Anurag Bhatia is the founder of Minance, a SEBI Registered Investment Advisor that is striving to make investing more accessible by offering investment strategies and products that have traditionally been available only to the ultra-rich.
After being introduced to investing as a 13-year old, Anurag got piqued and excited by the challenge offered by predicting stock price movements and knew that this was what he wanted to do. He founded Minance in 2014 along with 2 friends from his days at Manipal University and with about 50 friends & ex-colleagues as clients – now, Minance has more than 3,000 clients and in excess of ₹300 crore in assets under management.
In freewheeling chat with the smallcase team, Anurag talks about his journey from being an enthusiastic & amateur investor to helping his colleagues at Amazon India invest their money and ultimately taking the plunge and starting Minance:
What drew you to the markets space?
When I was around 13-years, my father wanted me to get involved in something – pursue hobbies or activities – so that I didn’t end up doing the things most teenagers usually do! He was dabbling in the stock market at that point in time, so he gave me a book that was reading then. I was least interested in stocks then, but started to read it anyways to make him happy – but then I found it very interesting & got hooked to it. It was clear that predicting stock price movements was hard, and I wanted to take it up as a challenge & figure out a way to do that.
So when did you first dip your toes in the stock market, and how was that experience?
To be honest, the experience was a bit underwhelming as it was online-trading which is a lot more systematic. My logic was also flawed back then which also led to disappointing results in the short-run – but the learning was great since every step was practically a first.
I invested in my first stock when I was around 16 in a company called Amtek Auto, and the reason why I bought it was because it was at its 52-week low, so I thought how much lower can it possibly go from there! The stock ended up losing more than 30-40% after I invested, which also resulted in my first (and one of the most important) lesson – don’t hold on to losing stocks.
In fact, the Alpha Multiple smallcase that we’ve created is ingrained with the momentum philosophy – but back then I was doing the complete opposite! We’ve come a full-circle in that sense. It takes many years to truly identify your investing/trading style & have confidence in it – it’s really a step-by-step process with learnings at each stage.
So how did you go about discovering your style & formulating your strategy?
It was a lot of trial and error to be honest because I was attempting a lot of different things to see what worked – and also making a lot of mistakes in that process. But what really helped was when I got a job at the proprietary trading desk of a brokerage firm. Trading professionally at a young age & having exposure to seasoned traders with more than 10+ years of experience trading was a game changer – few months with them and I quickly realised the different mistakes I was making. They had already gone through the cycles which I was only getting to know about, so working with them really helped me filter out the mistakes & focus on the things I was doing right.
What I’ve also learnt from these seasoned traders is that it’s important to find your one particular niche/edge & carry on with that.
Traders generally tend have multiple plays, but in a battle you can only carry 1 or 2 swords. Whatever your edge or niche, you should stick to that.
What would you define as your edge?
It depends on the asset & instrument in question. For equities, it would be momentum – it’s not only backed by data & can be quantified, it has also been one of the most successful strategies across various styles.
Another one would be the low-volatility anomaly, which is a well-documented strategy (not started by Minance) and we happened to stumble upon accidentally. We were experimenting with volatility & bunched together stocks that had low intraday volatility but decently high inter-day volatility. No matter the portfolio construction methodology we used – selecting stocks in same sectors or diversifying them or trying different weights – such a portfolio almost always outperformed the index.
On the fundamental vs. technical spectrum, where would the Minance ideology fit?
I’d say we have data-backed strategies – we don’t do chart reading or dive too deep in balance sheets or accounts. If it’s there in the data, we are comfortable with it. That said, note that data-driven strategies tend to work best in the derivatives segment. With equities, you need some sort of human element to research & look at macroeconomic trends that on the surface don’t seem to have any correlation with the markets. For example, China received a lot of flak after the recent Paris Climate accord – in response, China shut many of its chemical factories, which in-turn boosted the sales of many Indian chemical manufacturers.
While these nuances are very difficult to be captured algorithmically, where quant can be leveraged in equities are in things like portfolio construction, determining entry/exit points, etc.
Are there any investors that you and Minance has drawn, or continues to draw, inspiration from?
Out of the iconic ones, George Soros would be an influence. His philosophy is rather complex & counterintuitive to understand, and I’m still developing the maturity to truly decipher it.
That aside, I’ve also learnt from a lot of traders that I have or continue working with. These guys are nowhere as well-known as Soros, but they’ve built great trading firms or prop-trading teams for large brokerages, some of them run very successful Delta-1 or Delta-neutral strategies – not popular, but very good at what they do. Most of them have 3 qualities in common:
- They’re extremely persistent
- They’ll take a small loss & get out, a small profit & get out, a large profit & exit – but what they’ll almost never allow themselves to do is take a large loss
- They tend to be introverted – they speak to advisors & hear their opinions, but they stick to their guts/philosophies and not let too many people influence their thoughts
How did Minance happen?
While I knew I’d start investing professionally sooner or later, how and when Minance happened was actually accidental. I was one of the 16 people who had joined Amazon India as its first employees in June 2013. It was actually quite exciting to be there and I saw it scale from 16 to more than 8,000 people in about 9 months!
We had received Amazon stock-options when we’d joined, and most of my colleagues sold them once they got vested on about 2-3x gains! Most had no idea how to invest it, and after blowing up some of it many folks felt guilty and came to me since by then I already had the reputation of being the ‘stock-market guy’ in office.
As more people started coming, it became time-consuming and almost like a second job – so I started to charge them 20% of their profits. Then some money started rolling-in, and even my bank called me to enquire about the various sources money was pouring-in from! That’s when I decided to formalise the whole setup and started Minance!
What are some of the challenges Minance has faced in its journey?
Hiring has been one. Mainly because what we’re trying to do here is new, so it’s difficult to find people who have gone through similar challenges. Another has been managing relationships with brokers, mainly because they have manual operations and traditional thinking in many ways. It was difficult in 2014, but things have become a lot smoother since.
What’s unique about these 2 new strategies you’re launching with smallcase?
The Minance All-Weather smallcase exploits the low-risk anomaly to select & invest in stocks as discussed above. We remove certain sectors like real-estate, oil&gas, and cyclicals to ensure only stocks from growing sectors remain – and then create/rebalance the portfolio using the Kelly criterion, which helps us solve the problem of what to sell (the winning or the losing stocks?) This smallcase mostly has large-cap stocks (with some midcaps), and is rebalanced every quarter.
The Minance Alpha Multiple smallcase is a momentum-based portfolio that’s heavier on midcap stocks, and is also rebalanced more frequently on a monthly basis. We use traditional momentum parameters to determine the entry points, and eigen-values & eigen-vectors on the NSE order-book to filter out the retail investors and analyse when institutional investors (FIIs, DIIs, & market-makers) are selling to determine the exit points.
Who are these smallcases ideal for?
These would be ideal for someone already investing or looking to invest with a Portfolio Management Service (PMS). That’s just a pain, and an expensive one too – the minimum ticket size is ₹25 lakh and fees are usually 2% of invested amount & 20% of profits.
How is the smallcase Publisher Platform helping Minance achieve its mission?
You know, Minance had actually applied for the PMS license, but we withdrew it after discovering & understanding the Publisher Platform and smallcase’s broader vision. You can have a fund manager or an RIA create portfolios for their clients, who can then invest in these smallcases in 2 clicks & in a very cost-effective manner – and all from one place! Once I learnt this, I felt it wasn’t useful to become a PMS any longer.
smallcase is disrupting the entire Portfolio Management Services industry, and it has enabled us to make well-researched & rewarding strategies available to retail investors at low ticket-sizes.
What’s your 2019 outlook for Indian equities?
I believe right now everyone has 2 opinions – either the NDA wins & markets rise or that it’s a hung parliament and the markets fall. I would go for the first one since I feel NDA will form a strong government, maybe not as last time but it will still be a win.
Other factors happening around us – like Singapore’s introduction of the Variable Capital Company for example – will also bring in a lot of investments & money into India, mostly in the next 2-3 months onwards. I think the midcap segment will do well as they’ve been battered a lot & look very attractive, especially from a foreign investors’ perspective who are looking to invest in India.
For a momentum believer, do you actually have any beliefs where you find yourself on the contrarian side?
I feel that derivatives are safe, which is a rather unpopular opinion as most believe that derivatives are very risky. I tend to think that derivatives are safe because they allow you to hedge positions, have so many different payouts that you can devise, you can limit your losses, and even change your plan on-the-go. With stocks, you have to hold on to it, and sometimes it’s spray-and-pray – you spray your money across different stocks and pray that two of them do well. With derivatives, you are more in control.
Finally, any advice to newbie investor who’s just starting out?
A great way to get into equities is by investing in stock portfolios, be it via smallcases or mutual funds. When you invest in a portfolio, you see one number that’s going up and down – but when you invest in a bunch of single stocks, you see many such numbers & if even one stock isn’t working out for you, it tends to stress you out. But investing in portfolios kind of protects you from that. I’d say that you should start your journey like this with whatever amount you can spare.