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At the Cafemutual Ideas Fest 2024, Harshad Patwardhan, CIO, Union Mutual Fund shared a fresh perspective to generate alpha.
Patwardhan said that his friends always ask him how the market or a certain stock will perform in the near future. They often gather information from the internet via finance-related influencers who give confident predictions on how the market will work in future. He; however, tells them that social media experts talk in probabilities, which cannot be considered as a definite prediction.
In this environment of uncertainty and an unknowable future, Patwardhan believes that the approach of thinking of the long term as a series of short terms is optimal. Giving an example, he said that even during the economic crisis of 2008, the dispersion between the leading and lagging sectors was 40%. This suggests that there are alpha opportunities available no matter where the market is.
Patwardhan said that pretty much everything that matters in the market goes through cycles. Whenever an expert talks about the future, they look at the linear line and extrapolate the short-term into the future. Whereas in reality, everything fluctuates. This also includes investor sentiments, which range from the ‘depths of panic to heights of euphoria’, said Patwardhan.
The Union MF CIO pointed out that the ‘Buy & Hold’ strategy may be a good strategy at an asset-class level but it’s not the best idea at the sectoral or company level. He suggested thinking about long-term investment in terms of cycles.
Patwardhan believes it is important to acknowledge and embrace the cyclicality in everything ranging from sectors to companies and stocks. Finally, he suggests the most important thing is to identify where you are in the cycle and position your portfolio accordingly.
Check out the full session by Harshad Patwardhan HERE.
