'Investors spend too much time picking the right mutual fund and too little time choosing the right asset allocation. That's where real wealth is created.'
Forget returns. Focus on drawdowns first, says Bhautik Ambani, CEO, AlphaGrep Investment Management on The Rediff Podcast.
Every investor loves talking about returns.
The first question almost everyone asks before investing is simple: 'How much will I earn?'
Far fewer ask an equally important question: 'How much could I lose along the way?'
According to Ambani, that single question often determines whether an investor ultimately succeeds or fails.
Key points
- Asset allocation matters more than fund selection: Bhautik Ambani argues that investors often obsess over choosing the best mutual fund when long-term returns are driven more by getting the right mix of equity, debt and commodities.
- Markets change, portfolios should too: Instead of maintaining fixed allocations, he advocates dynamically adjusting investments across asset classes based on data, market conditions and risk.
- Risk management is the real alpha: According to Ambani, reducing drawdowns and portfolio volatility is more important than simply chasing the highest possible returns.
- SIPs remain a powerful savings tool: SIPs continue to make sense, but investors should focus equally on where those SIPs are invested based on their risk profile rather than automatically choosing equity funds.
- Technology and AI are reshaping investing: Quantitative models, machine learning, alternative data and disciplined portfolio rebalancing are becoming increasingly important in helping investors navigate volatile markets.
In this thought-provoking conversation on The Rediff Podcast, Ambani argues that investors have become obsessed with maximising returns while paying far too little attention to managing drawdowns -- the sharp declines in portfolio value that often trigger panic, premature exits and long-term wealth destruction.
His central thesis is refreshingly simple: The smoothness of the investment journey matters just as much as the destination.
The Real Cost Of Market Volatility
To make his case, Ambani compares two very different approaches to investing.
Over the past two decades, he notes, the Nifty has delivered annualised returns of roughly 11 to 11.5 per cent. But those returns came at a cost.
Investors had to endure annual volatility of around 20 per cent, maximum drawdowns approaching 60 per cent during crises such as the Global Financial Crisis, and even multi-year periods when portfolios generated little or no returns.
For many investors, surviving those painful phases proved harder than earning the eventual gains.
Why Staying Invested Beats Chasing Returns
The conversation goes beyond performance numbers to examine why behavioural mistakes -- not market crashes -- destroy more wealth than most investors realise. Ambani explains why chasing yesterday's winning asset class, ignoring risk and focusing exclusively on CAGR can prove expensive over time.
Instead, he makes a compelling case for judging investments not merely by how much they earn, but by how consistently they help investors remain invested through every market cycle.
It is a conversation that challenges one of the oldest beliefs in investing: perhaps the best portfolio is not the one that earns the highest return, but the one that makes it easiest for investors to stay the course.
Interview: Prasanna D Zore/Rediff
Video Production: Rajesh Karkera/Rediff, Hitesh Harisinghani/Rediff
Editing: Saahil Achrekar/Rediff
