There are some stocks which have a high risk reward equation for investors, but the equation does not work for the investment manager
Let me explain – There are some stocks a fund manager can buy and even if he loses money, his investors will not be upset. Think of HDFC bank or Reliance industries
And then there are stocks which if you lose money, you will be questioned (to put it mildly). There have been such positions in our portfolio in the past. The prime example was Shemaroo. I still have some of those emails with me as a reminder
We try to ignore the noise and act as rationally as possible. That said, I am human and experience the same emotions. We are far tolerant of such positions in our own portfolio compared to what we recommend for all of you. Neuland labs was not entirely in that bucket, but had elements to it when we re-initiated the position
To begin with, we lost money on it in our first try. We were cautious in restarting the position and did not want to impact the portfolio if it failed again.
High returns are not free
There are some positions which have worked very well in our personal portfolio, but we will not add to the model portfolio. These are small cap, turnaround companies which have a higher risk reward ratio. Also if things go wrong, exit is not easy.
There is no free lunch in the stock market. We are not going to find a 20% compounder with 25% ROC valued at 10 times earnings. There was a time when such stocks were available and I was lucky to invest in some, but those days are long gone
We some time buy these higher risk/reward, ugly looking stocks for our personal account, but the downside for the model portfolio is too high.
We are thinking of how we can develop a different product for such stocks for investors who are tolerant of much higher risk. We will keep you posted as we get ready for the launch
Disclaimer
- This report is published by RC Capital Management – SEBI Registered Investment Advisor (INA000004088).
- This report is for educational purposes only and should not be construed as an Investment Advice.
- RC Capital Management may have recommended the above stocks to our clients in the past. However, this is not a recommendation to buy / hold / sell the stock at the time of publishing this report.
- The securities quoted are for illustration purpose only and are not recommendatory
- RC Capital Management may hold position in any of the companies mentioned in the report at the time of publishing the same. Its partners may hold a position in this company in their individual capacity at the time of publishing.
- Neither RC Capital Management nor its partners have received any compensation from any company mentioned in this report for the preparation of this report.
- There is no conflict of interest for RC Capital Management / it’s partners due to publishing this report
