Prashant Jain’s 80-20 formula for winning in the stock market: HDFC veteran MF sums up the wisdom in a farewell letter

One of India’s best-known and most successful fund managers, Prashant Jain, ended his 19-year tenure at HDFC Mutual Fund this week, after stepping down as Chief Investment Officer last month, marking the end of an era in the mutual fund industry. In his parting letter to company employees, the industry veteran spoke about his journey of the past 30 years as a fund manager and also shared valuable investment advice. “I consider myself lucky and blessed to end this round on a winning note and achieve a seamless and smooth transition,” said Prashant Jain.

20% effort – 80% results

In his farewell letter, Jain shared the “Pareto principle”. “While pursuing PGDM at IIM Bangalore in 1989-1991, I was introduced to this principle. It says that usually 20% of the effort yields 80% of the results and vice versa. My investment experience in is a good illustration,” he said. The fund manager said he invested in a total of 465 stocks across the three funds he managed. One in four stocks lost money. Of the total net gains of around Rs 87,000 crore (including dividends), 55 shares accounted for a gain of over Rs 74,000 crore (including estimated dividends), or 85% of the total.” If only we had the wisdom to avoid 90% of the investments and invest in all 55 stocks instead!” he said.

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For the uninitiated, Prashant Jain started his career in May 1991, when he became the second member of the SBI Mutual Fund equity research team. He was given the added responsibility of managing the money market office and posting that he was appointed as the head of a scheme. After a brief stint in fixed income at SBI MF, he was assigned to Centurion Prudence Fund, a balanced fund closed in 1994, which was renamed Zurich India Prudence Fund, HDFC Prudence Fund and finally HDFC Balanced Advantage Fund (BAF ) over the years. . This fund has generated a CAGR of 17.91% over the past 28 years and 7 months. According to Jain, Rs 100 in this fund grew to Rs 10,940 during this period.

Trip from Rs 100 to Rs 10,940 of the HDFC Balanced Advantage fund

In the letter, Prashant Jain explained his background as a fund manager at HDFC AMC. “Looked at another way, this trip from Rs 100 to Rs 10,940 was largely the result of 6 to 8 key decisions,” he said, referring to the returns of the HDFC Balanced Advantage Fund over the past few years. last 28 years. These key decisions included staying out of the “ bubble” of the late 1990s; turn to FMCG and pharma, which outperformed in 2002-2007, and bet on capital goods, utilities and investment banks in the 2010s. “The markets are reasonably efficient over long periods. The duration of poor pricing or inefficiency can vary from several quarters to several years. It’s important in this time to stay the course and stay solvent (for a mutual fund manager that means keeping the job/the fund),” Jain wrote.

Herd mentality more often wrong than right; best yet to come in PSU stocks

Discussing his bet on PSU (public sector enterprises) stocks which underperformed sharply in 2018-20, Jain wrote in his letter: “As is often the case in investing, the behavior gregarious and majority opinion is more often wrong than right. The strong outperformance of PSUs in recent years (I believe the best is yet to come) reiterated this yet again. He further stated that it is encouraging to see PSUs increasingly finding their way into more and more mutual fund portfolios and that he is confident that they will eventually find their way into more and more mutual fund portfolios over time. more FII wallets and direct wallets as well.

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Generous share class, stay invested for long periods

One of the most important tips Jain shared in his letter was to be patient when investing in stocks in order to reap returns. He said: “Equities are a generous asset class. The tailwinds of a growing economy and growing companies eclipse timing and stock picking errors in diversified portfolios in most cases over long periods of time. The key is patience to stay invested for long periods of time.

Move on

Concluding the lengthy letter, Jain said: “Having done little other than manage money for 30 years and that too in one place, it is very difficult to move on. I could have continued but felt it was appropriate to move now as all the stars were aligned…I had a strong desire to move when NIVs were near their all time highs and there were the alpha through the periods. So I ran out of reasons to hang on. As if that weren’t enough, the assets under my management broke through Rs 100,000 crore a few days before I tendered my resignation – I take this as a divine boost to make room for others,” he added.

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