Sankaran Naren: Ace money manager gives away his stock-picking formula

He is the commander of the country’s second-biggest mutual fund house ICICI Prudential Asset Management Company and responsible for over Rs 4.25 lakh crore of assets under management. Some of his mutual fund schemes like ICICI Prudential Value Discovery Fund, ICICI Prudential Multi-Asset Fund, ICICI Prudential Equity and Debt Fund and ICICI Prudential India Opportunity Fund have been delivering the robust return to investors since inception.

Meet Sankaran Naren, the chief investment officer known for his commitment and discipline in practicing value investing. The approach helps an investor to buy cheap stocks relative to intrinsic value.

In an interaction with Money9, Naren shared some of the secrets of his recipe.

Edited excerpts:

Q: How do you pick a stock?

Naren: My investment philosophy is to identify the reason why a particular stock became cheap relative to intrinsic value, access the risk of that stock on whether it will go back to intrinsic value and then keep buying that stock as long as it is underperforming and wait for it to perform.

Q: When do you switch or book a profit?

Naren: Once the stock has turned out to be a multibagger and there is another better investment opportunity available in the market, we tend to book profits and switch.

Q: What are some of the investing lessons you would like to share?

Naren: Post an investment made, the original investment thesis could suffer a jolt on account of any subsequent bad decision taken by the management of the company. Such developments have the potential to affect the future performance of the stock and may result in underperformance. Hence, avoiding companies where any potential corporate governance issue could arise is critical.

Q: How does your typical workday look like and what are your hobbies?

Naren: These days a typical workday and is full of attending meetings digitally along with keeping a close watch on the market, making investment decisions and constantly reading and thinking as to how the market will probably evolve. My hobbies include listening to music, playing bridge and walking around to keep myself fit.

Q: Any market investor you follow and books you are reading right now?

Naren: Howard Marks, James Montier and Michael Mauboussin are three investment gurus I follow. I am currently reading three books concurrently — Blink by Malcolm Gladwell, Tiny Habits by BJ Fogg and Mindset by Carol Dweck.

Q: When it comes to analysing an investment opportunity, where do you give more weightage —conviction or analysis?

Naren: The investment research team at ICICI Prudential does the analysis part and I rely on them for company analysis. Once, I am convinced with this part, I will concentrate on the sizing of the investment to be made.

Q: What would be your advice to an individual investor?

Naren: Making money in the long run is not about knowledge, it is about temperament. When interesting opportunities come one’s way, an investor should be able to appropriately size the investment. One should know when to switch asset classes because asset allocation is the most important aspect of investing.

Q: Where do you see value despite the run-up in the market?

Naren: We think most of the cyclical sectors represent good value till the central banks tighten monetary policy. Within defensive sectors, pharma and IT represent relatively better value compared to consumer sectors.