 94.62% 78.85%
Quantum Long Term Equity Fund was launched in March 2006
Source: www.valueresearchonline.com

So, markets bounce.
Share prices jump all over the place.
But the investment thesis for us to own stocks in the Quantum Long Term Equity Fund has not changed.

The ranking numbers are - like the clouds - passing in nature.

Rankings do not change what we do.
Click Here to learn more about the 'Quantum way'.

I am delighted that the majority of you refused to give us the permission to fire our fund managers or the research analysts: they are really good people and very disciplined in what they do.

Rankings did not rattle you.
Just as it does not rattle the investment team at Quantum Mutual Fund.
Assessing and pricing risk does.
And generating returns over longer periods of time.

They avoided stocks like Reliance, ICICI, L&T, DLF, and Unitech because the risk-return reward was not attractive - or the managements are totally avoidable.

We let others boast about their rankings and their stars and "returns".
We focus on risk we wish to take and the return we wish to be rewarded for the risk we have agreed to take.

The Fund manager and their research team that looks after your savings in the Quantum Long Term Equity Fund is good - as is the process - the times are strange.

The waqt for the week ended October 28th was good for our rankings.

The next Rs 550,000 crore of trading may change our ranking again.
Who knows!

And my appeal to you remains: if you wish to make sensible long term returns - and don't get rattled by this 248/248 of the previous week or the 7/248 ranking for one week (just as we are not) - click here and start investing in Quantum Long Term Equity Fund.

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
(NSE symbol: QGOLDHALF)
Quantum Liquid Fund
Why you
should own
it:
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% 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 a Director at 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. To write to Ajit, please click here.


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7 Responses to "From 248 to 7 - in 5 days!"

Manu

Nov 7, 2009

Do we remember the hundreds of athletes who participate in the Olympics? We remember the first 3, perhaps the first 8 who get into the finals.

We have gotten into the habit of not winning, but participating gamely - a nation of second and third raters. "Found water on the moon" we say, and omit "found by NASA exeriments set up on Chandrayaan" - half truths, patting ourselves on the back for achievements which are not ours.

There are genuine great achievements that we gloss over, the idiotic cricket obsessed nation we are.

And we point fingers at the first 10 performers, and mutter darkly about their drug-based performance enhancement. Bur surely not all those performances are drug-enhanced?

What does this have to do with this column? The constant bitching about "other funds", the moralizing tone, the celebration of second-rate returns, perhaps? The amazing celebration of 248/248? The equally mindless column on 7/248. As someone poined out, both of these are irrelevant numbers - perhaps Dayal himself points it out. But what of the 3, 5 ,10, 15 year numbers? They are also not anything to write about. Second rate, like most of the fund industry.

What does it have to with cricket? Because we choose a game not many play, and lord over our accomplishments. Just like fund managers, QLTE and others included, lord over comparisons with their "cohort group".

And have the gumption to launch a "valueInvestor" service, or some new fund, using shamelessly and without permission the name of a person who has turned out a 21% return over 35+ years!

Buffett himself advises against using any fund manager, bar none.

So stay away from these false prophets and their sophistry. Do not confuse their felicity with words with their ability with numbers.

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M Suresh

Nov 2, 2009

Dear Ajit

I just felt to share with you an analogy.

The MF Managers rankings are like ICC cricket rankings. If ICC says that for a particular period, Dhoni or Gambhir is the No 1 batsman ahead of Sachin/ Dravid, the guys who know cricket would never put much weight behind those rankings. We all know that Sachin/ Dravid are class above Dhoni or other No1 ranking batsman. (That opinion would not change even if Dhoni hits two centuries on the trot!).

Similar is Quantum... As we all know, CLASS IS PERMANENT AND FORM IS TEMPORARY!!

Cheers!


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avid reader

Nov 1, 2009

Mr Dayal, I am a big fan of yours. I make it a point to read your articales here & in DNA news paper. Recently saw you on bloomberg tv as well. Pl. keep up the good work. Wish at least 5% of indian analysts are like you to guide individuals in financial matters.

I like the articale despite the fact that, its bosting Quantum. Thats good though, because, if I opt for fund, I know where to turn to.

Real estate criminals(Builders, Bankers and some corrupt government officials)have been playing with millons of lives to make big bucks. I liked all your studies published for realty sector and how banks bailed our realty firms etc, as a result prices never corrected really and in some parts of Mumbai, its all time high as of today.Pl. continue publishing articles in the matter.

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A.S

Oct 31, 2009

I just want to put down my opinion regarding a reader's comments on this column.
1. Yes, Mr. Dayal is promoting the QLTE Fund in his column. And there is nothing wrong with it. In fact, it is to the investors' advantage. He is using this medium rather than using the investors' money on billboards and advertisement.

2. If both the columns (248/248 & 7/248) are read, one will understand what Mr. Dayal is saying. He is definately not getting escatic about the 7/248 ranking. In fact he has re-emphasized the fact that how these 1-week,1-month and even 6-months ranking hold no significance against the long term performance of a fund and the reasons that affect such rankings and how they fluctuate over the short term. He is as indifferent to the 7/248 rank as he was to the 248/248 rank and so should the investor be, in the such a short term horizon.
There is no over-reaction on his front, in fact he is pacifying the over-reaction of a majority of investors who waste their time chasing these ranks.

This article is not an announcement of the 7/248 rank. In fact, it exposes the hollowness of such short term ranks, be it a topper or a laggard.

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MUNISH BATRA

Oct 31, 2009

this used to be an excellent news letter but now it is becoming more of an advertisement...need more 'honest truths' in a volatile market scenario not just a product offering...

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Shirish

Oct 31, 2009

Its getting too personal. Quantum MF should not be purturbed by seeing 248/248 rank for one week, and neither they should feel euphoric if the rank becomes 7/248 next week. Thats volatility which is inherent in any stock market! I am afraid that this good column is being used for advertising for Quantum MF. You have been always advocating against the "rankings" system of the MF, therefore, I fail to understand your overreaction to it.
Regards,

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Manish Nagrecha

Oct 30, 2009

QLTEF is doing very good..But i want one change in it..

Under Table Heading like

Quantum Long Term Equity Fund - Performance Data

3 Month End rank is 28 and 3 year rank is 33

But It is will be very great journey toward Better rank in longer term then short term..

And i know you will do it that also..

Congratulation..keep it up

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