Bullish markets make investment clubs the flavour of the season6 min read . Updated: 01 Feb 2008, 12:44 AM IST
Bullish markets make investment clubs the flavour of the season
Bullish markets make investment clubs the flavour of the season
What do Shashank Gupta, a software engineer in Mumbai; Vishnu Yarmaneni, an independent portfolio manager in Hyderabad; Basant Maheshwari, an investor in Kolkata; and Nitin Jagtap, a systems applications and products (SAP) professional in Bangalore, have in common?
They all invest in the Indian stock markets and are members of investment clubs—a relatively new platform that is being created in different cities because of the stock market boom of the past five years.
Investment clubs bring together prospective as well as veteran investors on a single platform. Usually, they are a common online forum where the veterans can share their experiences and investing philosophy and discuss companies and sectors.
Going beyond online interactions, in some of the clubs, the members belonging to the same city often meet over the weekends.
In the US, such investment clubs have been active for more than a decade now. One such investment club, which became popular in late 1980s, was the Beardstown Business and Professional Women’s Investment Club, started by 16 women who generated returns more than the index. They also went on to publish a book on investing and appeared on television talk shows.
A small beginning is made in India by three investment clubs—Capital Ideas Club in Mumbai, Chennai Investors Club, and Equitydesk Club in Kolkata. In addition, mail service provider Yahoo Inc.’s e-groups has nearly 1,400 groups on various areas such as short-selling, day trading, women investors and online investing.
Considering the way Indian stocks have run up over the past few years, it’s quite possible that some of these platforms are used by day traders or brokers to push up a stock in which they have invested a big amount. The owners of the club, however, say they avoid such interactions from the online message boards and try to bring in long-term investors only.
To get entry into Capital Ideas Club, an aspirant needs to come up with at least two stock picks, which are thoroughly researched, analysed and give a strong valuation rationale for recommending such stocks. Given the stiff entry requirements, the club has got only 40 members since it opened in last February.
A brainchild of Chetan Parikh, a voracious reader, a hardcore value investor and director of Jeetay Investments Pvt. Ltd, a Mumbai-based investment firm, Capital Ideas Club is modelled on the famous online ValueInvestors Club in the US, called value investors club, which is the brainchild of Joel Greenblatt, founder of Gotham Capital and author of The Little Book That Beats The Market. It hopes to bring together like-minded investors who have a strong bias for value investing. Value investors typically go for stocks, which are underrated, trading much below their potential value. Boston Avenue Capital Fund, a US-based value fund, has just tied up with Capital Ideas Club to take advice on investing in India.
Parikh’s team screens the stock ideas closely, cross-questions the prospective members about their analysis before enrolling them. The stock ideas are then uploaded on the club’s website, capitalideasclub.com. Every member can access these ideas and even question the persons who have generated the ideas. No one knows the actual identity of a member because all members of the club use a unique user identification. Most of the existing members are analysts, independent portfolio managers and finance students.
Mint spoke to a few of them and they said the forum has helped them interact with other value investors.
Yarmaneni, who runs Merino Investments Pvt Ltd in Hyderabad, has been a member of the club since it started. A hardcore value investor, Yarmaneni says that in this current momentum-driven market, it’s frustrating to see that people have made more money in four months than what he has made over two years. “But it’s quite satisfying to meet like-minded people in this club," he says. “When I post my idea, there is lot of brainstorming which happens as other members cross-question my judgement and I get to know about my mistakes, if any."
Before joining this club, Yarmaneni frequently visited ValueInvestorsClub. At Capital Ideas Club, he recommended a stock in February 2007, which almost doubled in price to Rs1,000 by December.
Dyanesh Bhatavadekar, another portfolio manager in Mumbai who advises companies and foreign institutional investors, says the club has helped him broaden his thought process and look at different ways to hunt for value in companies.
He cites an instance of a stock idea posted on the club’s website that talked about how a firm’s stake in a unlisted insurance company will help in unlocking value in future.
Some stocks recommended by the members of the Capital Ideas Club have given returns as high as 100% until the stock markets saw correction in January. Grauer and Weil India Ltd, a chemical company recommended in August 2007 at Rs80, had gone up to a high of Rs200 by December and has come down to Rs120 now.
Unlike Capital Ideas Club, the Chennai Investors Club and the Kolkata-based Theequitydesk.com do not have restrictions on membership. The Chennai Investors Club, that operates as a Yahoo group, was started by Ravinder Padmanabhan, an ex-Citigroup Inc. employee in India, around four years ago. In addition to running an investment advisory firm, Padmanabhan mentors the activities of this club that claims to have around 270 members, including some non-resident Indians. Apart from an online interactive platform, the club holds regular investor meetings in Chennai, New Delhi and Mumbai.
Padmanabhan says the idea of the club is to inculcate a long-term investing approach among its members. At the investor meetings, the stock tips are not the topic of discussion. At these meetings, experienced investors make presentations on various current issues, discuss the developments in the corporate world and talk about global developments that affect the Indian markets.
Gupta, 25, who joined the club last August, relies heavily on the club to understand how to pick stocks.
“I invested in stocks for the first time when markets crashed in last August," he says. “But soon I realized the need to update myself on a regular basis. That’s how I became the member of this club." Gupta picked up two stocks, based on the recommendations given by other club members. One of them, Taneja Aerospace and Aviation Ltd, has given him 40% return in five months and India Infoline Ltd earned 90% return in two months. He has recommended a few of his friends to join the club.
Maheshwari started Theequitydesk.com, an online club, in July 2006. It now claims to have around 2,500 members, including many non-resident Indians. Most of these members are young professionals based in Bangalore.
He admits that most of the people who visit the website tend to have a short-term profile and nobody is willing to wait for three years in this kind of a market.
But the club encourages discussions about fundamental research about companies, sectors, legendary investors across the world, and if any member tries to initiate a discussion only about the stock prices of companies, such interactions are discouraged or deleted from the message board, Maheshwari adds.
A section of the online club, too, profiles legendary investors and their strategies, and news on Warren Buffett gets posted in that section regularly.
The club has helped 33-year-old Jagtap to reduce his bulky portfolio of 50 stocks to almost half. “I spend at least an hour every day to read the website and most of my stock decisions are based on what other members are recommending," he says .
The club’s strength, according to Jagtap, is debate. For instance, last week a fellow member raised an idea about how a resort company’s valuations are about to go up following the listing of another large player in the sector. Jagtap and a few other members did research on the resort company and found that the stock was not worth touching. They alerted everyone on this.
“It’s a healthy development for our markets and a good way of bringing like-minded investors on a common forum," says R. Balakrishnan, executive director at Centrum Broking Pvt. Ltd. “I have come across lot of forums where people spend time in researching companies and share their findings and views with other members."
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