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):
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
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)
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.