You Aspire. We Plan. Execution?
Our tagline ‘You aspire. We plan’ is only one half of the story or even less. What should ideally follow is Execution with out which, plan remains a plan and it makes less of a difference that you have a plan at all . It is high time we modify our tagline to truly reflect what brings results – You aspire. We plan. Execute for results :).
We have seen some of the best planning efforts have barely had an impact on portfolios due to inaction or lack of attention in getting the execution done and in *time*. From the result standpoint, planning is nothing and execution is everything. Planning is an exercise of projections for most part and finding an optimal asset mix for your tolerance but execution is where rubber meets the road.
Asset Allocation works the best when you treat the entire mix as atomic while filling; not being selective in filling asset classes one feels comfortable leading to lop sided allocations. In looking back, US stocks as an asset class was looked at with condescension till 2012 and investors were hesitant reeling from a profound impact of the so called ‘Lost Decade’. Indian Stocks as an asset class was looked at with derision due to dismal recent performance till 2013 and became the last asset class to fill in as a matter of preference. Important aspect that was often overlooked is, asset allocation filling should be agnostic to one’s own bias and recent performances. I use an algorithm similar in concept to Deficit Round Robin (DRR), popular in network scheduling, when it comes to filling asset buckets to help investors keep the ‘bias’ at bay and in some cases, I do assign weights for various reasons. As usual, ‘recency bias’ in the minds of the investor does a spoil sport. Investors missed a big run in US stocks in 2013 and in Indian stocks from late 2013 until now. Stressing this fact of under-filled buckets, there was a note sent to our clients recently which I am sharing here:
Post Elections in India, with the stability of the Govt at the center, visibility and confidence in the India Story is on the rise. One of the leading Asian markets research house, went overweight on India even before the election counting was over. Reason: Majority Government at the Center. For an emerging market and a country that was policy-paralyzed for a while, this can be a shot in the arm.
While there is no change in the weights or planned allocation to what you decided in the plan pre-election, we are finding number of portfolios lagging the Indian Stocks Allocation target significantly per their own plan and missed the massive move of the last 6-9 months. This will have a huge performance impact on long term returns. ‘Recency bias’ was the predominant reason in the minds of the investor due to lackluster performance of Indian Stocks in the recent past. As much as investors chase performance, they also avoid under-performing ones like a plague. Your target numbers, as you all are well aware, is agnostic to asset class performance and market timing; Indian Stock target allocation was arrived based on your needs and duration of the goals and it is the target you should have it *today* or in a year’s time (to avoid lump sum allocation).
We are recommending ‘acceleration’ to the IS target faster than the slower pace many of you are on. This note should not be construed as a clarion call to increase Indian Stocks allocation or to accelerate via one shot lump sum. Nor are we raising the target numbers with euphoric hope on Modi-fied India. This is an alignment call to bring your plan in balance with several drivers coming together for India, we do not want your procrastination or slower pace to cost you. If you are inclined to increase the Indian Stocks target(above planned numbers) looking at the all-round positiveness and bright outlook, you need to exercise caution; it needs to be a ground-up and holistic, starting from goals allocation ring fencing your bias as always.
Hope you continue to keep up with Discipline(D), Review(R) and Balancing(B) – 3 key ingredients that bring tangible and definitive results regardless of what the market does. DRB for ever and let everything else be for entertainment!