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A month after Prashant Jain left HDFC Mutual Fund, the fund house has released a letter written by the star fund manager. Through the letter, Jain has reflected on his investment journey, shared his learnings and thanked all the people who played key roles in his 28-year long journey as a fund manager.
He also shared his reasons to leave the fund house. "I could have continued but I felt it is appropriate to move now as all the stars were aligned. The leadership transition at the company is behind, performance has strongly recovered, “value investing” (rational investing is more appropriate in my opinion) has proven its mettle once again over GAAP (growth at any price) investing and most important the investment team (both equity and debt) at HDFC AMC is second to none in the country and the best that I have had in my career," he stated.
Here's an extract from the letter where Jain shares his key learnings:
a. In my experience, efficient markets hypothesis does not hold true, especially over short to medium periods. Markets can be driven by emotion and herd behaviour for extended periods
b. Sizing is very important. Any portfolio will have its share of big winners, winners, losers and big losers. In my case roughly 1/4 were losers, 1/100 were big losers, 1/20 were big winners and the rest were winners.
c. The data above in (b) highlights what Warren buffet has famously said – Rule no 1 don’t lose money, rule 2, don’t forget rule no 1. I have made more mistakes of omission than commission – some prominent missed opportunities were Asian Paints, Bajaj Finance, Eicher, Kotak Bank, Divi’s laboratories, etc., but successfully avoided the long list of businesses that caused large and permanent loss of capital.
d. Markets are reasonably efficient over long periods. The duration of mispricing or inefficiency can vary from several quarters to several years. It is important in this period to stay the course and remain solvent (for a mutual fund manager this means to retain the job / fund).
e. Equities are a generous asset class. The tailwind of a growing economy and growing companies overshadows mistakes of timing and security selection in diversified portfolios in most cases over long periods. The key is patience to stay invested for long periods.
You can read the full letter by clicking here.
