Raunak Onkar on why emulating someone you admire is wrong

I deviated slightly and decided to interview a money manager who does not have the experience that the others possess because I wanted the perspective of someone younger.

I selected Raunak Onkar because he is extremely interested in the subject of behavioural finance, something that is also deeply entrenched in the ethos of the asset management firm his works at.

This is part of a series where I attempt to understand the behavioural traits and mindset of money managers and investors. At the end of this (slightly edited) transcript, I list the 20 individuals interviewed for this series.

RAUNAK ONKAR is the head of research and co-fund manager at PPFAS Mutual Fund.

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Let me start by asking you something about your upbringing. How has your family shaped your money and investing mindset? How have they influenced you?

My family had no background in investing. Most of the investments were in fixed deposits or fixed income products, because that's what my parents understood.

There were no strategic conversations around money at home. We never discussed the impact of inflation or interest rates.

The biggest influence my family has had on me is on frugality and minding expenses before spending. I grew up in circumstances where it was important to be frugal, where you have a set amount to spend as income is limited.

This lesson from my childhood, on not overspending and living within one’s means, has remained with me and guides me even today.

So how comfortable are you with taking debt?

Reasonably comfortable. But it has to be asset backed. Other than the mortgage on my home, I am debt free. And it was a calculated wager. Because I knew that I wanted to live in this house and in this very neighborhood for a long period of time.

You joined as an intern. Then moved into research. Went on to head the research team and is now a fund manager. As your responsibilities changed over the years, how has your idea of investing evolved?

I interned at PPFAS at the peak of the Global Financial Crisis (GFC).

No one had a clue as to where the equity markets were headed. People had lost money. People were losing jobs. Job opportunities were shrinking. This was brutal, especially for those who had started investing for the first time on the back of the boom just a couple of years prior.

At the same time, I was afraid as to whether I would be able to perform or not, and what my role would entail. I wanted only one thing - understand how to invest and how PPFAS practiced value investing. That is something I was very keen on learning, and I was lucky to get the opportunity.

Parag bhai, Neil, Rajeev were great influences in my professional life and set me in the right direction.

I started off by reading Benjamin Graham. It was more about finding statistical opportunities, and believing that whatever is statistically cheap is the better opportunity. Reading, learning, talking to people, observing their behaviour and how they invest, helped me evolve. I understood that there’s a different way of looking at statistical value investing. That a qualitative aspect has to be added. There is another way of looking at the same opportunity or value that we see in companies or businesses.

These changes have been gradual over the past 15 to 16 years.

You witnessed the GFC. The pandemic downturn. How do you view risk? How has your understanding of risk evolved?

When I started off, my understanding of risk was more theoretical and very static; risk is something where it happens, either or. It's final. You wanted some money at this point in time, but it is not available to you. That is risk that you've taken in terms of your investments or savings.

Over time I realized that risk is actually very qualitative and long drawn.

As an investor, over a period of time, you will constantly have different cash flow needs. So you choose an investment vehicle accordingly. In equity, the risk goes two ways. One is the cost of investing and making a mistake, and consequently losing money. The second is the cost of not making the investment and losing the opportunity.

Earlier I had no idea of the opportunity cost of not investing over a period of time. Because of general inflation eating into our returns and our personal inflation eating into our returns. This was not part of my framework. Over time I realised that it is not binary – whether either you have money or don’t have money.

Going back to my earlier question on how you've evolved as an investor, can you name some investing principle that you really hold dear, that you've not wavered about at all?

If I had not started off by reading about Warren Buffett or Charlie Munger, or Benjamin Graham, my idea of investing wouldn't have been long-term oriented. The firm that I work with also practices long-term investing on a daily basis. This one principle I don’t think I will ever let go at all - having a long-term view rather than looking at what happens next quarter or next week or next month, or what is happening in the world today, and how it affects everything today.

Of course, we have to acknowledge that over a long period of time things do change, and the job of an investor or a good analyst is to understand how it will play out and affect the companies and businesses.

But a constant short-term outlook changes behaviour. It keeps you anxious and worried. I think the principle that I will hold on to is to have a long-term focus rather than break it into shorter compartments of data points.

You speak of people who have influenced you. You've named quite a few. Going ahead, who do you want to emulate for the next leg of your career or journey?

Emulation is dangerous. I would not want to emulate anyone.

People are different, and so is their context, and their risk appetite. These aspects are very intrinsic to their personality, and is something they may not be able to articulate. Then how can you emulate them?

In a particular macro event somebody would behave in a particular manner, and that would have helped them. But that doesn't mean the same event will happen again, or you will be able to act in the exact same way, because your psychology is different from that person's psychology.

I've learned a lot from everyone. Learnt principles based on how they think and invest. Understand how they operate.

But emulation can be dangerous.

I've learned from Buffett's letters, watched his interviews, listened to the AGM videos and transcripts. But to say that I can think and invest like Buffett is a fool's dream. I can always learn from what Buffett has said but I cannot emulate him. The network of people he has around him. The knowledge that he has compounded over the past several decades.

In the Buffett biography called Snowball, I read that as a child Buffett used to study stocks from very early days, and was enterprising right at a very early age. Those are very hard things to replicate for most people, and most people wouldn't have lived that life.

So instead of trying to emulate the next best thing, or whatever catches your fancy, just try and develop yourself by learning from others, and then, being conscious and self aware as to what you can do. What you can learn from your own experience is what sticks and is very strong as a conviction. Build on your own behaviour.

You speak of being conscious and self aware. Tell me about an investing bias you have that you're very aware of, and you have successfully combated.

One bias I have combatted successfully is the hindsight bias.

You may have never thought about an event occurring, but it occurs. And you suddenly, somehow connect it in your own thoughts and believe that it is something you thought about a long time back, and it has now actually happened. But there is no evidence in reality whether you have actually thought about it or acted on it.

The only evidence you have is what is in your portfolio at any given point, and how you acted in the past when the information was there. And the evidence if you wrote it down your thoughts along with the date.

I started doing this. I write notes about my investment decisions and investment ideas. So I know, at particular points in time my thoughts about a company or sector.

So in the future, I have a reference point as to what I actually thought about. The risk assessed. And how it played out.

If you write things down with dates, it's very hard to lie to yourself. It need not be an essay, just a few lines too. It really helps to eliminate this hindsight bias quite effectively. It changes your perspective. Looking at how you thought. Sometimes, I go back 5 years and I realize I was such an idiot to think in such naive terms. Or, the way some things have played out, I was not entirely naive. So you also gain confidence from your own thought process. And you see your own progress.

The bias I struggle with and find it hard to eliminate completely is the confirmation bias.

This is a very nasty bias. We want to believe what we want to believe, no matter what facts are in front of us. We pick and choose the facts that suit our argument.

This is where the environment in which you work in plays a very big difference. In the movie Departed, Jack Nicholson says that he doesn’t want to be the product of his environment. He wants the environment to be a product of him. In reality, we cannot shape our environment. We are constantly being shaped by our environment.

Accept it and start working with smart people. Involve them in the decision-making process. This is what I am thinking about a particular idea. These are the data points that I have read. The moment you begin to verify if the information makes sense or not, and start bouncing off ideas with your team, the confirmation bias lowers.

Others weigh in with their experience. Make you look at different scenarios. What about this? What if this happens? Your mind starts to open up to possibilities which you may have accidently ignored. You may have a blind spot to those risks or opportunities.

In any healthy investment team, there’s always presentation of ideas and debate. So the environment helps you question yourself. If you don’t take it personally and just learn from all the questions, it helps in curbing the bias, but not eliminating it completely.

Confirmation bias is the hardest to eliminate and the easiest to eliminate has been the hindsight bias, for me.

What intimidates you?

My background has not been traditionally in finance.

I was doing my bachelors in IT. I changed my track after my graduation. During the initial days I always felt little bit like an outsider. People around me were significantly smarter, had backgrounds in finance, knew a lot about finance accounting, and all those things. It used to intimidate me.

It took a while of learning, studying, upgrading myself over a time, constantly. Going through the CFA curriculum. But it's still intimidating sometimes that there are people who are much smarter than me, who can break down ideas, investment principles, or business principles quite easily. And that's a great source of inspiration and learning for me.

1. Prashant Jain
2. Sankaran Naren
3. Nilesh Shah
4. Vetri Subramaniam
5. Anand Radhakrishnan
6. Devina Mehra
7. Saurabh Mukherjea
8. Raunak Onkar
9. Samir Arora
10. Kenneth Andrade
11. Rajeev Thakkar
12. Aswath Damodaran
13. Ian Cassel
14. Vishal Khandelwal
15. Sanjay Bakshi
16. Ramesh Damani
17. Jim Rogers
18. Ben Carlson
19. Mohnish Pabrai
20. Christine Benz