Try to create your own investment processes, says Sandeep Tandon of Quant Mutual Fund

Quant Mutual Fund captures the imagination of investors with its quant-based investment process. When
Shivani Baz
of ETMutualFunds reached out to Sandeep Tandon to ask him how he dealt with volatile market phases, little did we realize that the now famous Quant investment approach originated from such difficult market phases. β€œIn the beginning, we were all looking at data points in silos, and I soon realized that making decisions based on this approach was as good as shooting in the dark. The big lesson learned over these years was the importance of combining multiple data points, as a particular thesis/specialization is only effective during certain phases. This training laid the foundation for a multi-dimensional research approach, the benefits of which we are reaping to this day,” says Tandon.
Edited interview.

When did you start your stock market journey? Do you remember the first years of the market?

My journey in the stock market began in early 1992 when the Harshad craze was at its peak. My first lesson in behavioral finance was learned during this phase as one could feel the madness and euphoria of the market. I distinctly remember selling a large portion of the assets in my family portfolio well before the fall. So while many people have bitter memories of this phase, I actually had a decent run on my investments and it was a good period for my family. So I have fond memories of that phase.


What was the first thing you learned in your early years in the market?

The first thing we learned is that the stock market is all about mind games. One must learn to accept the opposite appeals of the extreme levels of fear and greed. Although it is not easy to quantify these extremes, if one is able to develop this art, they can survive in this market.

What was the first bad phase of the market that you remember clearly? How did you navigate it?

The dot-com bubble of 2000 was the first bad phase for my personal portfolio. At the time I mostly owned tech stocks and they lost 80-90% of their value. Although I could feel the euphoria in the market, I was trying to improve my tax efficiency by waiting for my holdings to reach long-term status so I could optimize my after-tax returns. The big lesson learned here was simple – in the stock market, don’t base your decisions on tax planning!

After this crash, the period leading up to 2002 was challenging and depressing as several market participants lost significant value. However, this is when my fondness for studying macro data began. I very quickly realized the importance of looking at macro factors instead of a basic bottom-up approach.

Can you tell us one mistake you remember clearly from your early years? What are your lessons from this mistake?

In the beginning, we were all looking at data points in silos, and I soon realized that making decisions based on this approach was as good as shooting in the dark. The big lesson learned over these years was the importance of combining multiple data points, as a particular thesis/specialization is only effective during certain phases.

This training laid the foundation for a multi-dimensional research approach, the benefits of which we reap to this day.

You have been in the market for so long. Were there bad phases that made you lose your temper? How did you navigate it?

There are many cases where we have made a big mistake of being biased and suspicious either of a few opinion makers or of a so called perceived revolutionary company / technology; due to the excessive hype surrounding these companies/technologies, I was swayed by the story or narrative and took extremely high exposure in these companies, thereby completely ignoring the concepts of diversification and concentration.

The biggest lesson learned was that such a large exposure should be backed up by detailed analysis and the focus should remain on data analytics rather than one becoming an opinion maker or believing they are the best analyst for these new companies / technologies.

Mistakes like the one mentioned above were the genesis of building a data-driven investment framework instead of one based on gut feeling or narrative.

How do you see today’s market in the context of your own journey?

Nowadays, it has become much easier to extract and analyze global data within seconds, if not less. Back in the day, even if we could extract the data, which was a huge task in itself, the computing power to process that data simply didn’t exist. All in all, it was a very time-consuming and impractical process. Today, however, at a cost, we can not only extract global data, but also process it meaningfully to gain useful insight. In fact, technology forms the backbone of our VLRT investment framework where we give 1/3 weightage to each valuation analysis, liquidity analysis and risk appetite analysis and when all these three components are skewed sideways, it helps to more good timing of investments, which allows for superior risk management of the scheme.

If there’s one thing you’d like young investors to learn from your experience, what would it be?

Given the easy availability of data, my advice to investors is – try to create your own investment processes and continuously work on that process to improve and develop it. Not only will this allow them to hold onto the markets from a long-term perspective, but the process will also ensure that they are not shaken during bouts of volatility.

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