Shownotes
Pashin Katpitia is the chief technical officer and a director at Inspiron investment consultants, based in Mumbai, India. A third-generation entrepreneur, stock trader, and technocrat, Pashin is a highly disciplined trader who focusses on market realities at all times. He is committed to the growth of the investor and trading community and has trained thousands of novices and experts. Pashin has developed real-time trading systems and is a point of reference for many traders seeking support. He and the co-founders of Inspiron have recently developed a fully algorithm-driven rating and curation app for stocks and commodities that provide innovative features, such as a triple-layer market outlook for the short, medium and long term, as well as a star rating for each stock listed on the exchange. The app is called Shazpha (means success) and is available on App Store and Google Play, and currently offers coverage on all exchanges in India as well as the NYSE and NASDAQ in the United States.
“There are times when the market is not in your favor and there are times when the market is but … you need to be consistent in your approach to the market.”
Pashin Katpitia
Worst investment ever
Fund manager inherits poorly performing fund from predecessor
Pashin’s story starts when he first got involved in fund management in 2010. He had inherited a fund from a previous fund manager who hadn’t performed well and it was down 40%, so he was left with 60% of the initial capital. It was difficult, but because he had a system, he just followed that and was not affected by personal feelings.
Following a system, he regained losses and made a profit
It was a decent sized fund, small by global standards, but still had US$1 million and he invested in a total of four stocks. Those stocks helped him recover the losses and generate some profit in the first year so he and his investors were back to square one. The clients though had regained confidence and for Pashin it was a great feeling to have not only recovered clients’ losses made also them some money.
Fund in 2011 makes 40% profit that investors choose to re-invest
Now in 2011, the year starts off well, and Pashin moved in and out of a few investments. On the whole however he was riding on just three stocks for about eight months. By December, he and his team decided that since they had generated a good profit (about 40%), they would take those funds and spread them among the investors. The investors were on a high because just the previous year they had recorded losses and now in this year, they were looking at a 40% profit. So most of the investors said: “Let’s reinvest the money and just keep trading.” So they were all confident and started off 2012 with a program of re-investment of profit.
Now with a larger fund the investments fall foul as markets play up
So they all started off in January 2012 with the clients having re-invested their profits, and with a larger fund amounting to capital of around US$1.4 million. With that, they started larger positions in the same stocks because they had found that those stocks were still the best. Then the markets started to shift unpredictably, and by the end of March 2012, they had lost all the profits that were made in the previous year. That moment was a real wake-up call for Pashin that the markets can go wrong. It was only thanks to the system he was followed which included stop-loss points that he was left with the capital intact, and he had only lost the profits that were generated in the earlier years.
Realization that as markets can rise, they can also fall, without warning
He realized that markets can move in the absolute opposite direction to what you are expecting. And because he had increased his positions, his losses were magnified. While reinvesting returns is a good thing, he said, it can also be counterproductive, especially if you haven’t managed your risk well. So he had his team continue to trade in 2012, which was a really volatile year, and ended up losing another 18% on the capital. By the end of 2012, they were left with a little less than what the capital was they held at the beginning of the year. That said, the clients had not lost all confidence and they permitted Pashin and his team to go on trading. Later on, that paid off, as all losses were covered in 2014, followed by some impressive returns from then on.
Despite regaining losses, fund manager starts to question himself and his system
He said the point of the story was that the losses here was that, you know, it brought him to a place where he wondered if his system was effective, questioning himself. And that, he said, is the question most people face when they encounter this kind of scenario.
Some lessons
Stay in the market. Pashin says the number one behavior that pulled him through was that he kept invested, calculated his risk, and managed that risk well.
Be consistent in your approach to the market. There are times when the market is not in your favor and there are times that it is. What should remain consistent is one’s unattached, unemotional approach to the market.
When intending to re-invest your profits, take a different direction. If you’re making plays on stocks, perhaps invest in commodities, such as metals or crude or another sector. Or if you want to invest in stocks, buy some other stocks and don’t invest in the same package again.
Stop losses are a must. There is no way around this idea. However, your stop loss cannot be cannot be the same level, you have to alter your stop loss based on the current market volatility. And that is something Pashin follows today. If the stop loss is too low, then what he does is gives the trade a pass; if the stop loss is within his limit, he does take the trade. And, you know, go ahead. So that's a few takeaways that I have
Andrew’s takeaways
We are human. Sometimes investing can really take a toll on our various forms of energy. Pashin referred to “mental capital”; Andrew talked about “emotional capital”, and goes on to say that our energy stores, especially in times of crisis, can be depleted because of the situation. Maybe it is confidence, or maybe it is the thinking power, or the ability to step back and see the situation we’re in clearly. These times can have a real impact on us, physically and mentally.
Diversification has its benefits and its limits. Andrew here talks about the trade-off between risk and return. Owning many stocks, and therefore being extensively diversified, will certainly reduce risk, but it will also reduce the probability of outperformance. If you get to 20 or 30 stocks in your portfolio, chances are the performance of a portfolio is going to be the same as an ETF.
Choose an investment method that fits your personality and thinking processes. Pashin is an engineer, so having a structured way of trading certainly fits and makes sense to him.
No. 1 goal for next the 12 months
Since Pashin has been developing a new system of trading, he has been trying to get someone else to manage his portfolio in the same manner as he would, and this he has found a major challenge, because most people find it very difficult to trade in a mechanical way, whereby emotions are completely removed from the equation. So his true goal for the next 12 months is to be completely emotionless, continue trading, assign capital, turn his system on and take stock of the results after a year or so.
Parting words
“You have to be invested in the stock market,and since you have to, you had better do it wisely.”
Pashin Katpitia
You can also check out Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
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