People often tend to look at returns on an absolute basis without factoring in the time period, says Neelesh Surana, Head – Equity, Mirae Asset Global Investments. When you look at returns on a compounded annual basis over 20-25 years, many stocks would have given returns that are just as good.

What got you interested in the stock market?

The stock market interested me from my college days. When you start reading about investments and the stock market, and try to understand the process of wealth creation, it is fascinating. So I was inclined to move into this profession back then. My first investment was also during my college days.

As far as I can recollect, initial ones were in the IPOs of HDFC, Kotak, and so on, which gave disproportionate returns during 1992 boom.

When you’re in college, it’s all very exciting. But we never really understood much about the businesses then or put in the relevant evaluation filters.

What are the lessons you have learnt?

One of the lessons is to hold on to good investments for long to get the benefit of compounding power. While some of the gains in my initial investments had been decent, these stocks went on to multiply much more over the long period.

Stock market investing needs getting the basic filters right and maintaining discipline.

There should be no compromise on factors such as the return on investment, the management quality, and valuation.

Most of the errors are linked to these three factors, that is, wrong selection of business, or compromise on management quality, or overpaying.

So over time, if you maintain that basic discipline, it becomes much easier. Just jotting those errors and learning from the same is very important.

What do you think of gold from an investment perspective?

Gold as an investment, from a long-term perspective, doesn’t create much wealth. If you take a 20-year period, on a compounded annual return basis, it’s about 10 per cent and a large part of it is because of the rupee depreciation. In comparison, equities typically give around 15 per cent over the long term.

Moreover, in a growing economy like India, I don’t think investing in gold makes great sense; however investors can hold gold from an asset allocation perspective.

What about real estate?

There are two aspects to capital allocation in real estate. One is the basic need related to owning a property.

The other is the investment part, which like any other investment, needs understanding of the local market. In general, over the last decade, real estate has done extremely well pan-India. I believe that these sort of outsized returns are unlikely to repeat.

Also, in real estate, people tend to look at absolute return and ignore the time frame. However, when you look at returns on a compounded annual return basis over 20-25 years period, many good businesses (stocks) would have delivered better returns.

With the several IPOs lined up, what is your advice to investors on this front?

The main point to note is that there is absolutely no difference between an IPO and a listed company. The businesses are the same. In this context, investment in an IPO should be done just like any listed entity, that is, based on individual merit and comparables, if any, in the listed space .

For retail investors, particularly, it’s important not to get carried away. Just as there are only few good companies in the listed space, only a few IPOs are worth investing.

What approach should first-time investors take?

Casual investing in the stock markets should be avoided. First-time investors who are not associated with the equity market should go through the mutual fund route.

One needs to have a portfolio of about five funds, spanning categories, investment styles, and fund houses. Investors should have a well-crafted asset allocation with balanced weight to equities. The important point is to hold for long term for the power of compounding to work.

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