is good? Naaahhhh!!!
when it comes to delivering performance in a process-oriented manner to
long-term investors, and definitely not if one wants to stick to the promise of
a defined mandate.
yet to meet a chef who assures me that she can maintain the same quality value
of servings at a consistent price in the face of unlimited guests and a
dilution in quality of available raw materials!
Every good quality offering has a finite capacity defined by the
ability to maintain consistent inputs and adherence to process – all of this
assuming one wants to maintain consistent output.
money in stock market is a game of probabilistic outcomes. Whatever we may say,
none of us in the market controls share prices or our NAVs! What we do control
is what kind of companies we buy; what is the quality of earnings – defined by
rate of growth and longevity of growth that these companies can produce and,
most importantly, what level of understanding we have of these dynamics.
you play a game with probabilistic outcomes, where you do not control the
outcome; what you can only control is the consistency and quality of inputs.
Our stock market is not such that you can maintain the quality of companies or
quality of stock picks - whatever your filters may be - in the face of
unlimited fund size. Every strategy has a capacity.
But most fund managers, especially AMCs, are influenced by
Gordon Gekko in Wall Street.
Greed is....! Uh oh!
a fund size runs out of capacity – they change the filters; they change what
they are looking for – most certainly a smallcap fund would start buying
midcaps – either by changing the mandate, or worse, by changing the definition
of what smallcap means.
successful midcap fund eventually becomes multicap and an unsuccessful multicap
fund becomes dynamic, and so on and so forth.
does it mean to existing investors? Simply put, you no longer own what you
originally bought. The size has become big and the same strategy cannot be
executed with same quality focus and the number of stocks goes up to 60-70, its
financial democracy, midcap is now $6-7 billion market cap and you are seeing
or likely to see dilution of returns.
board a bus, which was point to point and air-conditioned. Now, the bus company
wants to load more passengers – the bus will stop at more stops, some people
will sit on the edge of your seat or stand on your head and the
air-conditioning may get switched off and windows opened when lot of people
All the best...
Aashish Sommaiyaa, MD & CEO of Motilal Oswal AMC.
Disclaimer: The opinions
expressed in this column are that of the writer. The facts and opinions
expressed here do not reflect the views of www.moneyfront.in. This article
was first published on ET Markets Online. This article has been provided
by Motilal Oswal.