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How Aurum Capital’s Jiten Parmar’s bets on value investing paid off


Parmar, who is an advent follower of the cyclical form of value investing, was introduced to the stock markets by his father. Parmar shared his journey from a software engineer to a value investor for the special Mint series—Guru Portfolio. Edited excerpts from an interview:

How did your financial journey begin?

I am a software engineer and I was in the US in the early 1990s when my financial journey began. In 1993, I invested in Microsoft. Basically, over the next few years, I invested in tech companies only. I was well aware of the power of equity because my father has been a pure IPO investor since the 1970s. He had invested in companies such as Hindustan Unilever, TISCO (the former name of Tata Steel), Trent and Grasim.

As his eldest child, I also did some work during those IPOs. Those days, there used to be agents who provided IPO forms and those had to be filled manually. I remember filling them out and submitting them to the agents, who then submittedtheformsto the exchange.


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What kind of returns did your father get from these IPOs?

The IPOs then were always at par. So, a company like HUL also had to come with its IPO priced at 10. So, the returns are humongous. My father invested only 500 in HUL, and he’s taken out several lakhs of rupees from that investment and still has some of those shares left.

What was your initial investment strategy?

As a software engineer in the US, I started buying some tech stocks from my savings. I did not know how to read the financials of a company; the only thing I knew was technology and myinvestingwas based on the company’s products and the sort. I did invest in the US markets for 10 years; my journey was fairly okay.

You came back to India in 1999. Why did you leave the IT field?

In the US, I was one of the four co-founders of a company called Aquas Inc which we started in 1995. Just before the dot-com bust, we were able to sell it to a Nasdaq-listed company in 1999 for $10 million.

We got a great exit in life. Basically, I became financially independent at the age of 30. Thereafter, I returned to India as I wanted to do something different. In India, I invested in a lot of real estate and started learning about investing. Eventually, I found my passion in equity investing.

How were you investing after coming to India?

I first started investing in real estate, becauseIhad got a good payout, and I wanted to start off with some monthly earnings. So, I invested in real estate which was yield generating such asATMand office spaces. At the same time, I wanted to invest in equity. So, I learned about investing over the next two-three years, and in 2003 is when I started seriously investing in the equity markets. Of course, my real estate journey was also going onparallelly, and eventually, we became developers named Alpine Homes, and we have done quite a few projects in the Pune area.

What were the initial stocks that you picked up?

It would be difficult to recall the individual stocks, but I still own some of those. For example, in one chemical company, I invested at 8 a share in 2004. I’m still holding that stock, and it’s become a great story for me as the current price is 3,200. That is my largest position.

What is the investment strategy that you follow?

For me, a lot of long-term investing has happened over the period. Since cycles have been kind to me, I got out of my company in the US before the dot-com crash and I entered real estate before the great boom came in. So, value investing is something that I have focused on right from the start, and cyclical investing is a particular stream in value investing.

Coming to Aurum Capital, what motivated you to start your own firm?

I became financially independent at a very early age and over the years, I’ve been able to grow my wealth in a decent manner. Right from my college days, I found joy in sharing my knowledge. So, I used to write on Google Groups and other such forums from 2005 onwards about investing. The idea of starting Aurum Capital came from my friends and well-wishers because they kind of benefited from the advice I gave.

I found a very good partner in NiteenDharmawat, who shared the same beliefs and who is also an excellent stock researcher. So, we started Aurum Capital in 2018. We are operating under a research analyst license and we directly do not manage funds. Of course, we do have plans to go for PMS/AIF license soon, hopefully by the end of this financial year.

Take us through your schemes.

We have two products. On our website, we offer a Value Investing Research strategy which we started in 2018. It’s a 20-stock strategy where allocation is decided by the subscriber, but a lot of them give equal weight or 5% to each and then invest.

The themes we follow within that are basically growth stocks at a reasonable value and cyclical stocks. That strategy is also available on theSmallcaseplatform. Apart from that, we have a product called Cyclical Bets, which is exclusively onSmallcase. The strategy has been available for the last 18 months now, and focuses on business cycle turnarounds and hasalmost given100% returns since inception.

Can cyclicalthemes workfor the next five-10 years?

For cyclicals, one should not have a very long view. You might stay in the cycle for five years but you need to be nimble enough to get out. Telecom is one sector where we kind of expected a turnaround and in 2020. We believe that telecom is something which we might hold for 5-10 years.

Any theme that you think might not work?

We have beennegativeon the IT sector. Obviously, we don’t short, but then we have had zero allocation to IT for almost a year now. We believe there is still some more correction warranted in that space.

Coming to your personal portfolio, how are you invested now?

I’m majorly into equities at 85% of my portfolio. I have gold but that is for consumption purposes only. Next, I would have 10% in real estate in the form of commercial properties, some land and flats. Therest 5% is in debt, which is my emergency fund. This is in fixed deposits, arbitrage funds and savings accounts.

How has your portfolio performed over the years, let’s say since 2003?

My equity portion would have generated at least 20% plus CAGR since 2003 and real estate would be 10-15% during the same period.

One strategy that worked for your portfolio and one strategy that did not?

Staying within my circle of competence and doing cyclical investing, has worked on an aggregate level. Of course, in cyclicals you know, maybe if I play 10 cycles, maybe one or two cycles might not work. But over the years, I’ve seen that at least eight cycles out of 10 which I play have worked for me.

Within that, I have failed or made mistakes whenever I have gone down the quality curve or invested in companies with bad management.

One strategy that didn’t work for me was betting on textiles in 2015-2016. The sector didn’t perform well for four years. Consequently, it worked but we do not want to invest in cycles where we have to wait for years.

Can you name some of the stocks that have contributed most to your portfolio?

I will not be able to because we have a couple of strategies in place and we would want to shy away from naming stocks.

How do you identify yourself as an investor?

A hardcore value investor, to be honest. I need to be satisfied when it comes to valuations. What works for me is 20% risk of capital and 80% return.

What does wealth mean to you?

It means that one should be able to follow his or her passion. I like to travel at least four to five times a year. And I like to invest and share my knowledge. For me, wealth is something that lets me do all this.

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