My Journey in Equity Investing

A note from the author: This is the fourth article in a series where I aim to share my personal financial journey and the decision-making framework I use. I am not a financial advisor, and these are reflections on my own choices, values, and rationale, not recommendations for others. I hope that by sharing my thought process, I might offer a different viewpoint or spark useful reflection and discussion for those navigating similar paths. I welcome alternative, including contradictory, perspectives. If you find any factual errors in this article, I would appreciate it if you could point them out.

—

So far, we have covered:

• The ‘Why’: My overall savings philosophy, focused on balancing future goals with our family’s present well-being.
• The First Filter: My core principle of only investing in what I genuinely understand.
• A Case Study: A practical look at why I have stayed away from real estate as an investment.

Having established my foundational principles and an asset class I avoid, we now turn to an asset I actively embrace. This article details my personal journey into the world of equities.

If you’re new here, I recommend starting from the beginning to get the full context. You can find all the articles in this series on this page:

https://chiranjeevsingh.me/tag/myfinances

—

My background with an MBA meant I was already familiar with the concept of investing in the stock market, or equities. So, when I found myself with some disposable funds around 2020, looking into equity investing was a natural step. My understanding was straightforward: over a significant period, equities generally generate much better returns than traditional bank fixed deposits. 

This led me to the question: should I invest directly in stocks, or should I go the mutual fund route?

Now, even with an MBA, I knew I lacked the specific, in-depth knowledge and practical skills required to accurately evaluate individual companies and pick winning stocks. Crucially, dedicating the substantial time and effort needed to build this specialized expertise wasn’t something I was interested in pursuing.

This self-assessment naturally steered me towards mutual funds. The logic seemed compelling: for a professional fee, typically 1% to 1.5% of the assets managed (often referred to as an expense ratio), I could hire a fund manager to make these complex investment decisions on my behalf. It just made a lot of sense. Why would I spend years trying to develop a skill set to a professional level – a level I might never even reach doing it part-time – when a dedicated expert, who does this full-time, could manage it for me? I recognized that it would take me years to gain their level of proficiency, if I ever got there at all.

I don’t delude myself into thinking I can outperform investment professionals. Consider these parallels:

• Would you build your house yourself or hire an expert? (My answer: Hire an expert)
• If you disagree with an expert, would you override their judgment and do it yourself? (My answer: I would go with the expert.)

This reasoning solidified my decision to begin my investing journey with mutual funds.

The Index Fund Revelation

My initial decision to go with actively managed mutual funds felt sound, as I was essentially hiring professionals. However, my learning journey continued, and I soon came across the concept of index funds. I learned that these are a specific type of mutual fund designed to simply replicate the performance of a particular market index, like the Nifty 50 or Sensex. Unlike the actively managed funds I had initially chosen, index funds don’t involve a fund manager making decisions to pick specific stocks based on research or forecasts. Instead, an index fund mechanically holds all (or a representative sample) of the stocks in its target index, in the same proportions as the index itself. A key advantage of this passive, automated approach is that it typically comes with significantly lower management fees.

Then, I encountered a piece of information that was, frankly, startling to me: research consistently showed that around 80% of actively managed mutual funds actually underperform these passive index funds over the long term.

I had to pause and really think about that. Imagine: you have highly qualified, experienced professionals whose entire full-time job is to meticulously research companies, analyze market trends, and strategically pick and choose investments with the dedicated aim of growing their investors’ money. They do this day in and day out, all year long. And yet, at the end of the year, and indeed over many years, an index fund – where the “management” involves minimal intervention beyond mirroring an index – performs better than the vast majority of these expert-led funds.

This wasn’t an isolated case or a rare occurrence; it was a persistent reality for about 80% of actively managed funds! It struck me as extremely surprising, almost baffling. Why were these talented individuals, whose careers are built on investment expertise, so frequently failing to deliver superior returns compared to a simple, passive benchmark?

The only way I could begin to justify this in my own head was to conclude that consistently outperforming the market requires not just general knowledge or intelligence, but an extraordinarily deep, perhaps even rare, set of skills and insights – capabilities that perhaps even a large majority of these dedicated finance professionals don’t possess or cannot consistently apply to beat the market average.

This new information raised questions for me: If most active funds underperform, will the specific funds that have outperformed in the past continue to do so? Who will outperform in the future? I realized I didn’t know the answers. I certainly didn’t feel I had the skills to determine which active fund managers would be the consistent winners, nor, again, was I interested in developing those particular analytical skills. So, I switched my investments to index funds.

Finding Alignment with My Values: The Parag Parikh Mutual Fund (PPFAS) Discovery

My journey then took another turn when someone I trusted, a former student whom I sensed to be a reasonable and sensible person, strongly recommended I look into Parag Parikh Mutual Fund (PPFAS). He spoke in detail about their investment philosophy and values, which piqued my interest.

Following his recommendation, I did some online research. This wasn’t an exhaustive, weeks-long investigation; I probably spent no more than a couple of hours on it. I came across YouTube videos where the Chief Investment Officer (CIO) of the fund was speaking. What struck me was how his words and explanations consistently aligned with the values the fund espoused – values like long-term thinking, transparency, and a patient approach to investing. This alignment felt significant.

The more I looked, the more concrete evidence I found that supported their stated values:

• Skin in the Game: A crucial factor for me was discovering that the fund’s management and employees invest a significant portion of their own money in the very same mutual fund they manage. They also transparently publish these holdings. This showed a clear alignment of their interests with those of their investors.
• Low Portfolio Turnover: I looked at their portfolio turnover ratio, which essentially tells you how frequently a fund buys and sells the stocks it holds. PPFAS had a turnover ratio in the 20% range. This meant, on average, they were holding onto a company for about five years – a clear testament to their long-term investment philosophy. This contrasted sharply with many other mutual funds, some popular ones having turnover ratios exceeding 100%, even reaching 300%. A 300% turnover implies holding a company for an average of just four months, an approach that, for me, borders on speculation rather than long-term investing.

This philosophy also informed my expectation of returns. An index fund, by its nature, isn’t designed to maximize returns; its components are chosen based on the index’s criteria, not necessarily for optimal growth. My thinking was that if I could find sensible, capable people – like those at PPFAS seemed to be – who were actively trying to identify and invest in good companies for the long haul, guided by a sound value system, then I would expect them to have a good chance of performing better than a passively managed index fund over time.

It’s true that during this period, and even now, there were (and are) other mutual funds that had generated far higher returns than PPFAS over the preceding five years. However, when I looked into them, I either couldn’t find that same deep alignment of values, or I couldn’t genuinely understand how their strategy – often involving frequent buying and selling – was sustainably leading to those higher returns. This lack of understanding or value-fit made me uncomfortable, reinforcing my principle of only investing in what I truly grasp (as discussed in my second article, “Investing Only in What I Understand”).

The alignment I felt with PPFAS, on the other hand, was so strong and clear that I made a decisive move. Within about two weeks of first learning about the fund, I transferred almost my entire equity portfolio – which at that time consisted mainly of index funds and one individual stock I had invested in – into their fund. Even the student who recommended it was surprised by how quickly I acted, but for me, the reasoning was straightforward: I had found an investment approach that didn’t just make logical sense, but also deeply resonated with my personal values and my understanding of how genuine wealth is created. I had always been a little uncomfortable with index funds possibly holding companies whose values I might question; with PPFAS, I found not just an alternative, but what felt like an excellent fit.

I recognize that placing my investments with a single fund house introduces concentration risk, but for me, the benefit of complete alignment with a philosophy I trust outweighs this risk at this stage.

—

What’s Coming Next

My journey in equity investing has been a process of learning, evolving, and ultimately finding an approach that aligns with my personal values and temperament.

Now that I’ve shared the “how” and “why” of my chosen investment path, what are my expectations from it? In the next article, we’ll explore the common desire for above-average returns, or ‘alpha’. I’ll share my personal philosophy on this—how I reconcile the desire for more with a deep awareness of my own limitations.

Following that, we’ll move from philosophy to a real-world example. I will share a candid, behind-the-scenes story of my experience investing in Airtel stock, including the initial flawed decisions, the emotional responses, and the crucial lessons learned about process versus outcome.

To continue following this journey, I invite you to subscribe to the newsletter below.