Advisory and “do it yourself” options

These are some excellent DIY options for investing your excess savings, but do note that here  you manage your brokerage account.

Many capable investors can’t be bothered with going “formal” with a PMS product for others. The route entails a lot of regulatory work and costs, and is justifiable only at a certain critical level of scale. But, they are extremely well read, articulate, and do have fantastic ideas.

From a fee perspective they are much cheaper than PMS offerings, and interests are also fully aligned, but they do need you to have the mental makeup to actually executing the trades & mirroring the model portfolios on your own. This is clearly not for everyone; if you don’t have this familiarity, you’re better off sticking to good mutual funds or a PMS where all of this capital management is done for you by professionals.

I should distinguish here between a full-fledged portfolio-advisory service (ex: Chauhan) & a stock-advisory service.  There is a world of difference between the two. There are innumerable stock-advisory services & they should be avoided as far as possible. A stock-advisory service simply says “this is a good company/stock, go buy it”. They qualify their degree of confidence in the recommendation by saying – this is a 5% position, or a 3% position etc. Once you subscribe, you must go through the list of previously recommended stocks & see for which ones there is still a Buy recommendation, then execute the order per the position weight (3% etc). In such a stock-advisory service, there is typically not much thought given to what kind of cumulative risks may be built up from the stock recommendations. Portfolio construction – the art & science of how to allocate capital to a certain number of businesses, is a complex subject, and not putting a lot of thought into this has its consequences. More on this here. A full-fledged portfolio-advisory will take into account these considerations,.

Best Portfolio Advisory service

Rohit Chauhan – runs one of the most widely read blogs on Value Investing in India.
You can find a lot on his excellent blog. Here’s a recent interview at SafalNiveshak which serves as a good starting point.  There’s another in-depth interview at Gurufocus as well. Here’s his site : RC Capital Management.

Rohit has averaged ~25% CAGR since 2011 (as of Jan’19, after the 2018 midcap thrashing), with extremely low turnover (long holding periods), and a high share of high quality businesses. For CY 2018 his model portfolio was down only 14.3% vs 25-30% for a comparable large basket.

He has >20 years of experience in the markets, and a good chunk of his last decade’s thought process is well documented on his blog. His portal doesn’t have the best website / UI but the quality of his writing & analysis is first-rate. Despite “only” running a rather low-cost advisory service, he is amongst the most thoughtful fiduciaries I can think of & has a very keen eye on risk management. I’ve read a very large chunk of his public and private write-ups on businesses and I can share with you they are ‘best in class’. Here’s an excerpt from his Jan’19 annual letter (quoting from his 2017 letter to clients):

Rohit Chauhan excerpt from 2017 letter

Jatin Khemani – runs Stalwart Advisors, the advisory platform he maintains to share his investment ideas. He’s uncovered some fantastic gems over the past few years, and this site gives a good overview on his it all works. He maintains a very good blog here. A recent talk he gave at the FLAME institute is a good starting point to know something about his thinking. More recently, he gave an excellent talk “Individual Investor’s Real Edge” at TIA, Chennai. More recently, he outlined his thesis on a specific company at the TIA Oct’18 summit.

Chetan Phalke & Shiven Tapadia run Alpha Invesco . Their ’17-18 annual letter is a good place to start learning about their approach. Chetan can also be seen presenting at the Bloomberg 20-20 summit; you can get a good understanding of their stock-specific research through this.

 

diy options that are similar to a pms

Recommended

Ankur Jain runs a similar portfolio advisory service with likely a similar min amount to be advised. He has an excellent blog here. Puneet Khurana of Stoic Investing interviewed him in Feb’16 [link & podcast]. Ankur worked under Prof. Bakshi at Tactica Capital. He’s a person of high integrity & remains generally below the radar. You can get his latest deck etc by writing him at ankurjain2100 (gmail)

Not Recommended

Purnartha, run by Rahul Rathi. I believe they advise >2,200 Cr of proprietary & client money. You can see the full interview of Mr. Rathi being interviewed by legendary investor Mr. Damani here. It is run like a PMS not really – they don’t touch your accounts. You manage your own brokerage account. They need proof of your transaction; they keep the accounts and calculate fees as any other PMS would. They generated a 44% CAGR from Apr ’09 through Sep ’18. Of course they started from a low base in 2009, but the returns are still well above what most funds  / strategies achieved. The strategy tends to be ridiculously concentrated in 4-5 companies (This is a high risk approach, please understand this works until it doesn’t).

The concentration juices up the returns when things go well, but also burns on the way down. This kind of concentration into 4-6 companies is to me a bit suicidal and unwarranted. I think that level of concentration is perfectly fine for someone as an individual investor, but I don’t think managing client money with that kind of concentration is a good thing. The lack of diversification is a real concern. The second concern is how much they pay up to buy growth. They seems to be ok with almost any price for growth. There is no doubt that the companies selected are by themselves are very good or even exceptional. But there’s always a question of price paid for acquiring stakes in them. In my view, they pay way too much.

It is true that there is margin of safety in that kind of quality, so principal loss is very unlikely. But one is taking a very large valuation & re-rating risk – and the concentrated nature of the bet will not help if things turn south. See the book “Concentrated Investing” – even the world’s foremost investors have kept 8-10 companies. Note these are their own accounts, not client funds. Please see this entire presentation by Samit on this subject.

Purnartha tends to be rather greedy on their fees and push would-be clients to front-load a large chunk so they ask for fees upfront on 3-year contracts where they intentionally set a high hurdle rate. In my view, their pricing is too aggressive, especially given that they don’t actually manage your accounts.

Further, Rathi is on record to state (interview with Damani, youtube) they have an investment philosophy of buying companies that are available for a market cap = 7-9 years of cumulative operating cashflows but they regularly violate their own framework & then their research head just says “boss approved”. I think the key criticism with Purnartha is a) very high risk (concentration), b) unethical (but legal) front-loading of fees. On a related note, see the chapter on importance of fees (and minimizing them) in the recent book “Coffee Can Investing“. Worth a read.

 

38 thoughts on “Advisory and “do it yourself” options

  1. satish satija says:

    Hello,

    Just wanted to know the basis on which you have shortlisted these advisers. Since there are hundreds of them out there. I have been looking for an adviser but haven’t been able to decide simply because there are so many. What criteria according to you should be considered while finalizing an adviser.

    Like

    • valueinvestingfundsindia says:

      Hi Satish, there may be many other advisory options, no doubt.

      Rohit Chauhan, Jatin Khemani, Chetan Phalke & Ankur Jain are all very high quality individuals who I would be personally comfortable in trusting with a portion of my family’s savings. That’s the litmus test you should be aiming to pass for yourself.

      Some advisory services aim to ‘get rich quick’, riding momentum plays, risky turn-arounds & going down the quality curve. Others (like Chauhan, Khemani, Ankur) aim to stay high on the quality curve. The question you’ve to ask yourself is – 1) can you discern the difference & 2) do you care?

      If you can discern, then read up all you can about who is providing the advisory service & try to gauge their thought process.

      From all I’ve read, these (above) are 4 outstanding individuals; there could certainly be more. Amongst these, Chauhan has been around the longest, so I’d say he is the most experienced. I subscribed to the first three & can vouch for them. The kind of research and analysis these 3 individuals do is excellent.

      As just one example, consider the excellent business & mgmt of Wonderla. Prof. Bakshi seems to have it in his moat fund according to public disclosures. Jatin has recommended this very high quality business to subscribers at the 250-level & has even made this particular research public.

      My other preference is for quality companies. There are services like “Ride2Riches”, “Arun the stock guru” & many others “multi-bagger” types who aren’t necessarily focused on quality businesses & are run by youngsters who haven’t read or experienced nearly enough. I would personally stay away from them.

      To me, the annual cost of a portfolio advisory services is Not a determining factor.
      I’d instead prioritize the following 4 things :

      1. Experience of portfolio-adviser
      2. (Your) Comfort in the depth of their analysis, approach & emphasis on risk management.
      (see interviews, articles written by them)
      3. Kind of businesses they oversee (quality, higher the better for me)
      4. Returns, if available. (this is the least important if I am truly comfortable on the first 3 criteria).

      Hope this helps, let me know if you have any further questions..

      Like

      • Surinder says:

        Hi, I’ve been talking to Vallum, but have not got any notes on “Mistakes-Exits”. Their only risk management strategy is to keep 20 stocks, blindly without portfolio up-sizing/downsizing as Rohit Chauhan does. Pls share any experiences with this team. Thanks

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    • happyandemotionalsingapore says:

      Hi, can you please share your thoughts about Dr vijay mallik and amith jain model portfolio services.
      Which of the services you have subscribed for and from when.
      I am looking foro one who provide me the good reports and updates for the model portfolio.
      HDFC nri demat charges high, 0.7%. What are the alternatives do we have?
      Thanks.

      Like

      • valueinvestingfundsindia says:

        Hi,
        not a fan of Dr. Vijay Mallik’s approach. Also – he’s only been investing since 2011.
        No idea about Amith Jain service.
        I’ve tried Chauhan, Stalwart, AlphaInvesco, KatalystWealth & a couple of others. Chauhan’s is the best. Stalwart #2.
        On brokerage – I’ve been using Zerodha (0% for delivery) since mid-2016, never turned back. If you want to go with a big name, Motilal Oswal is at 0.1% which is also not bad. Although App & Website of Zerodha far outshines MOSWL – or any other brokerage platform. Take your pick.

        Liked by 1 person

      • happyandemotionalsingapore says:

        Hi Bro, Thanks for your reply. It’s crisp and straight to the point. I am asking below for knowledge.
        1) DrVijayMallik also follow fundamentals &bottom up approach like Rohith. What else is the difference except experience.

        2.1) Being NRI,I could not use the Zerodha because they wanted me to provide the PIS from HDFC/AXIS/YES bank (SBI not in the list). I hope you are also NRI. Did you follow this process (https://zerodha.com/z-connect/zerodha/open-an-account/nri-trading-on-indian-stock-exchanges) ?
        2.2) How much the HDFC bank charge for each contract note and annual maintenance.
        Thanks.
        PS: I hit “Reply” button to my comment because no “Reply” button to your comment.

        Like

      • valueinvestingfundsindia says:

        1. Most stock pickers follow fundamentals. Experience is super important esp for a thoughtful person. Mallik’s lens / framework is quite simplistic – looking for cheapness. It is one variant of the Graham approach. Plus his portfolio is more concentrated than Chauhan, despite having lesser experience.
        Further “There is no provision of any research report/recommendation note to be published/made available to investors as this service is to provide a glimpse to the investors into my personal portfolio management and related actions.”

        2. Not an NRI anymore & even when I was, Zerodha was done through my family accounts. Left HDFC long ago as lousy app, lousy website & most imp – charges were too high.

        Like

  2. Dr Mahesh Khandelwal says:

    Yes . Started PMS of Purnartha 2 months back . Excellent performance. Very encouraging stock selection. Would highly recommend. Also subscribed to alphainvescio . Good stock selection but prefer Purnartha

    Like

  3. Bahadur says:

    Alpha Invesco doesn’t provide guarantees and also do not seem to have plan for profit sharing. So they don’t have “skin-in-the-game”. As compared to that – Purnatha seems to have a very high profit sharing model and so can be trusted more, or not?

    Like

    • valueinvestingfundsindia says:

      Hi Bahadur, only FDs provide guarantees. Equities by nature cannot have guarantees, so there is no question of Alpha Invesco or Purnartha or anyone else providing a guarantee. Any advisory “guaranteeing” returns of course should be avoided. Alpha Invesco & Purnartha both have skin in the game. Purnartha concerns I’ve laid out on the page in detail. Rest left to you.

      Like

      • Bahadur says:

        thanks for the reply and sorry I used the wrong word of “guarantee” in discussion about equity 🙂

        My point was skin-in-the-game. Can you please elaborate on Alpha Invesco’s strategy? Somehow I didn’t see any profit sharing mechanism on their website either. I’m not able to decide between these companies because Purnartha presentation is very tempting but some online reviews (including yours) are not good. Also, the Ujjivan saga of Purnartha is out in public but so is LEEL for Porinju. By that standard Alpha Invesco seems to be very secretive in operations. Not sure if it is good or bad.

        Like

  4. valueinvestingfundsindia says:

    No worries! There is no mention of it on the Alpha Invesco site because there IS no profit sharing at all. It is strictly an advisory; rest left to you to execute. A.I is not secretive actually, you are free to read their blog, their letters etc. Their strategy is to look for deeply undervalued companies & build a portfolio of 5-10 companies to buy & sit tight. They have 7 currently. If you have more questions you may reach out to the contact email & start a conversation.

    Purnartha I’d avoid, but not because of 1 stock down 35%. LEEL’s capital loss in contrast involved a series of compounded poor decisions at EI, no doubt – and they recognize it now. Mistakes happen. In the case of EI, this kind of mistake becomes more material because of super high concentration (10 companies). When a stock goes up 5x or more in such a portfolio, the overall returns are mind-boggling – and everyone wants to only take concentrated bets. You only realize how important a “minimum” level of diversification is once you’ve actually burned your fingers. Until it hurts, returns tempt – and then maybe an interest in risk mgmt takes over. Please see http://valueinvestorindia.blogspot.com/2015/09/a-catalogue-of-risk.html.

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    • valueinvestingfundsindia says:

      The LEEL saga is well documented – just google LEEL Porinju and you’ll have your info in the first 5-6 links.
      Ujjivan, AFAIK isn’t a “saga” of Purnartha. Unless they’ve advised a SELL call on it, this is just a case where CMP (~315) is lower than their orig suggested price (~430), not a case where corporate governance went wrong or misjudgement on biz model etc. For more on this pls see Ravi Dharamshi’s presentation on SFBs at IIC. https://indianinvestingconclave.com/alpha_series

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  5. Yash says:

    First of, I really like your writings. Thank you for what you are doing. Would be great if you could answer my question.

    Do you have any view on these advisory services? I see them being mentioned in multiple other places.
    -Prudent Equity
    – Moneylife
    – Capital Mind

    Like

    • valueinvestingfundsindia says:

      Thanks Yash.
      No strong view on Prudent Equity. Do distinguish between a full-fledged portfolio-advisory service (ex: Rohit Chauhan) & a stock-advisory service (Siddharth Oberoi). Not a fan of “Min 8 stocks a year” approach & neither the selling of “multibagger” services.

      Tried Moneylife but personally found it very unsatisfactory on the info front. No doubt Debasish Basu’s record is excellent but I couldn’t bring myself to have any conviction on their recommendation based on a 2 line summary thesis. Wouldn’t recommend it to anyone who would like to understand where and why they are allocating funds.

      Capital Mind – Deepak Shenoy is a very intelligent person, I think he’s likely to do very well over the coming years. However, it is straightforward to stack up the 20+ years of investing experience someone like RC has vs Deepak. Experiences are invaluable & I’d be a lot more comfortable with seasoned hands guiding me / my family where to allocate funds.

      Like

      • Mohit says:

        Sir…just wanted to clarify that Siddharth Oberoi has 25 years of experience in Indian Stock Market. Secondly it is not minimum 8 stocks. It is atleast 8 stocks. It can come in one year or more. Only after that renewal is required.

        Like

      • Yash says:

        Thanks for your reply. If I give a bit of context maybe you can help me direct to the right service.

        I am in late 20s with majority of my equity exposure in MFs. I am planning to allocate a certain corpus to active investing in stocks by doing my own research. The idea is to not necessarily chase the highest returns but to get my hands dirty and learn over years. I am not looking for a portfolio advisory but want a refined list of stock ideas which I can research and debate instead of getting influenced by whats in the media and losing my money & desire to learn over it.

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  6. Dr Mahesh Khandelwal says:

    Through your blog I came to know about Purnartha and Alfainvesco. I had subscribed to both in 2017 . First year that is 2017 was excellent for Purnartha but all gains were lost in 2018 and again beginning of 2019 is very good . Thought there portfolio is very concentrated but excellent companies. Alfainvesco is very poor in stock selection and non of there stocks did any good in 2017, 2018 or 2019 worst example is TBZ. Less is said about this is good . Any time thumbs up for Purnartha and stay away from AI

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      • valueinvestingfundsindia says:

        I would generally believe / trust in the return numbers published. Of course, I am not certifying anything & doubt is a good thing. If you have a doubt, you can ask for audited copy of their numbers & see what they give. Maybe they won’t give, or will give only based on your entry ticket amount. No harm asking. Given they manage such a large AUM, my sense or base expectation is – I don’t think they will play around with their return calcs.

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  7. pawan3796 says:

    Hi Sir,
    This page shares alot of your experience and will help many like us. Would like to know your comments on Stallion Advisory(Amit Jeswani). What I liked about this advisory its transparency and they do alot of communication at querydesk and monthly newsletter, always available to respond and decent on performance front as well. They have even started the PMS.

    Like

  8. Rajib says:

    Hi,

    Sincere thanks for putting this blog up and maintaining it so diligently. This is an excellent piece! I have following your update here infrequently for over past 2 years. This is getting better over time. You have captured the essence and key pointers that someone needs to seriously consider for investment in PMS. Thanks for your efforts, research and perseverance to continue to enrich this blog. There are many dud PMS in India who could not even reach a decent RoI compared to average large cap mutual funds. This blog helps a lot who wants to invest in PMS for long term (> 7 years), and provides a key take away that selecting a PMS provider is much more than just about just historic returns!

    I remain invested in Alchemy PMS for past 7 years. They are one of the largest PMS in India in terms of AUM. Their CAGR since inception (2001 or so) is somewhere 25%, as they claim. For my investments, I have got a net return (exclusive of fees and everything) of around 18% CAGR, as of end March 2019. I am happy with their performance. I have also invested decent as SIP continuously in some of the leading Mutual Fund schemes for past 10+ years and I have got around 11-14% odd CAGR in reality (net of everything, as on same date) while I do see mention of 20+% CAGR for in their brochure etc. For Alchemy, I can say that they are professional in their dealings and process oriented in client interactions. I do not know if one can get access to talk to their top bosses. For investments, Alchmey remain largely in larger mid-cap space and not very small-mid cap or small cap. Due to this approach, while they don’t deliver super normal returns, but downside risk has been minimal during bad years.

    Inspired by your blog, I did my own analysis and I am now seriously thinking if I should put some money with Portfolio Investment Advisors, and I really liked your choices. The idea is to put some surplus money with an expectation to get ~25% CAGR (over long-term) but with a higher risks. I am OK with this risk.

    I am thinking to go with either of Rohit Chauhan or Ankur Jain as Portfolio Investment Advisors. Alternately, I have been considering to go for Vallum and Equity Intelligence as additional PMS. However, I am not finding comfort in Master Portfolio Services, who will be involved for Vallum. As I understand Vallum PMS offering is of Master Portfolio. I do not know if Vallum works with other brokers. For Equity Intelligence, I still will do some interaction with them but I feel that they take significant risks for chasing growth. Also, they AUM is quite big for investing into small cap stocks.

    I look forward to your thoughts and inputs in this context of Rohit Chauhan, Ankur Jain, Vallum, Equity Intelligence if I should chose only one of them with this above background.

    Like

    • valueinvestingfundsindia says:

      Hi Rajib,
      if you are comfortable doing basic arithmetic, maintaining an excel sheet & maintaining buy/sell discipline as per an advisor, then a DIY approach can save you a LOT in terms of fees. These fees of PMSs add up over the years, and one has to be cognisant of them.

      With Ankur I believe it works like a managed account – everything is now automatic (he handles the execution side as well). RC also offers this option for a fixed annual fee (like a PMS). But the cheapest option is to follow an advisory.
      RC’s subscription service fits the bill here. Ankur doesn’t offer such a service, and RC is more experienced than anyone who runs an advisory.

      Vallum & EI are PMS offerings, and as you already seem to be comfortable with Alchemy, maybe best to stick with them for your managed account.

      Like

  9. Rajib S says:

    Hi,

    Thank you very much for your response and comments. I agree with you. I am working on these lines and may be I will split the fund between two providers to reduce risk.

    I am however, curios to understand reasons for PMS companies getting such high inflows of retail customers (as well as capital) as compared to these top-of-the-rank (and well proven) pure-play “Portfolio Advisors”, after looking the cost vs. past performance. Is it due to their (PMS) own sales force, own channels, branding & marketing efforts ? Is it that “Portfolio Advisors” do not put such kind of efforts on sales , branding , marketing ? Or, “Portfolio Advisors” are happy to remain with limited customers and focus to earn from their portfolio returns ? Or is it something else ?

    Like

    • valueinvestingfundsindia says:

      Hi Rajib,

      I think the bigger AMC houses spend quite a bit on getting new funds through the PMS route. (Fees that need to be recovered from their clients!) AFAIK, SageOne/ Vallum/ SIMPL etc don’t spend a rupee on sales & marketing. Many quality PMS providers don’t want to chase money, but would rather wait for the right type of clients (patient capital) to come to them.

      That said, two major issues with DIY Portfolio Advisors are :
      1) Reach – very few even hear of them
      2) Client capability. Most retail clients can’t go down the DIY way.

      As an example, Jatin or RC or Ankur Jain are all well qualified to handle OPM (other people’s money) but so far have chosen to do it in a simpler format. Going the formal way (PMS) means a fair bit of regulatory work, compliance work, administrative checklists & processes to follow, to make sure your operations staff has the adequate training etc.. So some capable individuals simply choose to not go along the PMS route.

      Like

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