Reputed stock market veteran Raamdeo Agrawal explained the importance of diversification saying that while there maybe many stocks which turn out to be multibaggers, a few stocks will end up punishing the investors. “In 20 positions, some stocks will be reasonable, some you’ll also be punished. My experience is that one-third will disappoint you, one-third go as per plan, and one-third end up surprising you. Those surprises more than take care of the disappointments. Since, the picks are good companies, the disappointments are marginal, around 5-10%,” Raamdeo Agrawal told ET Now adding, “We make money in stocks because disappointments can be x, while surprises can be multiple x.”
Sharing insights from a recent wealth creation study undertaken by Motilal Oswal, Raamdeo Agrawal advised investors to hold onto good companies. “If you have something which is doing well and it is promising a good return in the next one or two or three years, it is better to continue with the same manager, same stock rather than finding complete new name and new manager. That is my learning,” he told the channel.
Last week, the veteran had advised investors to hold onto compounders to create long-term wealth. “This is after two and a half months kind of study, so, one of the things about investing and making a lot of money in the market is that you need compounders and India produces a lot of compounders like HDFC Bank, HDFC, Infosys,” he had said in an interview to CNBC TV18. According to the co-founder of Motilal Oswal Financial Services, investors trying to time the markets could end up with poor returns.
“Timing the market kills the overall return of the portfolio. If you invest for the long-term, you’ll pass through phases of very high return, very low return, a phase of no return and also negative return. All this put together, creates long-term return. People want only high return phase.They don’t want other three. You will never have long-term return like that,” Raamdeo Agrawal had said at the sidelines of an event last month.
A firm believer in “buy right” and “sit tight” philosophy, Raamdeo Agrawal said that great companies have the potential to return much beyond investor expectations. “Great companies, and there but are just handful of them right now – live much longer than what investors’ think and they create big money compared to so-called stocks which double in quick time,” Raamdeo Agrawal said last week.