May the odds be ever in your favour. Sounds hopeful and harmless, right? Except that it’s the most famous quote from The Hunger Games, said right before contestants are sent into the wild to fight each other till death. Although not as life threatening, the stock market is also a jungle of possibilities where investors have to spot the winners and fend off dangerous bets. And Howard Marks, one of the most successful American investors, believes one can do that by ‘mastering the market cycle’.
He wrote a book by that title, which gives insights on how to work the odds in your favour. His philosophy has many admirers. Rahul Baijal of Sundaram Mutual Fund is one of them — who has delivered stellar return with some support from Marks’ philosophy. “I admire Howard Marks… He has shown investors how important it is to monitor business, earnings, valuations and market cycles,” he says.
This trait has become more important than ever as we have seen pockets in the market create wealth, while others destroyed a lot. Baijal adds that, earlier, he used to follow the bottom-up approach of stock-picking. But over the years, his style has evolved and he has learnt to pay close attention to trends. “I realised that even good companies go through cycles. One needs to be conscious of these cycles and rebalance the portfolio accordingly,” explains Baijal.
This strategy has helped Baijal stay away from sectors or stocks facing a downturn. Since 2015, the US generic market has turned extremely competitive for Indian pharma players. While the number of manufacturers increased, buyers consolidated, leading to price erosion. At the same time, the USFDA cracked the whip. That’s how US-focused pharma companies turned into wealth destroyers. Baijal recognised early signs that the cycle was about to turn and made allocations to portfolio accordingly. Baijal had made a lot of money for his investors in this sector between 2005 and 2015 when he was working for Voyager Capital and Bharti Axa Life Insurance as a fund manager. But he decided to steer clear of this space at Sundaram Mutual Fund, which he joined in 2016. &ldquo