Saurabh Mukherjea’s 3 tenets to reach financial goals | Economic Times

There should be three layers to your financial planning -- security, stability and ambition -- and three types of assets so that you feel both secure and at the same time have an upside exposure as well, says the Founder, Marcellus Investment Managers. Why did you include Jason Voss as one of the examples of top performers in your book The Victory Project 6 Steps to Peak Potential?I happened to be a CFA charterholder and at one of our conferences, we were told that there is a great book The Intuitive Investor by Jason Voss. I think Jason had come to India to speak at that conference. So I ordered the book and read The Intuitive Investor. I have to confess when I picked up the book I was quite cynical. I said how on earth can there be a link between meditation and fund management? That was around four-five years ago. And as I read the book, I realised what he is saying is not just useful, I should have realised this ten years ago! So I implemented the elements of what Jason has talked about in the book. For example, subduing the ego, giving myself time to recover from the stress of the job and over time, the tendency to mix spirituality with investing became part of my day to day lifestyle. Hence when Anupam and I started writing in The Victory Project couple of years back, we realised that one way to bring an unusual angle into the book was to see if we can bring the spirituality aspect that we had learnt from from The Intuitive Investor, and whether we could weave it into the simplicity paradigm. We called Jason Voss in Florida and asked him to opine on the subject of how meditation, how spirituality helps in the context of fund management and I think more generally how spirituality and meditation helps in the context of hitting peak performance in whichever line of work you happen to be in. Do you meditate as well? Ray Dalio was once asked how he has managed to reach where he is today, what is the secret sauce and the answer was meditation. Would you prescribe it for people in finance where there is lots of stress to handle?As I see it, there are three levels to this and which is why someone like Jason on the call is outstanding. There are three levels to it and I can only do the first two levels. Folks like Jason can reach the third level. The first level is the innovative way Ray Dalio articulates. He says that all of us in our professional domain have some fear. For example, for a long ,time I used to be fearful of looking at pharma stocks because I do not have a background in pharmacology and hence I used to struggle to understand pharma companies. The first level of spirituality is understanding what your fears are, introspecting and saying the reason I am averse to pharma stocks or I worry about pharma stocks is I do not fully understand chemistry. That is the first level and I think Ray Dalio has said very clearly in his book Principles that if you are able to introspect and understand your own fears and your prejudices and your risk aversion, you will become a much better investor. That is the most practical level at which spirituality or introspection works. The second layer is what I call the healing layer where all of us have busy days and a fair bit of stress through the day. I am managing money. You are anchoring shows. Your management has expectations of you, you have expectations of yourself, my clients have expectations of me, my family has expectations of me. We need time to heal. We need to recuperate, recharge our batteries and the simple technique I have used whilst relaxing at home or in a flight or in a taxi is to count backwards from 100 and letting that distract my egoic mind. This is why I am grateful to Jason’s book Intuitive Investor because he helped me understand why that reverse counting from 100 to 1 is useful because it distracts the egoic mind and lets your mind relax, reflect and in a way that is the basic level of meditation that people like me are capable of. The more advanced level of meditation which folks like Jason, Ray Dalio do is in a way they can meditate for far longer and with greater intensity and it gives them insights which the average fund manager cannot access and that is the more advanced level of meditation. It takes more practice, more skill, more dedication to hit that level of meditation. At that level, you start getting insights which other people are not getting. I have not yet reached there, I aspire to get there one day.You have also spoken extensively in your book about the benefits of reading a lot. You have spoken about three specific people in the field of global fund management; Mr John Bogle, Rob Kirby and Dr Mobius. What did you learn from these three gentlemen?Saurabh Mukherjea: You can see the common strands running across people like John Bogle or Rob Kirby whose technique of investing was created in America 35-40 years ago and we have applied it. I look at John Bogle’s simple technique of index funds, I look at Rob Kirby’s technique of coffee can investing which he created in America in the late 70s, early 80s and someone like Mark Mobius took the whole concept of emerging markets, massified it and turned it into a global phenomenon. The message that comes out from studying great investors is -- once you get an insight, simplify it so that it becomes easy to communicate to millions of people and where it becomes easy to adopt, easy to follow and easy to implement in practical life. If John Bogle did not provide the clarity, someone else would have made the index fund very complicated. He basically went and told the world from 1976 onwards that you do not need a fund manager. I will mimic for you the S&P 500 or the Dow, I will charge you super low fees. And he took 20 years for the concept to catch on but by the mid 90s, bulk of American middle class had started latching on to it and today you have a situation where Vanguard manages about $6 trillion! Similarly, if you take Mark Mobius and emerging markets, in the early 80s nobody had even heard of the concept. Through the 80s, World Bank and IFC broadly created this concept of emerging markets but through the 90s Mark Mobius popularised it. He wrote three or four books on the subject and by the turn of the century, emerging markets had become a part and parcel of every fund management’s offering and today we sit in an emerging market and I earn my living from it. So once you come up with an insight, simplify the insight. Much as we discussed in the Victory Project, simplification is a massive part of being able to communicate something to millions of people, communicate it to your own colleagues, win their support, win their collaboration and thus begins the proselytization and thus spread the concept --be it index funds from John Bogle, Coffee Can Investing from the great Rob Kirby or emerging markets from Mark Mobius. All of us can do that in our profession, come up with insights, simplify it and take it to the world outside in a way that is the essence of outsized success regardless of which line of work we are in. How did you arrive at the concept of Little Champs?Four years back one of my gurus, John Kay, asked me to read this book by a German management consultant Hermann Simon called Hidden Champions of the 21st Century. I read the book and it is about how great smallcap companies operate across the world. As I read that book I thought how do I adapt this book to India because it is a book written very much with America and Europe in mind and that thought kept percolating in my head for a couple of years. Two years ago I met Mark Mobius near the airport in Bombay for a drink in the evening and he talked about a book he was reading on the 1MDB Scandal in Malaysia. I told Mark about Hermann Simon’s book and he said well surely you can apply this to Indian conditions and I thought my God I have been thinking about this for two years but I have not got it. But Mobius instinctively believes we can apply Hermann Simon’s Hidden Champions of the 21st Century to Indian conditions. So I went home that night and I slept on it and somewhere around 6 o’clock in the morning when I woke up, the whole investment thesis had clicked through in my head as to how to take Marcellus’ strengths around forensic accounting to Hermann Simon’s philosophy around market leading smallcaps i.e. companies which dominate small niches. Take forensic accounting, take leadership in specific niches and thirdly look for good capital allocation over five six years and thus the Little Champs concept was born one and a half years ago and it has gone on to become one of the top smallcap PMSs in the country. So it is learning from people far smarter than me; Mark Mobius, Hermann Simon and then letting it percolate in my head that helped. Whilst I wish I could do this through meditation, I am able to do it through sort of a light sleep and then let it percolate enough for the idea to finally click through my head and have a unique concept which allows us to be useful to your client base. How should investors go about making a framework for their financial goals in life?Both in Coffee Can Investing and in the Victory Project, we have given a very simple framework and that framework is based on both my personal experience of over a decade and a superb book on how to plan your asset allocation by an American Indian author called Ashvin Chhabra. There are basically three parts to it; the first layer is to address your fears, build the foundation of your asset allocation in a way so that your personal needs and exigencies are all taken care of. Make sure the basic needs of life are covered by your investment in risk free assets. So the first layer is security. The second layer is stability so make sure that your children’s university education, your own pension, your retirement planning is taken care of. So security basic layer, one level above stability and the third layer is ambition, aspiration. For many of us an aspiration is to say have a holiday home in the Himalayas or in Goa. The point we make in the book is make sure you do not confuse your stability aspirations; pension fund, children’s university education with the holiday home in the Himalayas. Keep the ambition piece separate. The security layer you address through government bonds and bank deposits; your stability layer you address through stable large cap investments like our Consistent Compounder portfolio or the Rob Kirby construct. For the ambition layer you can think about ambitious schemes like a good smallcap fund or a private equity investment. So three layers to your planning; security, stability and ambition and three types of assets that you plonk into each so that you feel both secure about what you have done and at the same you believe you have an upside exposure as well.