An Entrepreneur’s Journey to Investment and Wealth Creation

After harsh winter comes the day of Basant Panchami – when the spring breeze adds a sense of merriment to the surroundings and the flowers of the season start to blossom. Across various parts of India, this day is dedicated to the goddess Saraswati, the goddess of knowledge and wisdom. On this auspicious occasion we at PMS AIF World, hosted another insightful webinar, with Mr. Karan Bhagat, Founder, MD, CEO, IIFL Wealth & Asset Management to gain insight and perspective from his journey as India’s foremost financial services entrepreneur. This, 2nd episode of the web-series was hosted along with Mr. Vikaas M Sachdeva, CEO, Emkay Investment Managers, Sachin Shah, Senior Fund Manager, Emkay Investment Managers, and Kamal Manocha, CEO, PMS AIF World.

KB was initially offered a consulting role in a company based in Spain; but destiny had other plans as he had to join Kotak Securities because his overseas offer got revoked, due to 9/11 and the dot com crash. Owing to his earlier experience in the markets of Calcutta at age of 17 running a travel agency, he had decided, he won’t do a sales job ever, in the hindsight, now he believes that in the making of an entrepreneur the key roles are played by – Luck, Immediate Surroundings, Hard work, Passion, & Perseverance in that order. Luck means being at the right place at the right time, as his journey suggests in India in the early 2000s, wealth management was broker-driven, asset allocation was an alien concept and the market was ripe for professional & scientifically driven money management. Immediate surroundings play a role by the virtue of one’s company, the people one works with, and the kind of people one meets. And, to this, he gives credit to the company he kept. Hard work, Passion, and Perseverance are unique to an individual; while the earlier two factors are common to all, hard work, passion, and perseverance make all the difference to one’s success as an entrepreneur.

KB shared interesting and simple insight on what worked as a motivation for him in the earlier days. He says it’s more important to enjoy money than just desire it. KB’s simple mathematics of how an entrepreneur creates wealth – for every Rs 100/- a company earns Rs 15/-  is the cost of the workforce, Rs 35/- is the cost of marketing, admin, etc and Rs 50/- is the profit. Post-tax the company stands to make a profit of close to Rs 35/- and from here Price to Earning(P/E) multiples create wealth for the promoter or entrepreneur at Rs 35/- earning and a P-E multiple of 30 times the valuation of Rs 1000. KB says this is what his motivation in the earlier days was. He added, at the end of the day, as one has achieved these multiples in terms of valuations, it’s important to stay modest and humble which helps one focus on one’s efforts with commitment.

KB’s advice to entrepreneurs is that brand building and expenditures on real estate can wait, however, one cannot compromise on people who matter to the business, technology, and customer experience.

Focus is important, what one focuses upon, is even more important. In one of the anecdotes, he says on one of the off-sites to Goa, a mentalist showed how one could break glasses with just focus and concentration. The same experiment was repeated, at his office when 100 of his team members stared at Nifty 50 index to see if their power of focus to raise the index would work? To not much of their surprise, the experiment did not work. The case in point is there are things that one can control and other’s one cannot, and as an entrepreneur, it’s important one focuses on the things that are controllable. He believes, in the business of Wealth Management there’s very little to invent and more to innovate in terms of repackaging, re-arranging, or carving niches. But, the innovations should be in-line with client and business expectations.

As an investor, key attributes that he would evaluate while making any unlisted investment are Passion, Sincerity, Intention, and Expertise in the decreasing order of weightage. Staying invested for long periods of time is very important to create wealth, and that is possible if one has the capacity and attitude to tolerate a sudden fall and swings in between. This is possible if proper risk profiling and asset allocation are done and not everything is exposed to high-risk assets. And, exactly here, the advisor’s role is very important.  He believes, from the advisor’s perspective – wealth preservation and managing volatility should be more important than focusing on wealth creation. And, he re-emphasises, ultimately, asset allocation is very important.

On Bitcoin – He maintains that there’s too much regulatory risk as central banks and governments might take much more stringent views, and for those who have missed the bus, the risk reward doesn’t look too favourable now.

To young financial professionals – He advises, that – first understand world – a bit theoretically too, and then with experience, realise that, in life all decisions cannot be always right and then what’s going to determine fortune is – how they will manage life’s various situations through failures and success, keeping the hard work, passion and perseverance alive always.