‘Eighty Twenty Investor’ Arun Kumar and his investment insights. | Jobs Vox

His book covers the stages of investing—from savings, spending, emergency funds and insurance, to short-term and long-term investing—with characteristic features around each aspect.

Kumar talks about his personal investment journey in an interview Mint As part of a special Guru Portfolio series. Edited quotes:

How did you get into blogging? Why did you name your blog ‘Eighty Twenty Investor’?

I was a member of the research team at Wealth Advisors (India). So, I had access to all the best fund managers in India, and every week we listen to some of these savvy investors. And we’ve been doing a lot of work internally around asset allocation and how to build portfolios. We were able to see behavior problems in action because we had a lot of customers on this. Many of these were not discussed outside and I wanted to share them with others. I also realized that almost everything related to investing was about picking stocks, and no one was writing about how to choose funds, refer to a good fund manager, etc. And, most of it was US-based and there was no Indian fund. Literature in there. So, I thought I’d put it all together on the blog I started in 2015.

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The name of the blog is derived from the Pareto Law—20% of the efforts give you 80% of the results. I can see this happening time and time again. Investing doesn’t have to be complicated. People don’t have to work hard to figure out their investment portfolios. Just focus on fixing the small critical things, automating and then investing is effortless. And at the same time, you can probably get 80% of the results.

What is your current asset mix?

My portfolio has always been roughly 80% in equity and 20% in debt, plus or minus 5%.

Do you go for equities, straight stocks or just mutual funds?

When I initially started, I thought why do mutual funds (MFs) that diverge in 40-50 stocks. Therefore, it is better to choose stocks. Then, I realized that this requires a lot of effort, and it is very difficult to beat a fund manager or an index. I didn’t enjoy stock picking either. I am mostly a fund investor by heart.

About 10% of my equity portfolio consists of straight stocks. These are just a few of the best known large stocks that I picked in the previous step. Right now, 90% of my equity portfolio is in MFS but I think it will eventually touch 95% because I won’t add more stocks unless I find something really interesting.

What is your exposure to large-, mid- and small-cap stocks?

My portfolio is mostly in the variable cap category with no restrictions on exposure to mid, small or large cap stocks. But I have done some analysis in the mid and small cap area and found that at least for the SIP portfolio of mid caps it actually makes a lot of sense. I have in flexi-cap funds in my portfolio but I have not invested directly in mid-caps. I want to build this as a structural part of my portfolio over the next 2-3 years.

What mutual funds to choose?

In the mid- and small-cap space, I want to go with good fund managers, and if I experience some underperformance, that makes me more interested in investing in their funds. So, funds like DSP Midcap Fund, or Franklin India Prima Fund tick the box for me. I also look at funds that are new but already have a track record. So, let’s say, I’m looking at WhiteOak Capital, which recently came into the MF space, so the size problem (limitations that small- and mid-cap funds can run into as the size of the fund increases) for a while. . They have a good record. I’d probably pick a mid-cap fund.

Do you want exposure to small caps (in addition to your flexi cap fund portfolio)?

The problem with small-caps is that they are an unfair place. So, the moment a small-cap fund does well, it becomes huge. And then fund managers increase their large-cap exposure, or reduce their noise, or increase their holdings. So, we need to be more active on these funds. And generally, I would say, diversify into two or three small-cap funds.

What happens in this world of social media is that if someone says that fund X is getting into trouble, there is no one to confirm it because the news goes everywhere. Then if people panic and start leaving, no one has any control over that. So, in such a situation, when your underlying universe is too much illegal, you should be more vigilant. So, if you are looking at small caps, some trigger needs to be built in, which is if there is net inflow, say 10% AUM (assets under management) of the exiting fund, then you need to make a quick call. You have to be a lot more proactive, and that’s why I generally stay away from small caps.

What was your first mutual fund choice?

My first fund choice was Franklin India Tax Shield, I was forced to do so (for tax savings) LSS fund. At first I was thinking that if I am a stock picker I should not invest in MFS. But the realization came three years later when I saw that the money beat all my efforts during stock picking. So, this was probably my first humbling moment when I realized it was best to leave it to the professionals.

Is there a no-fee fund option?

I look at good money managers. I have experience dealing with many of them so I know their thought process. So, when they underperform, I go big on them. But the one time I deviated from this strategy was with international funds. One, I wanted to diversify, and two, these funds were doing very well and the growth story was there. So, they didn’t meet my usual performance criteria. But I thought this went on for a long time, so maybe there are gaps in my understanding. So, I started SIP in 2019. But that hasn’t turned out as I expected yet. So, maybe I got in on top, or it might take another three more years to find out if I was right or wrong. But I think my recent investments in these funds should do well in the next 2-3 years.

What is your total portfolio return since inception? What were the key return contributors?

I started in 2014 but a large part of my portfolio was built after 2017. So now, the return is around 18% (CAGR). And the main reasons are, one, when I got some extra money I was able to invest a lot during the pandemic. Two, I mostly invest in only a few funds, and two of them I talk about publicly: Parag Parikh Flexi Cap Fund and ICICI Prudential India Opportunities Fund. Neither of these were in good shape when I invested, but they worked very well for my portfolio. Generally, I do 5-6 funds at the overall portfolio level, and I don’t try to time the markets. Once I’m in, I generally let the investment run for the long term.

Where do you invest in debt?

This is only on the MF side and I usually see it as a feature support system. So, I’m not going to take on credit risk or time interest rates to increase returns by 1% because at 20% (my portfolio) doesn’t really move the needle. The way I see it, let’s say, the market has fallen by 30-40%. If I don’t do anything, I will be very worried. So, I need some action on my portfolio and that’s where I have some triggers: if the stock market falls by 20%, I move x amount from debt to equity, if it falls by 30%, then I move this. Lots and lots more.

My debt exposure is mostly in arbitrage funds or short duration funds with very high credit quality. I don’t do anything good on the debt side.

What do you think about real estate? Do you consider it an investment?

I don’t consider it an investment. With every purchase, there is a practical aspect. If it is in a house, this can obviously be met by rent. But there is also an emotional angle; There are always many emotions associated with your own home and it can be a status symbol.

So, we wanted to build our financial portfolio first and after achieving the intended goal, we were good at buying a house. In fact, we recently booked a house. But we have built our portfolio in the last 10-15 years and we haven’t touched it. Once your corpus reaches a certain size, the assembly motor kicks in. Now, we have enough cash flow to support our financial portfolio intact.

One mistake I see many people make is simply reversing the process. When you get salary, the first thing you do is invest in a big house and then the EMIs continue for the next 15-20 years. So, by the time, they start their investment journey properly, 15-20 years have passed. The hardest part of investing is that it takes at least 10-15 years to build a corpus of that size and then you can see the compounded results. To put that in context, if I run a ₹30,000 SIP, it will take me about 12 years to get my first. ₹1 crore returned 12%. The second crore will take only five years and the third one crore will take only three years and so on.

Do you expect an emergency funeral?

I usually try to save at least six to eight months of expenses as an emergency, but I always realize that there are investment opportunities. So, part of my contingency has sometimes been my chance to buy a portfolio. This is mostly fixed in liquid funds. The emergency corpus makes a lot of sense and I’m trying to be more disciplined about it.

Do you have health and life insurance?

For health policy I went to Chennai which has maximum number of hospitals in my city. And in that, I adopted a very clean policy that had no disclaimers. My feeling is that when there’s panic and things are really bad, these (paragraphs/disclaimers) are the last things you want to bother yourself with. I understand Apollo Munich had good coverage so b ₹20 thousand health cover with them. I can always top it up later if I feel this isn’t enough.

At first I didn’t feel I needed life insurance. But later I had a minor accident, which I thought was serious at the time, and ended up in the hospital. That shook me, and at the time my wife was also building her business so she was deprived of a proper source of income. So, once I got better, I took out a life policy. Maybe I went overboard and took out a policy (term coverage). ₹2 crores.

If you have parents, and a wife or children, or if you have credit, it’s worth taking out life insurance, which I don’t have. It is reasonably priced compared to the amount you get.

Is your spouse involved in personal financial decisions?

She is more involved than I am. Because she runs a business, she is more risk-averse than I am. I was a little scared when the outbreak happened, but I told her, “Here is the plan (on investment) and even if I panic, you should push me to stick with it.” So I think we support each other. I’m more of a ‘what’s wrong kind of person’ and she’s more of a ‘what if’s the right person’. We were both actively involved and knew exactly what was going on.

We are approaching the end of 2022. Do you have any resolutions for the new year?

I have tried many things before but somehow it doesn’t seem to work. From a resource point of view, things are structured reasonably well and I’m happy with how it’s working. Now the main focus is on health. So, maybe I’ll be more regular at the gym, and take care of my diet. This is something I will try again this year.

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