Vinay Agarwal, Director of FSSA Investment Managers
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FSSA IM Fund Manager Vinay Agarwal: How FOMO Affects Investment Decisions

July 2022 – This is an expert commentary on portfolio investment decisions – How FOMO (Fear of Missing Out) affects investment decisions by Vinay Agarwa who is a Fund Manager (Director) at FSSA Investment Managers (FSSA IM).

FSSA Investment Managers (FSSA IM) is an autonomous team within First Sentier Investors.  FSSA IM are bottom-up investors, using fundamental research and analysis to construct high-conviction portfolios, conducting more than a thousand direct company meetings a year, seeking to identify high quality companies that they can invest in for the long term.  FSSA IM manages $33.7 billion globally (31/3/2).

 


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How FOMO Affects Investment Decisions 

Vinay Agarwal, Director of FSSA Investment Managers

 

Vinay Agarwal: FOMO (Fear of Missing Out) would perhaps be an accurate description of what drove some of my portfolio decisions as a young fund manager, roughly 15 years ago during the global financial crisis (GFC) meltdown.  Of course, the phrase hadn’t been invented yet back then; but the fundamental drivers of market cycles and human psychology have not changed. 

” Fear of Missing Out would perhaps be an accurate description of what drove some of my portfolio decisions as a young fund manager “

In the mid-2000s, when the Indian stock market was melting up (alongside global markets), it was the infrastructure and the real estate companies that were the darlings of the market. Despite the portfolio having done very well for our clients during that period, there was significant disappointment that we had ‘missed’ several real estate and infrastructure stocks that had turned into multi-baggers (investment that appreciates to multiple times its initial value). It was all about land banks and order books and it seemed certain that these business would become multi-billion-dollar enterprises over the next five to ten years! Then, when the markets began to wobble, these stocks fell quite substantially from their peaks. Sensing an opportunity to make amends in the portfolio, I rushed in and bought what turned out to be some of the biggest mistakes I’ve made in my career, watching them fall into an abyss when the GFC actually hit. Painful lessons like these keep us humble and make better investors out of those of us who manage to survive a few cycles. 

Talking about cycles, without pretending to be a macro expert (regular readers will know that we are anything but!), it looks like we are probably at a similar stage in India with respect to some of the recent ‘new age’ initial public offerings (IPOs). We had written about this phenomenon last year – the gist is that a lot of businesses with questionable business models but fancy spreadsheet models listed themselves at ludicrous valuations; and we watched from the sidelines (save for our tiny investment in Nykaa, India’s leading online beauty retailer, which we have since exited as valuations became more outrageous post-listing). For a time, our conservative stance made us question our convictions, as companies we thought were very expensive to begin with went on to double on the day of listing as a matter of daily occurrence. But now, we are once again seeing a wobble among these present-day market darlings (though “wobble” might be putting it mildly!) 

For example, companies such as PayTM (-72% vs. its peak), Policybazaar (-60% vs. peak), Cartrade (-64% vs. peak), Zomato (-60% vs. peak) and even Nykaa (still up 30% vs. its IPO price but down 44% from its peak) have all fallen substantially this year. We are sure that a few of India’s leading online businesses will emerge out of the rubble, but for now, we are yet to find any compelling investments. In a similar vein, we have been assessing several manufacturing businesses which have been recent beneficiaries of the systemic inefficiencies created by the pandemic or by geopolitical tensions. Growth rates for these businesses have accelerated in recent years alongside higher profitability and the market rewarded them with higher valuations too. With our risk-reward hats on, we stayed away, resisting the accompanying FOMO; that is until recently, when we followed one of India’s most respected bankers who became chairperson of a seemingly well-run and fairly valued active pharmaceutical ingredient (API) manufacturer. The cycle then turned, as it always does, and the company’s shortfalls were exposed. Regardless of the fact that the business is being repaired and should limp back to health in the medium term, this was a small mistake that we could have avoided in hindsight. 

Fresh from our trip to Mumbai and Delhi, it does seem that growth expectations are being reset, cost inflation is being built into margins and some sort of sobriety is returning to how these erstwhile high-flying companies are valued. We remain on guard, keen not to repeat old mistakes. 

 

This is an expert commentary on portfolio investment decisions by Vinay Agarwa who is a Fund Manager (Director) at FSSA Investment Managers (FSSA IM).

 


About FSSA Investment Managers

FSSA Investment Managers (FSSA IM) is an autonomous team within First Sentier Investors with dedicated investment professionals in Hong Kong, Singapore, Tokyo and Edinburgh. FSSA IM are bottom-up investors, using fundamental research and analysis to construct high-conviction portfolios. They conduct more than a thousand direct company meetings a year, seeking to identify high quality companies that they can invest in for the long term.  As responsible, long-term shareholders, FSSA IM have integrated ESG analysis into their investment process and engage extensively on environmental, labour and governance issues.  As at 31 March 2022, FSSA IM manages US$33.7 billion on behalf of clients globally.

 

Disclaimer:

The information contained within this document is generic in nature and does not contain or constitute investment or investment product advice.  The information has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information.  Neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this document.  Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same.  All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time. 

This document has been prepared for general information purpose. It does not purport to be comprehensive or to render special advice. The views expressed herein are the views of the writer at the time of issue and may change over time.  This is not an offer document, and does not constitute an investment recommendation. No person should rely on the content and/or act on the basis of any matter contained in this document without obtaining specific professional advice.  The information in this document may not be reproduced in whole or in part or circulated without the prior consent of FSI.  This document shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction.

In Hong Kong, this document is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. In Singapore, this document is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors and FSSA Investment Managers are business names of First Sentier Investors (Hong Kong) Limited. First Sentier Investors (registration number 53236800B) and FSSA Investment Managers (registration number 53314080C) are business divisions of First Sentier Investors (Singapore). The FSSA Investment Managers logo is a trademark of the MUFG (as defined below) or an affiliate thereof.

First Sentier Investors (Hong Kong) Limited and First Sentier Investors (Singapore) are part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.

MUFG and its subsidiaries are not responsible for any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.




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