Why EQ Beats IQ In Investing: Insights From Mahindra Manulife’s CEO
In a recent episode of the "Simple Hai!" show, host Vivek Law engaged in a candid conversation with Anthony Heredia, Managing Director and CEO of Mahindra Manulife Mutual Fund. With a career spanning 30 years in the finance industry, including significant roles with various global funds, Heredia shared insights on investor behaviour, market dynamics, and the importance of emotional control in investing.
Emotions in the Market: A Universal Challenge
Heredia, a Mumbai native, reflected on the evolution of the Indian investor over the past three decades. While acknowledging that there has been significant maturity, he observed that investors still tend to react and become fearful during crises, sometimes halting Systematic Investment Plans (SIPs) or panicking and selling. However, he countered the idea that this indicates a lack of maturity, noting that even seasoned professionals like himself react emotionally during major market events.
"If I, despite being in the market for 30 years, react, which I think is normal human emotion playing out, then I don't think that it's fair to expect that the investor will remain absolutely calm and keep doing the same things," Heredia stated. He believes that the investor's "right behaviour scale" has improved significantly, moving from a level of perhaps two or three thirty years ago to six or seven today.
A key indicator of this increased maturity, according to Heredia, is the consistent inflow of SIPs, currently around ₹26,000 Crore per month. He contrasted this with the behaviour of lump sum investors, who pulled back as the market corrected, demonstrating fear. While lump sum flows peaked at around ₹50,000 Crore in November, they dropped to ₹27,000 Crore recently, suggesting that the savvier lump sum investor is worried and not investing more, despite the wisdom suggesting otherwise.
Noise, Narratives, and Navigating Media Hype
The discussion touched upon the potential role of media and social media in amplifying fear during market downturns. Heredia agreed that headlines have not changed much over the years, citing examples where a small percentage fall in earlier times was deemed a "blood bath," whereas a larger point drop today might still be described similarly despite representing a smaller percentage. "Today we are living in an Insta world. Exaggeration gets you views, impressions," he remarked. However, the sustained SIP inflows indicate that while there is noise, the reaction to it is largely under control.
Addressing how investors can control the urge to sell out of fear, Heredia emphasised that making money in markets is 100% not about IQ, but about EQ – keeping control of your emotions. He humorously suggested that controlling this impulse is like needing an "itch guard". He finds reminding himself of past experiences and their outcomes helpful in managing his own emotions. Heredia stressed that investing is fundamentally boring: finding a business at a reasonable value, holding it for a significant period, and money will be made. The desire for excitement often tempts investors to overreact or attempt tactical plays, which he views as detrimental to long-term success.
On the current market scenario, Heredia doesn't see it as a single, major disruptive event like 2008 or Covid, which felt like the "world is coming to an end". Instead, he views the present as potentially a "series of events" that, collectively over time, might become a matter of concern to deal with, but not something to be scared of currently. He believes this environment will see both winners and losers.
Heredia also discussed sector views, noting his long-held bullish stance on manufacturing, partly influenced by insights from his colleagues in the Mahindra group's manufacturing businesses. However, he indicated a shift in perspective, stating that while manufacturing holds promise for "absolute crown jewels" to emerge over the next 5-10 years, in today's uncertain world, sectors like banking and financial services offer more predictability in earnings and valuation comfort. He added that in an economy like India, taking a rigid sectorial view is "probably injurious to health," as opportunities exist across various sectors.
Simple Funds for a Complex World
For investors looking to start or restart their investment journey, Heredia advocated for simplicity. Drawing on his 30 years of experience, he believes that beyond Flexi-cap, Multi-cap, and Multi-asset fund categories, an investor does not need any other fund categories. He considers these sufficient for most investors' needs, providing a blend of diversification and flexibility.
Looking ahead, Heredia is highly optimistic about India's potential for wealth creation over the next 20-25 years. He sees this period as the nation's journey from developing to developed, a phase historically associated with maximum prosperity for nations, citing examples like Japan and Korea. While bullish on this overall prospect, he cautioned against putting all investments solely in equity, stressing the continued role of fixed income and potentially REITs in asset allocation. He highlighted the importance of fixed income, especially with potential rate cuts, as a good option that contributes to a diversified portfolio that allows one to "put my head in the pillow in the night with a smile on my lips" even during market corrections.
Heredia also underscored the vital role of financial advisors in helping investors achieve "investor return" versus just "investment return". He explained that while fund houses deliver investment returns, advisors and platforms like "Simple Hai!" play a crucial role in guiding investor behaviour to bridge the gap between potential returns and actual returns realised by the investor.
Ultimately, Heredia summarised his philosophy: "Life is simple. If you are happy with just about this much, the moment you are happy with just about this much, all the other terms get attached". The advice for investors, much like the show's name, remains simple: invest simply, live simply, and enjoy life.
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