How to be a great investor

Director of Enam, Mahesh Chokhani brings the benefit of his expertise over long years of trading in the market. So in his time, he has seen it all -- the mood swings of the market. He gives away a few of his secrets, so that a lay investor can benefit.

He told CNBC-TV18 that India has emerged from a 20-year bear phase and is in the middle of a large secular cycle but there is scope for growth here as well. But in the immediate future, there was a real chance of the market witnessing a correction. Excerpts from an interview given to CNBC-TV18:

What do you need to become a good investor?

The starting point to being a good investor is really being a person who understands himself very well. So are you really self aware and being an investor is really no different from being a businessman.

And, if for instance, your personality is cut out to be someone who needs a monthly salary cheque for example, it's very unlikely you are going to have patience or the wherewithal or the self confidence to be sitting on an investment for a long period of time, waiting for that cheque to come in two years later.

Similarly, if you're just conditioned to getting an interest cheque in your bank account every month, it's very different from being an entrepreneur, who has gone and invested, taken the pain for the next 3-4 years and then he is starting to get a pay back on his project.

Is a personality trait important for shaping a style of investing?

I think you need to take a call because investment is a lonely art at the end of the day. It's not about winning a popularity contest.

It's not about doing what the crowd is doing because the biggest fortunes in the world have not been created, by people who did what the herd was doing. So a classic investor in that sense is a different breed of fish.

And even if you see the most successful fund managers in India or the West, they are not necessarily people with the best social skills for example, they are not very comfortable hanging out in a crowd or in a party or so on and so forth.

The psyche is slightly different and one shouldn't try to trivialize it by saying everyone can be an investor and it's very easy and so on. You should be mentally ready, if you are going to come and be in this business.

Can you discipline yourself to be a good investor?

I find it extremely fascinating that there are a number of Indians who led in the investment field, not just in India but across the world, when at the end of the day, this is the land of spirituality.

The heart of the Indian tradition is this whole feeling of equanimity and detachment and doing your duty well and the markets are actually the biggest training ground for someone who wants to become a much better human being because here, you are going to be tested all the time with greed and fear.

You are going to feel pompous at times, you are going to feel completely self humiliated and destroyed at times and if you can maintain that set of calm and equanimity in these kinds of completely extreme conditions, that's just going to make you a better person.

I think if that's the core of an Indian or any other good person, if you can build that skill set within yourself, it actually is the biggest starting block for being a good investor.

How do you not get carried away?

The best investor you meet, they don't think about the money they make. They just think of it as something that they were attempting and they got it right. So for most people, it isn't about the money, it's about the thrill of the chase. It's about getting it right. It's about doing something, where you felt you were against the rest of the world or general opinion and I think that's really the kick. You must love this process.

You must love the process of finding someone who is going to create wealth, not just for you but for the whole nation or for another set of investors. If you don't enjoy that process, you are not going to be able to invest. And at the end of the day, I don't think it's really about the money.

Has the parameter of awareness changed now that you need to be far more aware at a global level than you could have got away with maybe 25-25 years back?

Well, the basics don't change because investment at the end of the day is about an outlay today, for what you will get in the future.

Certainly, if one thinks that India was a closed economy 20-years ago and therefore you didn't need to know what is happening in the rest of the world, to an extent it is true. But if you weren't aware even then of what was happening, you won't have, for example, have foreseen the collapse of the Indian rupee, you won't have foreseen what the fiscal deficit can do to you in the Indian context.

And if you look at the operating assumption in the 1990, it is really what you call the era of import substitution because you had a picture that this is a backdrop, under which all our businesses are going to operate and if you see the giants which were created in that era, it was Reliance and Sterlite and Jindals and Videocon, were really creations of that era.

But is the world more complex or is it just an assumption?

It is, because the reality is that this wasn't such a noble and well liked profession 20 years ago and there were few people. Now whatever needs to get analyzed, there is so much data overload that unless you have operating mental models in your head, against which can you test your hypothesis all the time, you are going to be completely swamped with the amount of information.

Which end of the cycle do you find us in right now? We have gone through the euphoria over the last couple of years, where are we now today?

I think we are within a larger secular uptrend. This market had a base of 100 in 1980, until 1988-89 we were pretty much at 800, so we were up 8-times in that decade and it was consistent with the interest rates of that decade.

So you must have a sense of what's going on and that's where we are in this cycle. We have effectively completed a 20-year bear cycle and I think, we are in the middle of a very large cycle. Having said that, you can have a large secular cycle and you can still have an economic cycle within that. So interest rates may have already bottomed out in the beginning of this year and you will see some correction going ahead.