Retail investors can shift the odds in their favour by either working with competent managers simplifying decisions, or saving on transaction fees and playing the long game. Sunil Sharma, chief investment officer of Sanctum Wealth Management in an interview to Saikat Neogi explains retail investors should buy quality growth stocks at reasonable prices and own them over a long horizon. Excerpts: Most equity mutual funds have given negative returns last yea. What should investors do to minimise the loss? Exiting a strategy because it delivered a loss in a tough year may be unwarranted. There are multiple factors to consider. First, has the mutual fund manager outperformed the benchmark and the benchmark on a risk adjusted basis? Increasingly, we find fund managers delivering returns via pursuing higher beta strategies, rather than generating meaningful outperformance, or alpha. So, one way to get an answer is to consider returns over a cycle. One period that covers a bull phase and a bear phase would be from the end of December 2016, or longer periods can be considered. Next, how much risk did the manager undertake in delivering the return? Third, understand the macro outlook to get to an expectation of future returns. Finally, the fund should be compared with peers in the same category to see if a better fund is available, after accounting for fees and loads. An investor can choose to do this work or work with an experienced and competent fund advisor that can provide meaningful analyses. With the impending general elections, how can one create the appropriate portfolio structure? The macro-economic scenario has improved considerably since last year. The Fed has completed the rate hike schedule and will be done with balance sheet contraction. The US-China trade war is likely to be resolved in the coming weeks. Earnings growth in India has been strong, despite what the headline data suggests. We look at the distribution of earnings, and that has been strongly positively skewed. Second, the data demonstrates that elections do not have a meaningful impact on markets in the longer term. Further, we have got a fair amount of clarity in recent weeks that an acceptable verdict is likely. Should we get the worst of all scenarios, even then, companies will continue to deliver meaningful growth and returns, because corporate India has a long track record of the ability to succeed in different economic environments. For the fifth year in a row there is a limited contribution by earnings growth. What should be the strategy of investors putting money in stocks directly? That is absolutely correct. Earnings have not contributed meaningfully in the past four years. However, this year we see corporate bank earnings improving and pharma perhaps stabilising. Information technology is benefitting from a structural shift in the ability to deliver cost-effective and meaningful digital transformation. So many sectors seem to be demonstrating good momentum. While earnings should start to improve at the index level, we are more focused on earnings at the portfolio level, and that is looking good. Equity and mutual fund investors should also be looking at what they own, not index earnings. For those investors putting money into stocks directly, that\u2019s a fantastic decision but how does an equity investor compete with professionals who study equities 24\/7? Retail invest- ors can shift the odds in their favour by either working with competent managers, simplifying decisions or saving on transaction fees and playing the long game, i.e., buying quality growth stocks at reasonable prices and owning them over a long horizon. Finally, the investor can generate significant alpha by studying market cycles. The largest gains accrue from implementing simple strategies to protect portfolios from losses. Volatility in small and mid caps is making retail investors anxious. How should they look at small and mid caps now? Volatility is the price of admission in mid and small caps. Unfortunately many investors were new to the markets and 2018 has been extremely painful for them. The takeaway is that investors should ask themselves if they can accept this volatility. If they cannot, then they should consider their risk-reward profile. These stocks have painful bouts of volatility every 2-3 years. Investors need to have a strategy to either accept this or have strategies in place to take advantage of the volatility. That being said, valuations are now reasonable in these sectors. So, in all things, moderation is a good decision and a diversified portfolio that owns some exposure\u2014we would suggest less than one third for the moderate risk profile investor\u2014makes sense. What should be the share of the yellow metal in the portfolio? We have a benchmark model weight for gold of 10% in our wealth profiles. We have generally stayed underweight gold for long periods of time, preferring to over-weight only during periods of aggressive quantitative easing. Second, gold is often viewed as an inflation hedge and with inflation staying low globally and domestically, we are comfortable with a neutral to underweight position.