I was not a big fan of investing in the stock market. However, one piece of investment advice from my father – ‘never put all your eggs in one basket’ – was always ringing in my ears. Besides, I needed to fuel my desire to buy an upscale apartment in Namma Bengaluru. Hence, approximately about 5 years back, on one fine day, I decided to get into the stock market, which is the most legal way of making money, quickly if one plays it right. I did similar thorough research, like I do before I get into any new line of surgeries. I must have read more than 15 investment books by the top investment gurus. This knowledge fulfilled my investment and financial goals. However, I decided to exit the stock market and invest in well-researched mutual funds, mainly because my schedule and commitments did not provide enough time for me to follow the market, even though I was not a speculator. Besides, when you’re earning an average of 35% CAGR in mutual funds, which doubles your money every two years, you don’t have to worry about following the market. Anyway, I want to pass on my successful investment knowledge to my peers through this series of articles.
The Essence of the 6 M’s in Investment
Investing in today’s business world requires more than just capital; it demands a deep understanding of fundamental principles that guide successful investment decisions. The 4 M’s of investment—Meaning, Moat, Management, and Margin of Safety, Market Knowledge and Moxie-ism—constitute a crucial framework for investors seeking to uncover the true potential of a business. This strategic approach, developed over years of investment practice and analysis, is essential for navigating the complex and often unpredictable terrain of the investment landscape.
The Crucial Role of Meaning in Investment
In the world of investment, ‘Meaning’ holds a special place. It’s not just about the financial metrics but about the personal connection and understanding an investor has with a business. This core principle is about aligning investments with one’s own knowledge, expertise, interests, and values. In the Indian context, where diverse industries thrive, understanding the ‘Meaning’ aspect can offer a distinct advantage. This alignment ensures that the investor is not only emotionally invested but also intellectually equipped to understand the business’s intricacies.
Investing in what you know and understand provides a significant advantage. It enables you to make more informed decisions, as you are more likely to be aware of the industry’s trends, challenges, and opportunities. For instance, an investor with a background in technology would be better positioned to understand and anticipate the potential of a tech start-up compared to someone from a non-technical background.
The Importance of Aligning Investments with Personal Values
Meaning also extends to aligning investments with personal values and ethics. In an era where consumers and investors are increasingly conscious about corporate responsibility and sustainability, investing in companies that share your values can be both morally satisfying and financially rewarding. For example, investors concerned about environmental issues might focus on companies with strong sustainability practices or those involved in renewable energy.
Leveraging Expertise and Passion
Investors who leverage their professional expertise or personal passions when choosing their investments often find the process more engaging and intellectually stimulating. This engagement can lead to better monitoring and more strategic decision-making. For example, a healthcare professional may have a unique insight into the viability of a new healthcare technology or drug, giving them an edge in making investment decisions in the healthcare sector.
Understanding the Business: The Key to Informed DecisionsThe essence of ‘Meaning’ in investment lies in focusing on industries or companies that resonate personally or professionally. This understanding goes beyond superficial knowledge of a business. It involves a deep dive into the sector’s dynamics, trends, challenges, and growth potential. For instance, an investor with experience in the Indian IT sector might find it more intuitive to invest in a company like Infosys or TCS, understanding their business models, market positioning, and growth trajectories better than someone without this background.
Examples of Indian Companies and Industry Alignment
Consider the case of Reliance Industries Limited (RIL), a conglomerate with a massive presence in sectors ranging from telecom to retail. An investor with an understanding of the Indian telecom market would appreciate the disruptive impact of Jio, RIL’s telecom arm, and its implications for future growth. Similarly, those aligned with the retail industry might find value in RIL’s expansion into e-commerce through JioMart, understanding its potential in India’s rapidly growing online retail space.
Aligning Investments with Personal Values
Meaning in investment also encapsulates investing in line with personal ethics and values. In India, where environmental consciousness is growing, companies like ITC Limited, known for their sustainability initiatives, can be attractive to investors prioritizing environmental responsibility. ITC’s commitment to environmental stewardship, evident in its sustainable business practices, aligns with the values of investors keen on supporting eco-friendly businesses.
The Rise of Ethical and Sustainable Investing
Sustainable and ethical investing is gaining momentum in India. Companies like Tata Power, with its focus on renewable energy, offer investment opportunities that align with the growing global shift towards sustainability. Investors concerned about climate change might see such companies not just as financial investments but as aligning with their worldview on renewable energy and sustainability.
Emotional Connection and Brand Loyalty
The concept of ‘Meaning’ also extends to emotional connections and brand loyalty. Maruti Suzuki, a household name in India, exemplifies this. An investor who has grown up seeing the brand’s evolution and holds a sentimental attachment might be more inclined to invest in it, understanding its deep-rooted brand loyalty among Indian consumers.
Risk Mitigation through Understanding
Investing in industries and companies well-understood by the investor can also act as a risk mitigation strategy. Being familiar with the industry’s nuances allows investors to foresee potential risks and challenges better, enabling them to make more strategic investment decisions. For example, an investor with knowledge of the pharmaceutical industry would be better equipped to understand the regulatory and competitive challenges faced by companies like Sun Pharma.
The Tech-Savvy Investor: Tapping into India’s IT Boom
India’s IT boom presents a clear example where understanding and passion for technology can translate into successful investments. Tech-savvy investors might find companies like Infosys or Wipro attractive, given their grasp of the IT sector’s growth drivers, including digital transformation and IT outsourcing.
The Retail Revolution: Understanding Consumer Trends
Investors with insights into consumer behaviour and retail trends might be drawn to companies like Avenue Supermarts, which operates the D-Mart chain of supermarkets. Their understanding of India’s retail sector dynamics, consumer preferences, and spending patterns can offer a clear advantage in evaluating such investment opportunities.
The Power of Personal Relevance in Investing
Overall, ‘Meaning’ plays a pivotal role in the investment process. It’s about leveraging personal knowledge, expertise, and values to make informed and aligned investment decisions. In the diverse Indian market, where sectors range from technology and retail to pharmaceuticals and renewable energy, understanding this principle can lead to more strategic, satisfying, and potentially rewarding investment choices. The key lies in recognizing that investing is not just a financial decision but also a personal one, where alignment with personal knowledge and values can lead to greater investment success.
Prof. Dr. Prahlada N. B
10 December 2023