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Prateek Pant, chief business officer, White Oak Capital talks about how investors can approach equity, debt, and alternative investments in the current market scenario. With his experience in providing investment advisory services and managing assets worth $5.5 billion, Pant cautions against impatience and says listening to market noise can harm an investor's long-term wealth creation. Edited excerpts from his interview with Mint:
In the current market scenario, how do you think an investor should approach investments?
In the past few months there has been a lot of interest and participation from retail investors. We have seen a lot of new investors coming into the market for multiple reasons. With interest rates and inflation at all time lows and increased liquidity, we have seen a rally in the market. This is in stark contrast to the steep correction we saw 18 months back. Now this kind of volatility offers an opportunity to investors to build long-term portfolios and create wealth. Our belief is that it is very difficult, almost impossible to time the market at any point of time. It is like a coin flip that has a 50-50 chance of landing heads or tails. Hence taking an entry or exit call or trying to avoid a market correction is a futile exercise. In most market conditions, and more so now, investment requires a lot of discipline. Developing the discipline to remain invested through various market cycles will help investors harness the power of compounding, rightly known as the eighth wonder of the world.
Talking of the power of compounding, how should young investors start their investment journey?
Asset allocation is often referred to as the holy grail of investing and rightly so. Asset allocation suiting your requirements and risk appetite will help you tide over market cycles and create wealth. For someone starting off their financial journey early on in life the focus can be on equities. With increasing age and financial responsibilities, a person can start investing in debt, real estate and other alternative investments. We often say that your percentage of equity allocation can be 100 minus your age. For someone just out of college and on their first job, a disciplined way of investing at least 30-35% of earnings will ensure financial goals in the future can be met.
In the current low interest market scenario how can an investor build a diversified portfolio that balances wealth creation and safety?
For an investor looking at equity investments there are mainly two options – stocks and mutual funds. When it comes to stocks, the risk is high and one may not have the time and understanding to do the necessary research. This is where mutual funds that are managed by qualified fund managers come into play. Within mutual funds as well, an investor can diversify investment across geographies, size of companies and industries. Investors with lesser risk appetite can consider large cap funds whereas those with slightly higher risk appetite can look at multi cap, flexi cap and small cap mutual funds. International mutual funds and fund of funds price investors’ exposure to other geographies like US, China, Japan etc. are a good way to diversify within equities.
Speaking of equities, how should investments in IPOs become a part of a person’s portfolio?
IPOs are a subset of the equity universe and there are interesting opportunities in the market right now. Until now only private equity and venture debt investors had access to new age tech, consumer tech and education tech companies. However the recent IPOs are giving retail investors the opportunity to invest in such high potential opportunities. However, until now these companies have only been focusing on building their customer base and creating a customer experience. Thus, many companies don’t have positive cash flows or profits and thus investors should be wary. It is important to understand that with very little past history and data, these companies could either be long-term wealth creators or go bust. Hence understanding the long-term prospects, future cash flows and business model are important before investing.
How should one approach the debt allocation in a portfolio?
Debt allocation in a portfolio is for fixed income and safety. We are seeing a cycle of low interest rates all over the world and there aren’t too many opportunities in the debt category that earn yields of 7-8% per annum like a few years back. Investors should not take unnecessary credit risk just to earn returns and should instead aim for capital preservation and some small fixed income component.
You can listen to the entire interview here.
