Double Barrel Investing

acceler8 + accumul8

Editors note:

A version of this post appeared in the Premium Edition of acceler8 on 30 May. This post has combined plans for both acceler8 and accumul8 along with Net Banking payment options.

Please refer end of this post for details.

Happy Investing.


Double Barrel Investing

“This double-barreled approach purchases of entire businesses through negotiation or purchases of part-interests through the stock market gives us an important advantage over capital-allocators who stick to a single course. Woody Allen once explained why eclecticism works:  "The real advantage of being bisexual is that it doubles your chances for a date on Saturday night.  Over the years, we've been Woody-like in our thinking”

Buffett, Shareholder letter 1995

The phrase “Double barrel investing” was inspired by this paragraph written by Buffett in the 1995 annual shareholder letter. It was like that “Aha” moment when it dawned on me that one should not be a one-trick pony and we should have multiple types of weaponry in our armor.

Over many years now I have been following this approach- Multi-prong strategy: A core and satellite approach; strategic and tactical approach; Long term and short term. Portfolio construction is an art, and it needs to be done top down.

Firstly, you need to get the asset allocation right. The below table shows the performance of each asset class over the last few years:

Top Asset Classes India

(Source : Economic Times)

Annual Returns

(Source : Economic Times)

While the importance of asset allocation is a topic by itself, a investment advisor should be able to do a proper investor profiling and based on your Risk capacity and Risk appetite you can arrive at the allocation strategy.

Sample allocation strategy

(Source : Economic Times)

Equity Investing Strategies

Let us say you have decided to allocate 50 lacs for Equities as an asset class.

Then you should be asking these questions?

  1. Investing Style

    Am I going to be a passive investor, or will I be involved in actively picking stocks?

    If you are time-poor, believe that you cannot spare 8 to 10 hours a week on following the markets then you should either pick a top performing equity mutual funds (Recently did an analysis of best equity funds to invest for a client,– we will leave the best mutual funds to invest post to a later date😊, those interested to know the details of the funds I selected , drop me a note) or subscribe to paid subscription services (like ours) to shortlist stocks for further research.

  2. By Geography

    Are you going to focus on Domestic stocks / International stocks .

  3. By Market Capitalization

    Are you going to invest in Large cap, Medium cap , Small cap or Multi-cap.

  4. By Strategy

    Will it be Value investing, Growth investing, Blended investing. Blended investing included Growth At Reasonable Price.

  5. By Stock screening

    Will it top down approach or a bottom up approach for picking stocks.

  6. By technique

    Will it be based on Fundamental analysis or technical analysis or a Techno-Funda approach. There are so many nuances that it may be slightly overwhelming to the average investor.


What is Double-barrel investing?

At the heart of this concept is a key feature - Core & Satellite Portfolio and a blended investing style.

01. Core Portfolio - accumul8

The Core Portfolio is invested in blue-chips for a long-term investing horizon of minimum 3 to 5 years. This portfolio has the following characteristics:

-        8 to 12 trades a year

-        Allocation of 70 to 85 % of your equity component

-        Create a collection of outstanding companies to be held in “decades”.

-        Harness the power of compounding.

-        Low importance for market timing

Click below to learn more about accumul8 Portfolio strategy.

Learn more

02. Satellite Portfolio - acceler8

Satellite Portfolio is used for generation of alpha or active returns to bump up your returns at the portfolio level.

This portfolio has the following characteristics:

-        Allocation of 15 – 25% of your equity component

-        No restrictions on the no. of trades

-        Time horizon of 1 week to 1 year

-        Generate Alpha over the short term

-        Harness the power of momentum

Click below to learn more about acceler8 Portfolio strategy.

Learn more


Why a double barrel approach works?

I personally believe every investor must follow a double barrel investing approach.

The key reasons :

1.  Do not be a one – trick pony

Most of us love cricket and let me give you a cricketing analogy. Here is Steve Waugh on Anil Kumble. The best bowlers are those who are not a one- trick pony and have multiple variations up the sleeve.

Similarly in investing there are long periods of time when one factor will under-perform.

Study 1

Momentum Vs Value Vs Growth since 1930

The below table shows the returns of Momentum Vs Value Vs Growth. As you can see in different 10 year period (decades), Value, Momentum and Growth have outperformed each other.

Study 2

Factor Investing - Momentum Vs Value

The below study by Larry Swedroe & Andrew Berkin shows that Momentum is a key ingredient for alpha generation over 80 yrs.

Source: Larry Swedroe & Andrew Berkin

Different strategies perform differently under different market conditions. In bull markets and bear markets different strategies perform differently with varied results.

2. Do not fight human nature

While it is quite catchy to hear phrases like “investing is like watching paint dry” or “investing is like watching grass grow”, honestly ask yourself if you can do this?

Do you have the temperament to sit all day along only reading and executing one trade a year? If yes then great- you have the mental make up to be included in the investing hall of fame

“All of humanity's problems stem from man's inability to sit quietly in a room alone.”

-Blaise Pascal

“Most of us have something what we call as activity bias”. We need to be seen as doing something even if we know 99% of Long-Term investing is doing nothing. If you happen to be a money manager, the problem multiplies.

Odysseus, the wandering protagonist of Homer’s Odyssey, had a fear of temptation. In Greek mythology, sailors were regularly lured to their deaths by Sirens, creatures who sang a beautiful and irresistible song. Entranced by the song, these sailors would steer the ship towards the call and get killed in the process.

In order to avoid this fate, Odysseus ordered his crew to plug their ears with beeswax and to tie him firmly to the ship's mast. On hearing the Sirens' song, Odysseus himself could not resist and begged to be untied, but since he had instructed his crew to ignore him, they refused his pleas.

Thus, the ship was able to sail safely past danger; but only because Odysseus was smart enough not to underestimate the power of temptation.

“In investing too, be an Odysseus”. While 80% of your long term portfolio can continue to be untouched for compounding to work its magic, the action can be focused on remaining 20 % where we can take tactical short term calls for alpha generation.

3) Enhanced Returns

Combining two strategies gives you additional returns with proportionately lower risk thereby helping you generate alpha.

E.g. Portfolio value of ₹ 25,00,000 with 80% allocation in Long-Term portfolio and 20% in Short-Term portfolio.

Assuming Long-Term portfolio earns 12% and Short-Term portfolio earns 20%.

Scenario 1

Fully invested in Long-term portfolio

Assuming ₹ 25,00,000 is invested @ 12% returns for 5 years, you will generate ₹ 44.05 lacs.

Scenario 2

Double Barrel Investing

Assuming 80% in Long-Term (accumul8) and 20% in Short-Term (acceler8).

You will generate ₹ 3524683 @ 12% in accumul8 and ₹ 1244160 @ 20% in acceler8.

The total returns will be ₹ 47.68 lacs @ 13.80 % which is ₹ 3.63 lacs (1.80%) more.

As you can see that in Scenario 2, by following Double Barrel Investing, you can generate additional returns for nominal additional risk.

Final thoughts

A double barrel investing approach increases your chances of returns with minimal additional risk. This also helps you combine the desire for action, at the same time bulk of the portfolio remains untouched.


Subscribe Now

The double barrel investing can be achieved by subscribing to both acceler8 and accumul8

Dear Subscribers,

Firstly, a big thanks to all our subscribers for the wonderful response to the launch of accumul8. Many of you had reached out and we had wonderful conversations.

Reflecting on those, here is the comprehensive set of subscription options available for acceler8 and accumul8.

Subscribe

As per request from many of you, we have enabled payment through Net Banking, UPI and Wallets.

Please pay using the link below.


accumul8 - 1 yr

accumul8 1yr @ 7920


accumul8 - 3 yrs

accmul8 3 yrs @ 18000


acceler8 - 3 yrs

acceler8 3 yrs @ 13800


acceler8+accumul8 - 1 yr

accumul8 + acceler8 1 yr @ 11900

For existing members of acceler8, to adjust the subscription amount paid currently, an additional 3 months of acceler8 + accumul8 will be offered.


acceler8+accumul8 - 3 yrs

acceler8 + accumul8 3 yr @ 25000

1) For existing members of acceler8, to adjust the subscription amount paid currently, an additional 3 months of acceler8 + accumul8 will be offered.

2) For a combined plan (acceler8 + accumul8), you can pay this in 2 instalments of 12500/- each. Please reach out to us in case you wish to avail this.

PS : All amounts mentioned are in INR.


Looking forward to welcoming you onboard, Happy Investing.