Making Time Your Enemy

20. April 2012 Rahul value investing (0)
I've always maintained that to be a successful investor, one has to make time a friend and not an enemy. There are innumerable potential opportunities in life where we know the eventual outcome but we don't know when the outcome will take place. Such situations are not risky but uncertain.

Of all the places in the world, India excels at the art of creating uncertainty in know outcomes. Even things that seem absolutely imminent can suddenly become uncertain.

There are many ways of making time an enemy including things like leverage. However, one can make time an enemy with something as basic as one's structure, setup and approach to investing.

Many global capital allocators in areas including venture capital, private equity and hedge funds became enamored by India in recent years and setup large establishments in India. They hired star fund managers and recruited associates and analysts at top dollar salaries. They ruined the market for high quality secretaries and prime office space in Mumbai and Delhi by outbidding incumbents. They replicated their IT systems and security policies and transportation policies and almost everything else from their offices in New York, London and Hong Kong.

This in my opinion has become a ticking time bomb for them because they have made time a terrible enemy. To justify their establishment expenses, they are desperate to deploy capital in India. However, when the environment becomes non-conducive and remains so for an extended period of time, their frustrations start to build up. This recent article on DE Shaw's plan to downsize its India operation (http://tinyurl.com/6un48or) is only one of many such that I've read in recent times.

The other end of the spectrum are allocators who believe that India is not a significant opportunity and don't provide any dedicated resources to India. They execute their India exposure using teams sitting in New York, London or Singapore and make it part of their Asia ex-Japan pools. While there is no time horizon mismatch there, I think that is a terrible way to invest in India.

So what is the right approach? In my opinion, it is essential to have a team with ears and feet on the ground in India to invest successfully in India. It is imperative that the key decision maker be based in India. There is no way that someone who lives outside India for 182 days in a year can successfully invest based on "research" generated by their India investment teams. However, it is also essential that the team in India be kept very simple and rudimentary.

To make time a friend, it is essential that the capital allocator be willing to hang around in India doing nothing for several years and not feel the pressure to make something happen.

This probably sounds like I am talking my book. I am. However, it is important to keep in mind that we've structured our operations the way we have because we believe in what I've highlighted above and not the other way around.

Add comment

Loading