1. 7 things to know about thematic investment and how it can make big money

7 things to know about thematic investment and how it can make big money

To make big money in the stock markets, you must have the conviction to call the trend right. This requires knowledge, skill and dedication to research, which is not feasible for most casual investors. In India, there is a widely prevalent tips culture among the retail investing community and the age-old tradition has continued because of the complexities involved with investing in the stock markets.

Updated: May 9, 2017 11:14 AM
Globally across institutions, the universal method for selecting stocks is by forming an investment thesis or a theme which fits their prediction of the future.

By Tejas Khoday

To make big money in the stock markets, you must have the conviction to call the trend right. This requires knowledge, skill and dedication to research, which is not feasible for most casual investors. In India, there is a widely prevalent tips culture among the retail investing community and the age-old tradition has continued because of the complexities involved with investing in the stock markets. In general, people have ideas of what may do well in the future but don’t know which companies are suitable to invest in. For instance, someone is bullish on real estate and land, but has no clue about which real estate companies’ shares are worth investing in. This is where thematic investing platform is useful.

Globally across institutions, the universal method for selecting stocks is by forming an investment thesis or a theme which fits their prediction of the future. These themes are built to capitalize on emerging profitable trends in business and the economy. This approach is popularly known as thematic investing. There are readymade themes and portfolios available in the market which make life easier for investors who want to choose this path. Unlike traditional stock picking, you can earn outsized returns without having to conduct your own research.

7 things to know about thematic investing:

Unlike generic portfolios and mutual funds which are over-diversified, thematic investments are diversified within a narrow universe of stocks which fit the investment logic of the theme. As Warren Buffet famously said, “Over-diversification is only required when investors don’t understand what they are doing.”

The construction of portfolios is based in a way that can outperform the equity benchmark returns and is relatively independent of the economic cycles. Investors may benefit in the long-run due to the underlying structural trends emerging within these themes.

With the help of thematic investing, investors can explore many more lucrative long-term opportunities which are invisible to the naked eye. By allocating resources across different themes, investors can achieve optimal diversification without on compromising returns as much.

A wide variety of choices among themes helps investors to achieve a high degree of professional customization within their portfolios which is otherwise not easily available in traditional investment methods such as NIFTY stocks or diversified equity mutual funds.

The fact that these thematic investing portfolios are readily available to the public makes it easy to invest in. Without this, retail investors would find it puzzling to design it themselves. It makes it possible for investors to express their conviction using the portfolio as the means.

For those who are seeking to earn higher returns, it encourages calculated risk-taking as opposed to single-dimensional approach used in regular equity investing. It is more holistic and balances the excesses by exposure to multiple stocks.

Since thematic investments are more focused, it can be a very educational experience for investors as they tend to track the performance of their themes and are aware that the choices made by them will determine the returns. This sort of awareness and eagerness to get higher returns sow the building blocks to a successful investor.

Making big money in the stock markets: Although there are various popular investing philosophies ranging from value investing, contrarian investing and swing trading, the underlying goal is the same: to capitalize on large trends by buying low and selling high. Thematic investing helps you do just that. Yes, regular diversified investing can fetch you standard returns but it cannot deliver the kind of returns needed to become rich in a reasonably short amount of time. Thematic investing is akin to buying multi-bagger stocks and waiting for it to pay off handsomely. The added benefit is that you can bypass the research work required to be successful.
(The Author is Co-Founder of FYERS, a thematic investing platform designed for retail investors. The views expressed here are his own and not of financialexpress.com)

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