Markets with Bertie: Looking for the next Elcid? Maybe, buy a lottery ticket instead

Bertie avoids socializing within his professional fraternity. It’s boring at best and, at worst, descends into brazen one-upmanship. Which is why, Bertie prefers to hang with his right-brained pals; those lovely people who discuss theatre and music and art and take him to MAMI and Kala Ghoda. Last week, Bertie and his actor friend Abhi went lantern shopping in the famous lanes of Dadar. Apart from being a good actor, Abhi has a keen interest in markets. As they wandered the streets soaking in the festive cheer, Abhi asked him, “Tell me Bert, what’s with this Elcid thing?”

Abhi was referring to the erstwhile penny scrip that had zoomed last week to become the highest priced stock in India. There’s something about such rags-to-riches stories that piques the interest of retail investors. Bertie explained the change in regulations with respect to investment holding companies and the consequent call auction. For a self-taught investor, Abhi grasped this quickly. “Ah! It’s like getting buyers and sellers of a thinly traded scrip in a room at a pre-announced date and time. To get them to trade and discover the true price.” The quick paraphrasing impressed Bertie. Abhi then asked the next logical question, “What’s the next Elcid?”

Bertie told him about the list of companies that the regulator had selected for such auctions. “They will announce the date and time. You can turn up with your bid-paddle,” he said. Abhi wore a thoughtful expression as he digested all this information. After a while he shook his head and said, “Might as well buy a lottery ticket.” By now the light was fading and some lanterns were being lit. Bertie smiled as Abhi had been able to differentiate between a lottery and sound investing, a distinction so many investors fail to make and pay dearly for it.

Asymmetric payoff

On Diwali night, Bertie broke his aforesaid socializing rule and went to a party hosted by his friend who works for a venture capital (VC) firm. The firm in question has been a prolific investor in India. The VC friend had framed a collage of newspaper headlines announcing the investments by his firm and put it up on his study wall. The narcissism was not lost on Bertie but as he went through the headlines what struck him was that most of the investments seemed to be duds. The success stories were few and far between.

“But we are beating the base rate. Handily!” exclaimed the VC friend when Bertie politely asked about this. “Globally,” he continued, “there is a base rate for VC investing. What percentage of firms become a half-unicorn in five years, how many become unicorns in seven years and so on.” Bertie got the drift. Base rate was like a benchmark for VC firms.

“And what’s the base rate like?”. The relative return fund manager in Bertie could not help himself. The VC friend quoted a series of low single-digit percentages. To Bertie, this seemed like a game of frog-kissing. The VC friend was saying the same thing but put a spin on it “This is a skewed pay-off structure, Bert. You know the beauty of it? Your losses can only be 100% but your gains can be infinite.”

Hearing that, Bertie’s mind drifted to the wall of his study which has a picture of two men. One of them had famously said, “The first rule of an investment is don’t lose money. And the second rule is don’t forget the first rule.” The VC friend had just said the exact opposite. Bertie does not judge though. He congratulated his friend on his success and wished him an even bigger collage. After all, there are many roads to (investing) God.

Testing pitch

The one thing that Bertie hates more than socializing is doing a TV interview. But at the persistent prodding of his marketing team, Bertie donned a bright kurta, brushed up his baritone by saying “Saat karod!” (Seven crore) a few times and landed up at one of the mid-town studios for a Diwali special.

After navigating the trillion-rupee question “Why are foreign investors selling?”, Bertie was asked about his market outlook. He reeled out some numbers that he had looked up on Bloomberg on the way and hit his practised notes of unprecedented wealth creation, land of abundant opportunity and multi-year growth story. But at the risk of incurring the ire of his marketing team, he also asked investors to temper down their return expectations. Unprecedented, Bertie said, means something that has not happened in the past and is unlikely to repeat in the future.

The anchor asked if investors should be worried by this. Bertie did not want to go too off-script so he veered back to the usual cliches of staying invested, patience being a virtue, etc. Truth be told, Bertie is far from worried. In fact, as a fund manager, he is excited. The bull market of last few years has, at times, felt indiscriminate. Like a flat pitch where you cannot distinguish between the good and mediocre batters. Bertie believes that the pitch is getting challenging now and that gives him a chance to draw on his experience and test his skill. He may hate parties and interviews, but an intellectual challenge Bertie just loves.

Bertie is a Mumbai-based fund manager whose compliance department wishes him to cough twice before speaking and then decide not to say it after all.