Samir Arora portfolio stocks: Samir Arora on why one needs to be flexible in a changing market

“If you say I have to buy only five stocks in the world, I feel I am not being forced to buy anything from India. In the US, we have Google and Amazon and there at one point we had 60% but we could not control ourselves. It is 40% now,” he says Samir AroraFounder, Helios Capital.

Really enjoyed reading your tweets as well and you had said just a few days ago that if your investment philosophy is to be flexible, then no one can accuse you of changing your philosophy with changing times in markets. So is that what you are adopting?
We are all bottom-up investors and we say that we do not know how to predict inflation and we do not know how to play wars and all that. But when we are in the middle of it, all it took was a few weeks of learning and therefore from January, I have been saying that this inflation is beyond normal. But if you had asked me that in November or December, I would have said I do not know what is the inflation in the US and how do I care?

If you look at 100-year history of any market and you say that wars are irrelevant because if you look at it, World War I will look like some small dot and World War II will be like another small dot because over 100 years, the market has gone up 10-12% per annum. But if you are at the start of a war, then can you say war is irrelevant?

If you are there when some Federal Reserve guy is saying that we are behind on inflation and the inflation is 8% and we will take draconian measures, can we say inflation is irrelevant to our decision making? So, one has to be flexible. Once in a while, one may even have to buy a commodity company if you feel there is a case and maybe only to hedge yourself.

If I am to be 100% invested and my goal is to beat a benchmark and once in a while there is the story for that commodity except that I do not totally relate to it because my background is different, my experience is different but there is a case. If you buy 5% of that commodity stock and say that okay I will neither add or subtract value on this relative to index but I am covered and I will now try and do what I can do with the 95%, what is wrong with it ? You are flexible because in all your life you never wanted to buy a commodity but you bought one or two. So how does it matter to be saying that I do not ever change!

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Look at the biggest hero of the world Stanley Druckenmiller who is a genuine hero in the investing world with 30% per annum returns over 30 years and his own net worth being more than $10 billion. Look at the flexibility that all these guys have in doing whatever they want, we just get prisoners of our images and I want to not be but even I am because I do India and I do equity, so I cannot be overly flexible but mentally at least you have to be.

If you mentally had that flexibility in a very utopian environment, if you were sitting on cash what would your portfolio look like? Give me five to six names?
No, no, stocks, our theory is very simple that there are basically in any year, any period slightly less than half the stocks that are going to outperform the benchmark and that has to do with arithmetic; If there are 100 stocks in the universe and our job is to beat the average, then the average will lie somewhere in the middle of that.

It is just arithmetic because we are taking an average return of 100 stocks to calculate the index and it will be a little less than half most of the time because some large companies will have a higher weight. So basically, all one has to do is take a stock and say whether it is this side of the half or the other side of the half and any stock you get on the correct side you will beat the index and as many you can have you beat it more.

But from our point of view there are two angles at work; one is whether we are beating the index and all but once in a while when the market is down a lot there will be a second pressure saying that why is it in absolute? You are losing money. This is the other angle that you have to work upon which is a little easier in the long short fund where you can short and all.

But if you say I have to buy only five stocks in the world, well I have more than five stocks currently and I feel I am not being forced to buy anything from India, my biggest holding is

. In the US, we have Google and Amazon and there at one point we had 60% but we could not control ourselves. It is 40% now.