I just finished reading “The Dhandho Investor” by Mohnish Pabrai ( the man behind Dakshana). I enjoyed it and it stimulated some new thinking.
I also looked at my investing in India over the last two years. On a portfolio with 85% exposure to equities I managed a 45% CAGR(cumulative annual growth rate). I guess that may be just about okay. ( this is all in just a few boring stocks)
Will my angel investing give me anywhere close to that. I doubt it. This is what makes angel/seed investing tough in India. I hope to by investing both time and money improve my odds. I have abandoned the “spray and pray” approach where you put small amounts if you like the idea or team and trust the entrepreneur. This approach also relies on if xyz and pqr are also investing then I feel good about investing.
An excerpt from a quote from Kahlil Gibran ( full quote in book)… “You give little when you give of your possessions. It is when you give of yourself you truly give”
The full quote is more about giving selflessly to the needy ( I am atleast ten years away from that phase if I ever get there) but the first few lines lead me to think more of a heavy involvement model and not a “spray and pray” model.
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Not sure where I read this, but its said to stay in the Forbes richest 400 once you have reached there takes about 7% returns… which i think are modest….but the churn there is phenomenally high…. ( more like only 20% remain over a period of 20-30 years). It is said while to get to great riches you need to focus, but to maintain the riches you need to diversify….. Examples being the old money families of the US ( maybe true of even the India ones) so I think, even for a angel, diversification makes sense, but maybe you should focus on high involvement on the ones whom you would bet with the highest success….
And Deepak I agree with the no trading maxim…. My dad left me some reliance shares…. havent touched them for 10 years now….. not sure I can ever reach those numbrs by actively managing…
If others interested, old hand pl start the value investing blog, am sure there are quite a few proponents around who would like to participate. Deepak Shenoy, have been following your blog for sometime, good work, amongst the better ones around I think. Keep up the good work… a lot of people thought you wouldnt be regular post the kid, but i see you dig up time….
Warning: Tooting my own horn.
Read http://blog.investraction.com. I write about value and growth investing. I’ve not unearthed the 10x returns yet – the closest probably is Reliance which is about 3x or so since 2004.
BTW, Does anyone know any blogs related to discussing value investment picks in India where people come and discuss?
I mean quality blogs like venturewoods, not like the boards on moneycontrol.com where most posters come across as headless chickens 🙂
I know one such blog called Fundoo Professor. But the blogs there are one-way. 2-way discussion is not happening. And unfortunately in most cases, the blog owner, who is a great value investor I must say, posts the ideas AFTER investing, sometime several years after those investments were done.
I am convinced that there are still gems in the Indian stock market that will give 10X or more over the next 4-5 years. That may be a place to allocate more money to, than even your own startup.
A 20% CAGR over the last 10 years has been very routine. A portfolio I track has had no transactions and over 25% CAGR over 10 years, (9x return) with no exposure to IT, and less than one transaction a year.
Just to play devil’s advocate – what if I said it was best the other way around – i.e. that much higher returns than 25% CAGR await you if you DON’T Actively manage your investments.
Peter Lynch in his 10+ years at magellan clocked 29% CAGR.
Gil Blake, a mutual fund timer in the 80s, did 40% CAGR over 10 years.
The highest paid hedge fund manager in 2006, John Arnold, has consistently returned 200% or more per year since 2002. (Energy trading)
What I’m getting at is: None of these people get actively involved in improving the quality of what they invest in; they only buy and sell and make a speculatory profit. They seem to make way more than the Angel target of (what I think is) 20% CAGR. In that case, why not either a) invest directly in equities or other asset classes or b) give money to one such hi-funda manager to invest?
WIth angel investing are you aiming for more returns than the above? Does involving yourself give you a 200% CAGR (on your portfolio as a whole, not one investment)?
Note however that I don’t know what the CAGR of angel investors is .
The take is: If you want to get more involved, become an entrepreneur and put all your eggs in one basket. If you wish to diversify and still get high returns, perhaps involved angel investing is not the best avenue; more liquid avenues exit that could be more favourable in the long run.
(There are no known performance records of Indian hedge funds over the years, and no real angel success score either. Success in either of the above will be a pioneer)
DeepakN.,
I agree with you that clocking even 20% CAGR over a 10 year period would be phenomenal. It gives an over 5X return. To do that without improving the odds would be a long shot and maybe by being heavily involved I can improve the odds.
As I played with numbers the importance of time on return becomes very evident. IRR improves dramatically if a startup can cut time to exit.
I am also a bit skeptical that as an uninvolved angel I will do well which is why I am abandoning that approach. However, that is just a personal choice and I still see tremendous value for the right angels who can provide a little capital and mentor stellar entrepreneurs who just need that and do not need involvement.
In India we need all types of seed/angels. The environment/ecosystem may not be very good but it is much better than what it was and improving all the time. We should also not forget that entrepreneurs find a way.