Why the Rich Are Moving From Cash to Gold w/ Rishabh Nahar (Transcript)

Right.

So, but I figured that it’s possible that you could do well, maybe not 50, 60%, but even if you could consistently do like a 20, 30% per annum with some sort of repeat pattern and no uncertainty. So that’s how I got into quant finance.

SHARAN HEGDE: Okay.

Building the Foundation: Learning to Code and Creating Models

RISHABH NAHAR: So 2016, I came across two more partners, Kavan and Karan. Three of us for almost one and a half years, we learned. So the first prerequisite to quant finance is learning how to code. Right.

SHARAN HEGDE: And you did commerce. So you didn’t…

RISHABH NAHAR: I did a B.Com, so I didn’t have any sort of background knowledge on how to code. Right. So I think 2016 is when I actually started learning how to code. And now I can code in three, four different languages.

But those two years sort of were the building block and the foundation. I think the idea was very clear that, okay, you know what, we want to learn how to code because we want to figure out how to make money using quant finance. It wasn’t to make a web application or a trading app or a bot. The idea was very clear and focused.

SHARAN HEGDE: The three of you in an office in Mumbai.

RISHABH NAHAR: Yeah. So it was not an office. Actually rented a house. And we used to wake up in the morning and go to that house. So we used to start pretty early, like 8, 8:30. All of us used to be there.

SHARAN HEGDE: And by then you guys had quit your jobs?

RISHABH NAHAR: Yeah, we had all quit our jobs. And I think until 2000, so we went through almost in that two year span we probably built like hundreds of different models and you know, some were good, some were overfitted, some just didn’t make any sense. Helped us shape our thought process.

Also read a lot of books around this and you know, we started hiring a couple of people to sort of help us build those models, get better. And we started making money then. And you know, so when we speak in society or when we’re speaking to our friends, people are like, what are you guys doing just sitting in a room and trading?

And we weren’t actually trading, we were actually just trying to build models. So we were never sitting in front of the screen or looking at a stock chart in any way. We sort of understood that this doesn’t make sense. I don’t think all our life I can sit in front of a stock chart and trade. We didn’t want to become a trader.

So the thought process was to build the model and then sort of automate it and then run on autopilot. So those two years sort of helped us build the groundwork. We started hiring a few guys. So a lot of our relatives and close friends said okay, fine, can we also deploy money with you guys? And that’s where in 2018, that journey started.

Track Record and Performance Numbers

SHARAN HEGDE: Okay, so in terms of how you guys do it, you guys are a PMS, you guys have taken a license from SEBI, you guys are a PMS license. And if anybody wants to invest money in your fund, they need to have minimum 50 lakhs to invest with you. Absolutely. Right.

So now can you tell me a little bit about your ranking? Right, like can you tell me a little bit about the numbers of your fund? Like what returns have you guys given and what is your ranking in the last three years as a fund manager?

RISHABH NAHAR: Right, so I think, you know, so last five years we’ve done about 26, 27% per annum in terms of CAGR. The last one year has been pretty good. I think we’ve done about 20, 22% in a market where markets have been sort of flat.

SHARAN HEGDE: Wait, wait, so in the last one year the markets have given 3 to 4%. But your fund has done 22% returns.

RISHABH NAHAR: Yeah, so that’s correct. I think one of the reasons for that return is that one of our strategies, which we call the all weather strategy, was sitting on 40% on gold. Even as we speak today, Sharan, I think gold is hitting an all time high. It’s 78,000 rupees. So 40% of that portfolio was gold. And it was a quantitative bet.

The Gold Bet: How Data Predicted the Rally

SHARAN HEGDE: Right. Can you actually tell? Because right now everybody’s saying should have invested in gold only. Gold is one of the favorite asset class for India. All these equity guys came and said SIP karo, SIP karo. But at the end of the day, gold has beaten all the markets.

But now as a fund manager, you have that flexibility to invest across the board. You can invest in stocks, gold, bonds and all of that. And now you told me that last year only you took the bet to put 40% of your fund in gold. And last year nobody could have predicted this. But how did you guys predict?

RISHABH NAHAR: So we didn’t want to make a prediction. The way we work, Sharan, is essentially we are looking at past data and patterns, right? So what kind of environment are we in today? And has this kind of an environment been there in the past? Right.

Essentially if you look at the environment today, we’re in a high tension environment, like very volatile environment, trade wars, tariffs. And a very similar environment has happened in the 1930s. And essentially in times like this, there’s a lot of money printing that’s going to happen.

So if you look at 2020 to 2025, I think Nifty did like 20 odd percent in terms of CAGR and it did so well because of the kind of printing that the US did. So you know, when I speak to an investor or when we discuss internally, I always look at this one stance.

So the Fed balance sheet was about 4 trillion dollars back in 2020. And after Covid hit, they started printing money. I think in maybe April, May, they started printing money. Within the next one odd year they printed about 4 trillion dollars. So they almost doubled their balance sheet. Right.

Inflation went to 9% that year. All that money that was printed actually came down to the markets. Essentially emerging markets, US, India, everywhere. Right. And that was a driver of that return.

Understanding Global Money Flow

SHARAN HEGDE: Now how does it eventually come to India? The money which is printed by US, how does that come to India?

RISHABH NAHAR: So essentially, you know, if any central government is printing money, that money is going to the hands of the rich or to the banks. Right? And banks want to lend out that money then. Now if money is available cheap and it’s in, you know, say you can get money at half a percent. Right. You’ll pick it up right from the bank. Yeah, I’m getting money at half a percent. I just need to pay half a percent.

SHARAN HEGDE: Right.

RISHABH NAHAR: So in 2020, interest rates went to zero. So you could go to the bank and pick up money. And there was absolutely no interest rate in the US. So the government was saying that we need to stimulate the economy right now because there’s a big slump.

So all that money came in the hands of investors. And what do investors do? Just figure out what’s the best market to invest in. So whether it was US, India was doing extremely well. So that’s how through FPIs and FIIs, that money sort of landed in India also. And even other markets which are doing well.

SHARAN HEGDE: And that’s how the money goes into the markets and the markets go up.

Why the Wealthy Are Shifting to Gold

RISHABH NAHAR: Yeah, that’s how the money. So the markets are heavily driven by demand and supply also. So one part is that earnings of businesses have to be good. But the second part is also that it’s driven by, say, the central governments of different countries and how much money printing they do. That is actually a big lever in.

SHARAN HEGDE: But why did they, for the layman, why did they print so much? Like, okay, Covid happened, everybody is stuck at home. Why did the US suddenly start printing so much money?

RISHABH NAHAR: So essentially when Covid happened, there was no income. Right. So companies are not paying salaries to people. So, you know, if I say, you know, I had a tech job or say I was working as a gardener, you know, I’m not getting any salary in my hand. So essentially in US, I think two or three times, the government actually transferred $1,600 to each individual.

SHARAN HEGDE: All 300 million people.

RISHABH NAHAR: Yeah. So they actually transferred money into your bank. There were some criteria as to, you know, who gets that transfer, but essentially a large part of the population just got money for free.

SHARAN HEGDE: That’s what the US government did.

RISHABH NAHAR: Yeah, I remember, you know, a cousin of mine was studying out there and you know, he would never buy a $200 shoe. And he bought a $200 shoe. I said, why did you buy a $200 shoe? He’s like, yeah, you know, I got money for free, so why not?

SHARAN HEGDE: Wow.

RISHABH NAHAR: So that’s how that, you know, so there are guys who are spending it on things, and essentially that’s what the government wanted that take this money and go spend it. So businesses do well and, you know, the GDP starts growing again.

SHARAN HEGDE: That’s their own flywheel.

RISHABH NAHAR: Yeah, that’s their own.

India’s Money Printing Strategy

SHARAN HEGDE: So essentially, why did the Indian government not do that? We didn’t get any free money.

RISHABH NAHAR: So we didn’t get any free money. But the government was printing money. Even today, the government is constantly printing.

SHARAN HEGDE: We’re talking about RBI.

RISHABH NAHAR: RBI.

SHARAN HEGDE: They are also printing money.

RISHABH NAHAR: We are also constantly printing money. So we are in this era of what we call fiat currency. So essentially, all the money that’s there today should have been backed by gold. So if you go back, like, you know, say 100 years or 150 years, ideally, you know, if you had to print 100 rupees, you would have to put gold worth 100 rupees.

Then in 1970, President Nixon came in and he said that, you know, you don’t need to back, you know, this printing of money by any gold.

SHARAN HEGDE: I will give you my word. I will give you my word I’ll go print.

RISHABH NAHAR: Exactly.

SHARAN HEGDE: And people don’t understand this. People think if I have money, it’s money. But if the government is printing a lot more money, the value of my money goes down.

RISHABH NAHAR: Absolutely.

SHARAN HEGDE: And that is what you figured out. You took that bet that 40% of my fund will be in gold.

RISHABH NAHAR: Yeah.

SHARAN HEGDE: Now, how is this printing of money connected to gold? Can you explain that in layman terms?

The Connection Between Money Printing and Asset Prices

RISHABH NAHAR: So essentially, to explain the layman terms, right. Recently, Warren Buffett was asked this question, who’s winning in an economy like this where there’s so much volatility and the sprinting? And he said, “people like me.” You know, people like me, because we are capitalists, we are sitting on assets, right?

Because what happens is when printing of money comes in, asset prices go up. So you look at, you know, you know, look at asset prices in India or any metro, like border Delhi. So if you look at, say, you know, the value of a flat, it’s gone almost 2 or 3x in the last 5 years.

The reason it has gone up is because there’s easy money in the hands of people today. Imagine, right, in the US they were transferring $2,000 or $1,600. So all through the year, you got like five, six thousand dollars. So now you have money to spend. So money coming in so easily into people’s bank accounts. So, you know, you’re willing to buy assets, so there are more people to buy that same product. So obviously the asset price will go up.

SHARAN HEGDE: When you mean asset, you’re only talking about real estate.

RISHABH NAHAR: I’m talking about equities, I’m talking about gold. I’m talking about real estate. All these assets do extremely well.

SHARAN HEGDE: Okay.

RISHABH NAHAR: But when I look at, you know, when there’s extreme amount of money printing, I think hard assets end up doing extremely well.

SHARAN HEGDE: What do you mean by hard assets?

RISHABH NAHAR: Say like land and gold, things you can touch. Things you can touch. Hard assets do extremely well. So the call for gold essentially came from two things, right? One thing was that lot of money printing is going to come into the future. They’ve already started printing a lot of money. So that’s why price of gold will go up, even price of land should go up.

The second thing was that gold is sort of driven by central banks. People are not now, you know, how the dollar, we speak about the dollar in our lifetime, we’ve only seen the dollar being the superpower. Correct? Right. I think people are sort of realizing that it’s not going to be this now in the next 10 years, we’re going to see a downfall. So no one wants to hold currency anymore.

SHARAN HEGDE: So what you’re saying is this continue, this will keep continuing, printing will keep continuing.

RISHABH NAHAR: Printing will keep continuing. Value of currency will be worthless.

Why Governments Can’t Stop Printing Money

SHARAN HEGDE: But why can’t the government, let’s say the US Government, why can’t they stop printing? Why they keep printing like this? Even the Indian government, why they keep printing? It’s like, okay, fine, now people have money. Why don’t we stop printing? What is the answer for that?

RISHABH NAHAR: So the reason is that if the economy is doing badly, essentially you need to stimulate it, right? The only way. They have only two things that the way they can stimulate or control the economy, either printing or interest rates.

So you can keep reducing interest rates, but you can only take it down to zero. You can’t take it below zero. So if I take interest rates to zero now you can come to the bank and pick up money. But even after that, no one is picking up money. Essentially the government is saying, I need to continue printing. I need to transfer money to people, I need to give it for even cheaper.

So, you know, they are the only two sort of, you know, tools in the toolbox for the central government. Printing of money and interest rates.

Ideal Asset Allocation for 2025

SHARAN HEGDE: So right now we are in 2025. According to you, what should be the ideal asset allocation for a retail investor today based on whatever the hell is happening with geopolitical issues? War, US government printing. If you are a retail investor earning 1 lakh a month, how would you invest your money? What is that asset allocation you would follow?

RISHABH NAHAR: So the first thing is, right, if you’re looking at risk adjusted returns. If you want to reduce the risk on the entire portfolio, gold becomes a great addition. One of the reasons why 40% of our portfolio is also gold is if you look at the last 20 years of data, if you plot a chart.

So if you look at Nifty 50, Nifty is given about 12% per annum. Long term returns, maybe 20 years, if you look at gold is also given 11, 12% per annum. If you put 50% of money in Nifty and 50% in gold and you sort of merge that portfolio, you look at the risk adjusted returns, so only nifty is 12%.

There are years like 2020 and 2008 where we’ve lost 40%, 50% of your portfolio. So that’s the risk that you hold with equities. If you look at gold, it’s done 11, 12%. There have been bad years or two, three bad years where you’ve lost about 30% of your portfolio. But when you combine these two, they sort of are uncorrelated or have very low correlation to each other.

The risk on the portfolio drops dramatically. You can make 12% but you will not see more than like say 18, 20% drop in the portfolio.

SHARAN HEGDE: Got it.

The Coming US Debt Crisis

RISHABH NAHAR: So essentially, if you would want to run a very safe portfolio today, and I think like, you know, looking at where the US is, looking at the kind of money printing that’s going to come in the next four, five years, the debt crisis that they’re going to go through.

SHARAN HEGDE: Do you think it’s going to continue for four or five years, this crisis?

RISHABH NAHAR: I think that, you know, we are in that stage where there’s going to be a big reset happening. And the US is very close to a debt crisis. So they are sitting on $37 trillion of debt. All of that needs to get maybe 30 trillion odd needs to get refinanced in the next four, five years and it’s looking like it’s going to be very tough.

So, you know, you see all the activity that’s happening around Sharan, you know, the tariffs, this hundred thousand dollars that they’re asking for an H1B visa. Yeah. Indirectly, what I was saying, we need money in our pockets. Yeah, right.

SHARAN HEGDE: They’re trying to make money.

RISHABH NAHAR: Yeah. And why, why is the government trying to make money?

SHARAN HEGDE: Could they have a debt?

RISHABH NAHAR: Exactly. So that debt crisis is going to come and they’re really desperate right now.

SHARAN HEGDE: So you’re saying based on this current macroeconomic conditions of 50% equity and a 50% gold is what you suggest for a risk averse investor?

Building a Quantitative Portfolio

RISHABH NAHAR: Yes, I would say that, you know, like you have to just check for a risk appetite. Right. How much are you willing to lose or how much drawdown are you willing to see? See, it’s going to be temporary, but ideally if you add gold to the portfolio, it could be 30, 40%, even 50, depending on your risk appetite.

And you can actually play along with the numbers. It’s pretty simple. Right? So we are into quant finance and what we generally do is that, okay, fine, you know, based on the last 20, 30, maybe even 40 years of data, can I play around and see that what percentage of my portfolio should be gold and what should be equities?

SHARAN HEGDE: You keep changing that.

RISHABH NAHAR: Yeah, yeah. So essentially that like based on risk appetite, I would decide.

SHARAN HEGDE: How frequently do you keep changing this?

RISHABH NAHAR: So once a year, once in two years. It’s not an everyday thing. Right. So it’s not a trading portfolio. It’s a pretty stable portfolio.

SHARAN HEGDE: And right now what is your asset allocation of your fund?

RISHABH NAHAR: So in our flagship all weather strategy, 40% of the fund is gold and 60% is equities and that equity is also expressed through ETFs. So it’s a fairly simple portfolio. So that’s the beauty about quant. You don’t need to do anything complex to beat the market.

So for someone who’s a layman or a retail investor, also I think you can be a good fund manager yourself. You don’t need to give your money to anyone. You can do these simple things. Look at last 20, 30 years of data, build a very simple portfolio and actually outperform.

SHARAN HEGDE: But what do I look in the last 30, 40 years of data?

The Quant Approach to Stock Selection

RISHABH NAHAR: As a retail investor, essentially with quant finance, what we’re doing is that ideally you want to do the first thing is from a top down approach, you want to see how much equities you have, how much gold you have in your portfolio. Once you decide that, okay, fine, say I want like a 60 equity, 40 gold you want to come down to. Okay, fine, what kind of businesses do I want to buy in my equity portfolio?

Now I think the biggest challenge for most investors is which stock to buy.

SHARAN HEGDE: Correct? Right.

RISHABH NAHAR: So essentially you’re answering two, three questions, what to buy, how much to buy and when to buy it.

SHARAN HEGDE: Correct.

RISHABH NAHAR: Right. So to answer what to buy, you can have a quant approach. So there is this book, it’s called Little Book that Beats the market.

SHARAN HEGDE: Yeah.

The Quantitative Investing Formula That Beats the Market

RISHABH NAHAR: And we sort of started with that. That was like one of the first quant books I read that actually gave me a formula. Essentially, when you’re looking at a business from a first principle, you want to think that capital allocation is something the promoter should be very good at. The skill for capital allocation should be very good. Essentially, return on capital employed for a business should be very high.

So in that book, what he said is that if you run this formula wherein you rank businesses based on return on capital employed and based on a valuation filter—say price to earnings or EV by EBITDA—if you just give 50-50% weightage and you buy the top 30 businesses year after year, you’ll see a very beautiful portfolio.

SHARAN HEGDE: That’s as simple as that?

RISHABH NAHAR: Yeah. So this is what the book suggests. We sort of amend it to what kind of portfolio I want to build. But essentially, anyone sitting at home can do this, right? You can even just buy the top 30 businesses based on return on capital employed, right?

And then you can have some filters to check whether the business is a fraud or whether the promoter is selling or buying or holding. But ideally, you create a very objective framework. Once you create this objective framework, you buy the top 30 businesses and keep churning.

Every year you do a backtest, right? You actually create a simulation. Where had you done this from 2001 to now, I think it would have done like 25% per annum.

SHARAN HEGDE: Really?

RISHABH NAHAR: Yeah. So probably, you would have 30%.

SHARAN HEGDE: Why don’t mutual fund managers do this if it is so simple?

Why Mutual Funds Can’t Use These Strategies

RISHABH NAHAR: I think the challenge with the mutual fund industry is the size, right? So as a PMS, we’re managing a lot smaller. But I’m saying that if I’m managing 100 billion or 150 billion, I think volumes become a problem for mutual fund managers.

So all you can do is you can buy the top 50 businesses, which is essentially the Nifty 50. When I also explained quant investing this concept, I sort of mentioned that Nifty 50 essentially is a quant model, right? What is the Nifty 50? It’s the top 50 businesses based on market cap, free float market cap. There is no fundamental data behind it that says this business is good or return on capital is high.

So the question comes out: okay, fine, something so silly has given 12%. Can we add some filters and say let’s not look at only market cap or volume, let’s look at return on capital, promoter health, or how much is the promoter holding and working capital ratios, right?

So if you put those things in and you just use common sense, essentially you can do a lot better than the Nifty. The Nifty is a quant model, but a very silly quant model. You can do a lot better than Nifty.

SHARAN HEGDE: That’s interesting. Nifty 50 itself is a quant model. I never thought of that. So you’re saying that as a mutual fund manager, because I’m managing more than 100 billion or 1 trillion, I’m not able to do all of these quantitative model techniques because I’m dealing with a large number of volume and because there are certain restrictions imposed on me by SEBI, I cannot do this kind of investing that you’re talking about.

RISHABH NAHAR: Absolutely.

SHARAN HEGDE: But as a retail investor and also as a PMS fund manager like yourself who is managing the sub-10 billion mark, you can do all of these things. So that means there is a certain limit of how much money you can manage as a quant fund manager beyond which these strategies won’t work.

RISHABH NAHAR: You know, honestly, it’s a good problem to have and I think I’ve not thought of that problem because maybe I’ve not reached there. But I think up to 20 to 30 billion could easily be managed. There are a lot of PMS’s managing 20 to 30 billion and doing very well.

But I think in the next 10 years we’ll get there. Our market will be a lot bigger. And if we were having this conversation 10 years ago, I would say maybe I don’t think I can manage more than 3 billion, right? Ten years down the line when we speak again, probably the number will be 300 billion.

Why You Must Stay 100% Invested in Hard Assets

SHARAN HEGDE: So what is your prediction for the market? 2030 prediction. What do you think Nifty 50 will be at?

RISHABH NAHAR: So it’s going to definitely be a lot higher than what it is today. And I think why I say that—I say that for all hard assets, whether it’s land, gold, or equities. If I speak to someone today and if they ask me what to do, I say whatever you do, just remain 100% invested. Don’t put your money in an FD or a debt fund. Don’t sit on any form of cash.

And the reason is that the $28 trillion of debt needs to be refinanced in the next four years. If you look at 2020, they printed $4 trillion. Inflation went to 9%. When inflation goes up, everyone understands that all asset prices go up, which is real estate, equities, gold.

If they end up printing about 15 to 20 trillion dollars in the next three years, think about it—what will happen to asset prices? So even though we are in a volatile environment and there is some amount of risk to investing today, I think the bigger risk is not investing. Because whenever they start printing in full throttle—

SHARAN HEGDE: The value of your currency goes down.

RISHABH NAHAR: It’s going to go down, right? So you have to hold on to hard assets. You’ll not realize you’ll become poor in five years. I think a lot of people realize that. Anyone who’s not invested over the last five years have come to know purchasing power has gone down.

SHARAN HEGDE: I mean, I also feel it. Last five years to now, the purchasing power has gone down significantly. I mean, the government reports 5% inflation, but I feel my personal inflation is like 20%.

RISHABH NAHAR: Absolutely.

SHARAN HEGDE: Because of the higher luxury kind of expenses that people typically have in a city, I feel my expenses have increased by 20% every year. So it’s ridiculous.

RISHABH NAHAR: And I think it’s going to be way more in the next five years, right? So that’s something that I’m speaking to anyone even on a personal level. You want to remain 100% invested. Whatever it is, whether it’s gold, whether it’s equities, whether it’s land—I would not say real estate in particular. Flats in Mumbai and Bangalore are very different. But if you get a chance to invest in land, then even that, right?

SHARAN HEGDE: But yeah, I mean real estate as a hard asset is a great investment. Like a lot of people think I’m anti-real estate, but I am all for real estate if you have 20 to 30 million of money lying around. Because that is when you can actually play real estate the right way, where you can buy land, buy commercial properties and all of that.

Yeah, but if you’re sitting on 5 to 10 million and if you buy a flat, then I don’t think that’s a good investment.

RISHABH NAHAR: Yeah, I think it’s very illiquid also, right? When you are in that bracket, when you have 10 to 20 million to invest, real estate is very—it’s also very local. The Bangalore market can be very different from the Bombay real estate market, right? Within Bombay, the prices are very different depending on the area.

Getting in, getting out of a transaction also becomes hard. So it’s not so straightforward. Real estate, I think equities is a lot more straightforward. That’s why I prefer equities.

SHARAN HEGDE: And then gold is also there.

RISHABH NAHAR: Gold is also there as a hard asset, right? So owning those assets, definitely next five years, you don’t have another option.

Understanding Return on Capital Employed

SHARAN HEGDE: So tell me this. I know as a quant fund manager you can’t reveal all your secrets, but I want to know some interesting insights that you’ve observed. Because you are looking at the past data and trying to look at patterns. That’s your job, right? And looking at building a quantitative model around it to predict the future based on the patterns of the past.

RISHABH NAHAR: Absolutely.

SHARAN HEGDE: Now you also mentioned that Nifty 50 is a more simplistic quant model that I will blindly invest my company in the top 50 companies as per their market cap, which means as per their size, right? But you said that’s very simplistic. There are other nuances that we can look at to build better quant models. So any interesting patterns or trends you’ve noticed that if this is happening, then this will happen? Anything that you can share?

RISHABH NAHAR: Basics of quants, I think what I mentioned is sort of available everywhere. The most important factor in picking a business is return on capital employed, right? So I think if you buy businesses which have a high return on capital employed—

SHARAN HEGDE: Can you dumb it down for me? Like I’m a 15-year-old person. What is return on capital employed as a business owner?

RISHABH NAHAR: So, okay, two things I’m looking at: return on capital and scalability. Now think about this way. I can sell sandwiches. I’m a sandwich wallah and I set up a stall. I get a, say, 10,000 rupees investment. I set up a stall. I can make, say, 2,000 or 3,000 rupees a month.

SHARAN HEGDE: Okay, right?

RISHABH NAHAR: So that becomes like a 20% investment every month.

SHARAN HEGDE: That is sales.

RISHABH NAHAR: Right. I’m saying that, say that’s profit. For simplicity’s sake, I can do that, right? Say every year I can make 20 to 25,000 rupees, right? So I’m doubling my money, more than doubling my money every year because I—

SHARAN HEGDE: Invested 10,000 rupees to set it up.

RISHABH NAHAR: Absolutely right.

SHARAN HEGDE: The return on capital employed for the whole year is 250%.

RISHABH NAHAR: So if Sharan could make an investment in a business like this, you would be very happy, right? 250% is great. But then there’s a problem of scale. And you’re going to go to this guy, say I have 1 million rupees to invest. He’ll say, “Sir—”

So you say, “No, can you make replicas and can you grow this business in a way that you can make that 200% on 1 million rupees?” He’ll say, “Sir, it’s not possible.”

So essentially there’s return on capital employed and then there is scalability. You want to back businesses which can grow at high return on capital, which can do 30, 40, 50%, and they can do it at scale, right? So maybe they’re starting small today, but their business can grow.

SHARAN HEGDE: So typically, what industries are able to—

# Why the Rich Are Moving From Cash to Gold w/ Rishabh Nahar

Editor’s Notes: In this episode of Finance With Sharan, 32-year-old fund manager Rishabh explains why the wealthy are pivoting from cash to hard assets like gold amidst global money printing and rising inflation. Managing over 350 crores, Rishabh shares his quantitative investing secrets, including a simple, data-driven formula that retail investors can use to consistently beat the market. From discussing “all-weather” asset allocation to predicting India’s economic future, this deep dive offers a masterclass in building a resilient and profitable portfolio in a volatile world. (Oct 15, 2025)

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The Power of Brand Value Over Industry Trends

RISHABH NAHAR: Do both of them seamlessly. Essentially, the industries keep changing. For example, last five years we saw solar, right? Or we saw AI. I don’t think that industry is going to remain constant.

One thing that remains constant across most industries is brand value. So if you look at the way Warren Buffett invests in, say, like a Coca Cola, right, essentially what he’s looking at is brands. Or say a Walmart, or if you look at a brand like Nike, right? These guys, the business models keep changing, but brand value yet remains.

So if you were to look at something constant, you want to invest in businesses that have brand value because that brand sort of commands a premium. You get a lot of flexibility when you’re a brand. But if you would say that, what is the next crazy industry? I think I don’t have an answer for that right now.

But the industry keeps changing every four, five years. So last five years, say solar, and I think across the board, all solar have done very well. Now you got to catch those trends by looking at where the government is spending. How much money are they putting behind it? For example, defense did extremely well, right? Last 10 years, defense has done extremely well. So this keeps changing.

But as an investor, ideally, Sharan, if you’re running a model like what we do, you don’t need to know this, right? There’s too much information available. All you have to do is rank the top 30 businesses and keep rebuilding this.

So we were part of one of the winners in our portfolio. We did like a 7.8x on a stock and I don’t want to name the stock, but we did that 7.8x. It was from the solar industry and I didn’t have any knowledge of the solar. Right. Essentially, return on capital was high, it was showing great quarter on quarter earnings growth. All other factors were in check. It became a part of my portfolio.

So ideally, when I speak to investors, I’m saying you don’t need to do a 10x in the market. You don’t need to become an active stock picker. You can actually make a lot of money without actively picking a stock. You can create a basket of stocks, which is essentially what quant investing does for you.

SHARAN HEGDE: But that is as simple as that. Is there anything else in this recipe like find return on capital employed and scalability of the business? Any other interesting trends you’ve observed in the Indian market? That if this is also there, then it’s better for your investment?

Predicting Earnings Growth Through Historical Data

RISHABH NAHAR: Look at the earnings growth of those Nifty 50 businesses. So it sort of converges over time. What we are looking at is can we predict earnings at all points of time? I’m not trying to predict stock price in any way. I’m not opening up a chart to see where the price is going to move. I’m not trying to find some candlestick pattern. I am trying to look at fundamental data to see how will earnings grow from here. Is there any scope for earnings growth?

SHARAN HEGDE: So how do you predict earnings? Because such a complicated question. Because earnings is dependent on so many factors in the P and L, one thing goes off in your prediction, everything goes off. So how do you actually predict earnings growth?

RISHABH NAHAR: So essentially to predict earnings growth, what they’re looking at the past, right? So when we’re looking at the past, we’re looking at if a promoter has given, say a 20% return on capital employed and has grown the business, say in sales and earnings has grown at say 50%, 15, 18% per annum for the last four, five years. I think that says a lot about him.

So for this, I can give an analogy. If you look at cricket, right, you look at one batsman’s one innings, I don’t think you can judge how good or bad he is.

SHARAN HEGDE: Yeah, right.

RISHABH NAHAR: You want to look at hundreds of batsman and you want to look at hundreds of innings and from that you can come to know, okay, fine. What is good or bad? When I’m picking a stock personally, I don’t want to pick someone like say Rishabh Pant or Yusuf Pathan. I want to pick say a Pujara, Rahul Dravid or a Kohli, right? Like these guys have consistent performance.

Because unlike sport, this game of investing can go on for your entire lifetime, right? For sport, you have five years, 10 years and your career is over. But essentially, if you had to bet your life on one batsman, you would say Pujara or Dravid, right? You wouldn’t bet your life on the Rishabh Pant. He’d probably do a reverse sweep and get you out. That’s the same thing with investing. Essentially when I’m picking a stock, I’m looking at the past.

SHARAN HEGDE: So basically one of the important things you look at is vintage. That the company needs to be at least these many years old in the system.

RISHABH NAHAR: Yeah. So essentially even two, three years, four years of good track record is enough. Yeah. So the company could be even 15, 20 years old. But what happens is every company goes through cycle. So you look at some of the solar businesses, they’ve been existent since pre-2000s also. Okay. Right.

But they got this push from the government and probably like 10, 15 years ago, they were very early in the industry and the industry didn’t get that tailwind. But in the last three years we’ve been seeing a lot of earnings growth.

SHARAN HEGDE: Right.

RISHABH NAHAR: So that’s when you want to pick that business. You don’t want to pick the business in 2000. Right. You want to see where that tailwind is coming.

SHARAN HEGDE: Got it.

RISHABH NAHAR: And that tailwind automatically show up in the data. Two years of good performance, it will show up on your model. You don’t need to actually figure out which industry to track.

The Importance of Promoter Age

SHARAN HEGDE: Okay. So earnings growth is there. You observe that the promoter has done a good job. But any unique insights that you have, which are not seemingly obvious to the naked eye, that, oh, I never thought this would actually impact my stock price, any such kind of weird pattern, things that you’ve noticed in the stock market.

RISHABH NAHAR: I think one thing that we’ve noticed is the age of the promoter. So we sort of, the data is not very freely available. We’ve been trying to collect this. So it’s also called alternate data. Trying to collect and note down the age of the promoter.

Generally if you want to make like a 50 bagger or 30 bagger or 20 bagger in a stock, you want to make a lot of money in the stock. I think age of the promoter is extremely important, especially in the mid and small cap space. The perfect ages between like, you want to catch them when they’re young, let’s say like a 35, 40 year old guy.

So he’s probably seen 10, 15 years of good experience in the business, probably seen his failures. And then that’s where his career takes off. And then from 40 to 60 is probably his peak. Right. And you want to hold him out then. So you want to buy small businesses. When you’re looking at small businesses, promoters really matter. Yeah.

And that sort of, we’ve seen that those stats that between the age of 40 to 60, making that, say 5 or 10x, the probability of making that is a lot higher. Right. So that ages the promoter. But you want to back this by data. You can’t have one or two examples, because a lot of people say 65 promoter stock 10x.

So there are this entire world of quant works on stats, right? You want to sift out the role of luck. Right. So the thing with investing is.

SHARAN HEGDE: Right.

RISHABH NAHAR: The role of luck is very large. As a quant manager, what I want to do is reduce that role of luck as much as I can.

SHARAN HEGDE: Right.

RISHABH NAHAR: Can I at least attribute 80% of management on skill?

SHARAN HEGDE: Right.

RISHABH NAHAR: So essentially that’s what we’re trying to do, trying to get the probability in our favor, get the odds in our favor.

SHARAN HEGDE: Got it. So you’re saying that the age of a promoter, if they are from the age of 40 to 60, is where they’ve already made a lot of mistakes and now they’re really, really focused on the business and they can really give you like a 20 bagger or 30 bagger kind of a return.

RISHABH NAHAR: Exactly.

The Simplicity and Sophistication of Quant Models

SHARAN HEGDE: Right. I know you built this quant model and you said it took you years to make this. Is it that if you reveal all your secrets, then it won’t work anymore?

RISHABH NAHAR: No, absolutely not. I think we also go through drawdowns, we also go through bad years. I think the differentiation comes that our process remains the same. I think the models are really simple. Even if you run that simple model of an ROC plus maybe a EV by EBITDA, I think you probably beat most fund managers out there. So I think anyone can do this.

SHARAN HEGDE: So if it is so simple, then why do people go to you? What is that additional thing that you do?

RISHABH NAHAR: Essentially what we do on our end is that we go back to first principles, try to understand that what are the best filters out there? How can we make the model better?

SHARAN HEGDE: So you keep making the model better.

RISHABH NAHAR: And better at all points of time. Right. And we also sort of take decisions as to, okay, fine, it makes sense to do this now for investor. Also trying to understand from the investor what’s his risk appetite like.

See, honestly, Sharan, we don’t really market our fund.

SHARAN HEGDE: Yeah.

RISHABH NAHAR: And even when we started, it was more like anyone who’s aligning in terms of thought process. Right. So someone who likes structure, who doesn’t like subjectivity, who wants to be really objective, who aligns with our thought process in terms of our investing principles? I think they just end up coming to us and sticking with us.

And so we aren’t actually going out there and soliciting anyone. Why don’t you invest in my fund? And the idea is that this is what we do and this is how we do it. I think I wake up every day, spend maybe six, seven hours, the first half of the day or till evening just on research, because I enjoy what I do. And I think I want to continue doing this for the rest of my life.

Research and the Butterfly Effect

SHARAN HEGDE: What does research look like for you? How do you research?

RISHABH NAHAR: Essentially, research is a lot of reading, trying to figure out how the world works, how different things affect the world.

SHARAN HEGDE: Can you give some quick examples of how different things affect the world?

RISHABH NAHAR: So there’s that concept, right, of the butterfly effect. And the butterfly effect says that a butterfly flapping its wings in the Amazon can cause an earthquake in Japan. Right. That’s how interrelated the entire world is. Right.

Until like a few years ago, I didn’t really understand money supply and how macroeconomics would affect Indian businesses. I was always of that assumption, oh, this business over here, it’s not going to be affected by a Fed policy in the U.S. But that demand and supply, the money flow trickles down, comes over here. How it sort of changes if the buying or selling, how it changes the dynamics of our country.

SHARAN HEGDE: Can you give an example with respect to the war situation? Like, how is the war situation in, let’s say, Israel and Gaza? How is that affecting the Indian markets?

War, Inflation, and Unexpected Market Winners

RISHABH NAHAR: So with war, I think more than the Indian markets, I give this example a lot. If you open, say, investing.com and you try to find what is like one of the highest performing index in the world, you’d be surprised if you take a guess. Right.

SHARAN HEGDE: It’ll be defense would be my guess.

RISHABH NAHAR: Not India. Like across the world, right? Globally.

SHARAN HEGDE: Okay.

RISHABH NAHAR: I think one of the best performing indices has been the Karachi Stock Exchange.

SHARAN HEGDE: The Pakistan stock.

RISHABH NAHAR: The Pakistan Stock Exchange.

SHARAN HEGDE: Right, but how.

RISHABH NAHAR: Exactly, right. So what happens? So if you look at Karachi, if you look at even if you look at Turkey, these. So Pakistan and Turkey have been in a very high inflation environment because they’ve been in a state of war.

SHARAN HEGDE: Right?

Why Corporations Benefit During War and Inflation

RISHABH NAHAR: Because what happens in case of war is that the government ends up spending a lot on defense. And to spend that money they need to print money because they don’t have any income in the form of taxes. They keep printing. Inflation goes really high. When inflation goes high, the price of goods go up. But who benefits when the price of goods go up?

Corporations. So for example, today Hindustan Unilever is charging 10 rupees for a chocolate. If you know the raw material price is going to go up, they probably charge 20 rupees. And you and I will continue consuming that and the stock price will reflect that.

So think about it, right? A country that’s in such a bad shape essentially has a high performing index. So even if you were in Pakistan, you would not lose your purchasing power if you invested in the index. And the same with the Turkish index. In the last 10 years, the index has become a 10x. If you open up the chart and you see it’s become a 10x, I think the same with the Karachi Stock Exchange.

And that’s also how gold works. So if you look at gold in INR terms and you look at gold in dollar terms, the returns will be very different.

SHARAN HEGDE: Why?

RISHABH NAHAR: So if you look at gold in dollar terms, long term would be 7%. If you look at INR terms, it’s 11% because of the currency depreciation of 3, 4%. If you look at Pakistani rupiah, it would probably be like 30% per annum because their currency depreciated at a much higher rate.

So when you own gold you actually have nothing to do with the rupee anymore. You give me a few notes, I’ll give you a gold bar. Now you don’t have anything to do with the rupee. You’re holding an asset which you can sell anywhere in the world which holds value. So it’s a store of value for you. So these sort of things. This is the research that we do on a day to day basis, trying to figure out how things work, how things are connected.

Gold and Equities: The Only Asset Classes That Matter

SHARAN HEGDE: So which is your favorite stock to invest right now? Like which is that stock where you have put most amount of your money if you can reveal that?

RISHABH NAHAR: So I think it’s not a stock. Honestly, I think gold is a large part of our portfolio today. But if I were to tell someone what would you do for the next five years if you had to build wealth? I think you have to be invested in gold and equities. There is no other asset class.

SHARAN HEGDE: If you tell me a sector and if you can name a few stocks.

RISHABH NAHAR: Essentially we don’t do that, not because I can’t disclose it but essentially as a quant fund, I probably don’t even know which sectors in terms of division. For me it’s the top 30 stocks and that keeps changing year after year.

I’m not. So for this year, ideally it’s not the first stock or the 30th stock that will do well. In fact, I’ll give an example. A friend of mine said, “Rishabh, can you send me the stock list? I want to invest.” I said, “Why don’t you invest with the fund? It would make a lot of sense because we’ll manage the portfolio in a professional manner.” He said, “No, no, just can you help me out with the stock list? I’ll do my own research.” I said, “Fair enough.”

And then we did 20, 25% per annum in a three year period. And I spoke to my friend, I said, “You must have done well, right, because these stocks were bad.” He said, “Actually I bought only 14 stocks and those 14 stocks ended up giving me only 6% per annum.”

So the idea is that as a quant fund, it’s about the whole. Even I would not be able to predict that this will become a 10 bagger or this will become a 20 bagger. It’s very hard for you to predict something like that.

SHARAN HEGDE: So your prediction is more as a group of stocks rather than individual stocks. So that’s how your quant models work.

RISHABH NAHAR: Exactly. So if you had to today start, I would say start with that group of stocks. Don’t ask me which stock is going to move so that I can take that bet. But that’s the mistake that most retail investors are making. You take the tip from me or from someone else and you’ll forget to call me when you need to exit and you not even realize what is the kind of position size that you need. So you need to look at portfolio construction as a whole.

Real Estate: An Overrated Sector

SHARAN HEGDE: And what is an overrated stock according to you in today’s Indian market?

RISHABH NAHAR: So I think one overrated sector, if you were to ask me, I think is real estate.

Within real estate what they do is the way the market values real estate is they look at the gross development value which is how much space or how much development is going to happen by that company in the next four, five years and they sort of value it against the market cap of the company.

So say for example, Lodha is at a 20,000 crore market cap and his presentation says that we have GDV or gross development value of 2 lakh crores. Now that 2 lakh crores is very hard to predict what is the time frame and when it’s going to come. And so I think that industry is pretty overvalued for one reason that when you make a real estate sale, a large part of the money goes to the government. The builder doesn’t make a lot of money.

SHARAN HEGDE: What are the margins the builder makes? Usually I always thought they make a lot of money.

RISHABH NAHAR: I think if you look at it as on one flat, it will make sense. But if you look at as a whole, if you look at the inventory that’s left back, if you look at the interest cost, I think it’s a very bad business from a builder perspective specifically today because the government has really increased, especially places like Bombay, stamp duty values, property tax. There are so many hidden costs for a builder and interest. If you as a builder go to raise money, you will not get money at less than 12, 13% per annum.

So all those things become very hard for a builder to make 18, 20%. If you look at most of the real estate businesses that are listed, I don’t think anyone has on an aggregate, the return on capital must be 10, 11%. And you don’t want to be a holder of a business that’s doing 10, 11%. You want to be a holder of business that’s doing 30% or 40% per annum.

SHARAN HEGDE: On the return on the capital.

RISHABH NAHAR: Return on capital employed, not on the stock price.

The Reality of Insider Trading in India

SHARAN HEGDE: I’ll tell you one more thing that I’ve noticed. Probably I shouldn’t tell this, but I’m going to say it. So I moved to Mumbai around two years back and until then I’ve never had somebody come and tell me, “Invest in this stock, it’s a sure shot bet.” But as soon as I’ve come to Mumbai, I meet a lot of entrepreneurs who comes and tells me, “I know this company stock CEO. He has told me it’s a sure shot bet, invest in this.”

And it’s not a one off or a two off thing. It’s happening a lot. And this is called insider trading, which is very, very bad in the United States. If it happens, you can go to jail. So is insider trading very common in India? Because I’m hearing a lot such kind of news coming to me, especially in Mumbai, which is the financial capital of India.

RISHABH NAHAR: So I think this question comes to my mind also a lot. And I’ll tell you why the question comes because when I look at data.

SHARAN HEGDE: By the way, this is how most of my entrepreneur friends invest. They are not into mutual fund or PMS. They’re like, “I have a sure shot, 10 on 10 conviction because the source is valid. I’m putting, and I’ve made money guaranteed invest.” This is how it is.

RISHABH NAHAR: So essentially this is a question that comes to my mind and why the question comes is when I look at data, I generally see and the data is public, before the result, before good result, the stock is already up 10%, 20%. It cannot be a coincidence that the stock has moved before the result and especially a good result. That means that someone has some amount of information. It is.

So I think definitely this is happening because the price is showing that, not because I know of someone. There are a lot of random people who say they have information and they probably heard it from the Panwala. But I think if the price is moving and it’s happened before the result, that means that there is something. And I think SEBI does look into these kind of matters and maybe one out of 50 people get caught.

But I think in life you got to live by certain kind of principles. Essentially, I was recently, my dad was selling an old house of his because he was in need of funds and someone committed and he shook hands with someone. And that guy said, “We do the deal.” And we said, “Okay, fine, after five days, we’ll take the token.” And the next day someone else came in and he said, “I’ll offer you 20 lakh rupees more.” And my father just said no.

And so I asked him, I said, “He’s offering you 20 lakhs more. You’re not taking it?” And he’s saying, “See, you have to live by certain principles, and this is where you start from.”

Living by Principles in Investing

RISHABH NAHAR: Essentially, you get a lot of opportunities as an investor also that someone told you, “Buy the stock, because I know the promoter.” Ideally, can you do this for the rest of your life? Because you get that money so quickly and even if you make that money once, I don’t think you’ll be able to digest that money in any way.

I think ultimately you have to understand if you compound your money at 20, 25%, you’ve done the math so many times and it’s going to be a large number. You just keep going to have conviction on that principle. This one stock is not going to change me or my lifetime. And it’s not going to change my net worth. I think if I can do this for 20, 30 years, and I think that insider trading is not something that you can do for 20 years. So even if someone comes to you with something like that.

SHARAN HEGDE: You guys are market operators is the term. They’re the ones who have the eyes and ears with every promoter and CEO, so they sort of get this information, knowledge coming to them. But you’re saying it’s not sustainable to do it.

The Ethics of Investing and Market Timing

RISHABH NAHAR: I think even if people are doing it and even if it is sustainable, ultimately you’re answerable to someone way above you at some point of time. Even after you die, you’ll have to be answerable because at the—

SHARAN HEGDE: End of the day it’s theft, right?

RISHABH NAHAR: It’s unethical. So essentially, if I’m making money through insider trading, someone else is losing money, right? It’s theft because I bought it and then he sold it because you were buying it and you made that money.

SHARAN HEGDE: Correct.

RISHABH NAHAR: So ultimately, maybe if not today, you don’t get caught today, but at some point of time you’ll have to answer somewhere. I think living by those ethics and creating those boundaries are essential. You have to be answerable to yourself today. Maybe you took the action and you made money off it, but I don’t think that is something that you should be sticking by.

AI Stocks and Valuation Concerns

SHARAN HEGDE: So you made a very interesting point that investing can never be a 10 on 10 sure shot bet. But now let’s come to AI, right? The whole world is saying that AI is the future and we are seeing a disruption happening across industries. You made a point about when the tech boom happened—it’s not that a lot of companies became successful, 2 or 3 handful of companies became successful.

So what is your expert opinion on which are the AI stocks that’s going to boom? I mean, obviously the usual suspects are Tesla, Nvidia, Meta, Google and all of that. But how would you look at it? Because the way I look at it is that these companies already have an advantage. They’re already so large, they’re already disrupting the industry. Shouldn’t they continue to win? It’s like, isn’t it already a sure shot game that these guys are going to win and become 5 trillion dollar companies themselves? How would you look at it?

RISHABH NAHAR: So essentially, Sharan, when I’m looking at AI today and AI stocks and how AI as a whole has helped quant investing, I think it’s made the research process a lot faster for us. But if you look at it from just a pure stock perspective, I think they’re going at some crazy valuations.

So essentially to justify those valuations that we are running at today, the earnings numbers have to be crazy, right? And I don’t think anyone in the right mind is able to give that earnings number. So as an investor, if I were to follow even a subjective investor like Buffett’s principles, I would say that if I can’t predict earnings, I’m not going to touch the stock because then there’s no margin of safety, right?

If you’re entering at say 100 times or 200 times or even 300 times earnings, what’s the margin of safety that you have? You don’t know. Because if you’re wrong, if the industry changes, you could lose probably 70, 80% of your wealth also. And we’ve seen that in the past with the tech boom.

So this could be a disruptor. This will be a disruptor. The AI boom is going to be there and businesses are going to change because of this. We’re seeing that today. But does that become a great investment? No, not always. You can find a very boring industry and you can make a lot of money because it’s available at a cheap price.

Tesla’s Disruption Potential

SHARAN HEGDE: But let me again maybe deep dive into Tesla. So Tesla is disrupting two things. One is the EV segment, which we know is a clear energy transition shift, government push as well. And the leader obviously there is China BYD also coming up, but obviously Tesla will have its own market share.

And second is driverless vehicles, which is Uber’s market, right? I’m going to disrupt logistics without human involvement. And one more thing—last thing is robotics, like human labor completely disrupted. People working in factories no longer needed. People helping us with our household chores no longer needed. Robots coming and doing everything. And Tesla seems to be the leader over there.

If not the leader, maybe they will have a meaningful market share for itself. I’m just trying to understand how could someone else come and beat Tesla right now because they’re so far up in the game. I can’t even think of a second place competitor for this. Maybe you can educate me by looking at the past where there was a company which was a sure shot winner, nobody could come and beat it, and then somebody just came and disrupted it.

The BlackBerry Example

RISHABH NAHAR: I think that’s happened, right? Look at BlackBerry as a mobile phone. Essentially everyone was on BBM, right? Like 2008 to maybe 2009, 2010 during our college days, school days. I think everyone had a BlackBerry. I think even the BlackBerry messenger was so disruptive at that time, right? No one was chatting as much and you thought that this is going to be the next big thing.

But what happens is that I don’t think there’s a first mover advantage in these businesses. In this business it makes sense to be the second and the third mover because the first guy comes, he spends all the money, he builds all the technology, and then there’s a smart guy who learns from this, copies this and then has one up in the game. He knows what mistakes to not make, right? And that’s what happened with BlackBerry.

SHARAN HEGDE: Right.

RISHABH NAHAR: So essentially I think Research in Motion was the company name and I think it fell by like 80, 90%.

SHARAN HEGDE: Yeah.

RISHABH NAHAR: And it’s nowhere to be seen. So I think on the tech side, these things will quite constantly happen. If you look at Buffett, he invested in Apple very late in its game. He invested in 2017.

SHARAN HEGDE: Yeah.

RISHABH NAHAR: And I think he entered at $30, and it was about 10% of his portfolio. And it’s at $250 today. But he didn’t look at Apple as tech. He doesn’t look at it as a pure tech business. He looks at it as a retail business. Tomorrow Apple can sell anything and people will buy it, right? Essentially, they’re making you feel good.

SHARAN HEGDE: The brand power.

RISHABH NAHAR: It’s the brand power.

SHARAN HEGDE: But now he’s cutting his position.

Buffett’s Strategy and Leverage

RISHABH NAHAR: Yeah, he’s been cutting his position. He’s been moving to a lot of cash. I definitely have this view that Buffett knows a lot more than what he says, and I think he makes it very simple for people at large. If you look at the way Buffett has made money, I think he’s taken a lot of leverage on his entire book, but he doesn’t really disclose it. He’s been doing things that people don’t know.

SHARAN HEGDE: Why would he take leverage? He’s sitting on so much cash.

RISHABH NAHAR: So if you look at the entire business model, how did Buffett become the richest person, the top three today, by doing 20, 30% per annum for 50, 60 years? A lot of people have done very well. Jim Simmons has done 60% for 20 years. Ideally, he should be richer.

Essentially, the capital base that Buffett has is very large. So he bought this insurance business back 50, 60 years ago. And what happens with an insurance business, say like an LIC, is we as the public go and pay premiums. That premium remains in the bank, and that money needs to be repaid, say, at the end of my life after 30, 40 years. So Buffett has that free float. So what he essentially did is that he took all that free float and invested in the stock market.

SHARAN HEGDE: But he can do that?

RISHABH NAHAR: He can do that. That’s what LIC does. You look at today, you look at holdings of large businesses—essentially LIC holds 2, 3, 4%.

SHARAN HEGDE: Wait, wait, wait. You’re saying LIC takes our premiums and invests that in the stock market?

RISHABH NAHAR: Absolutely.

SHARAN HEGDE: And if I need that money, they have it ready?

RISHABH NAHAR: Exactly, right. So that’s the math that they do. They run on probabilities again, essentially. How many people die this year? What if there’s a calamity? Then what will happen? And Buffett has also done this math and he’s actually said it openly—if these calamities plus this earthquake, plus this hurricane, all of these things happen in one year, maybe we will not be good for the money.

SHARAN HEGDE: So this is actuarial science, if I’m not wrong.

RISHABH NAHAR: Exactly. This is actuarial science. So how Buffett became actually rich is through leverage.

SHARAN HEGDE: Right.

RISHABH NAHAR: He had 100 rupees, but he took 10,000 rupees of the public from the insurance business and redeployed that in the markets, right? Because he had to pay back. So today, if you go to LIC, you open up any scheme, I don’t think the return on capital comes to anything more than 4, 5% over a 30, 40 year period. But they put their money in the market and probably grew at 12%.

SHARAN HEGDE: Right. So basically we buy the money back plans for 4 to 5% post tax, and they are investing that money in the stock market and making 20, 30% returns.

RISHABH NAHAR: So say they’re making even 12%, right? So the alpha is 6, 7%.

SHARAN HEGDE: So this is the game.

RISHABH NAHAR: This is the game. And that’s how actually Buffett—so there are two aspects to it. One is stock picking skills. But to become that large and to become the richest guy on this planet, essentially this was a form of leverage that he took. So if you can get money for that long at almost zero interest rate, then you would deploy in the market, right? Anyone else would.

But to design this, to think of this, you have to be a genius. I think there’s much more than just stock picking to him. And your question was, he’s sold Apple. I think he understands where the US is. I think he is sitting on the highest amount of cash he’s ever sat on. I think he’s sitting on about 35, 40% in the form of cash in his portfolio. I think 30%.

SHARAN HEGDE: But he shouldn’t do that, because the currency is depreciating.

RISHABH NAHAR: Yeah. So I think he’s trying to time the market.

SHARAN HEGDE: He’s expecting a big crash.

RISHABH NAHAR: So when you sit on cash, you are unknowingly timing the market, right? That means that you’re not investing.

SHARAN HEGDE: He’s been doing it for a couple of years now, right?

RISHABH NAHAR: He’s been doing that. And he constantly does that. What he says for the public at large, when he’s talking, he’s talking to the public at large. Listen, don’t try to time the market, remain invested.

SHARAN HEGDE: But he does it.

RISHABH NAHAR: But he does time the market, but that’s because he’s an expert, right? He’s saying, see, I do this for 13 hours a day and I tell people, you want to become like Buffett? Wake up at 7 o’clock, reach office by 9 o’clock, spend 12 hours a day, don’t do any buying, don’t do anything, right? Just read, read, read, read, read. And do that for 30, 40 years of your life, you’ll become like that, right?

I don’t think anyone can do that. That’s why you get only one guy like him out there. So I think he understands this. He understands all these different nuances and he can take that decision also. I don’t think you and I can just copy him. So when you’re taking advice from someone, you’ve got to understand from what context they’re coming and what they’ve done, right?

Defining “Enough” in Wealth

SHARAN HEGDE: So Rishabh, how do you look at what is enough, right? Because you’re a fund manager. Your entire job is to understand money, right? Money is something that human beings have invented. Now you have made an entire profession around making more money from money. That’s what you do as a job.

How do you look at how much is enough from a financial freedom point of view? How would you look at it? Do you even think about money like that? Or you’re like more is more, more is good? How do you look at money?

RISHABH NAHAR: I think definitely at some point I was like, I want more and I want more. Maybe I started thinking if I make 2 lakh rupees a month, that will be crazy, right? If I do 2 lakhs, I can fund all my expenses and back when I was a lot younger, I could do so much, I could take holidays.

SHARAN HEGDE: And I think if I may ask, what is your personal net worth today?

RISHABH NAHAR: Let’s say, out of the 100 crores, about 30, 35 crores is my money, right?

SHARAN HEGDE: 30, 35 crores is your money.

RISHABH NAHAR: Essentially that’s been compounding and I think I wanted to snowball over time.

SHARAN HEGDE: But do you feel 30, 35 crore makes you financially secure or you feel like no, I need more?

Living Luxuriously in Mumbai

RISHABH NAHAR: No, 100%. I think it’s like, I know I feel very financially secure. I think that if you’re staying in a place like Bombay, you’re in South Bombay, right? So I stay in South Bombay. Essentially, if you’re staying in a place like South Bombay, I think if you have a house, if you leave your house aside, luckily I already have a house. But if, say for example, you already have a house, if you had to live very luxuriously, you could spend like anywhere between 1 to 1.5 crore rupees and live very luxuriously in a year.

So say you have a car, you have a driver, you take vacations, you go to Switzerland, you travel the world, you do whatever you want. I think 1, 1.5 crore is more than enough.

SHARAN HEGDE: 10 lakhs a month kind of, right?

RISHABH NAHAR: 10 lakhs a month I think is more than enough for you to live a luxurious lifetime without worrying about it.

And to make 10 lakhs a month, essentially 1, 1.5 crore a year, right? So if you want to spend 1.5 crore, I don’t think you can make only 1.5 crore a year. You want to make at least 5, 6 crores a year so that you’re only spending 20% or 30%. Essentially you want to reinvest everything so that then number come out.

Money as a Game

See, essentially for me, I think I look at it as a game, right? For me, life is a game and essentially investing also becomes a game. And after a point, whoever you are, whether you’re Buffett, Munger, Ramdeo Agrawal, I think the number stops mattering. I don’t think the number is, I think it’s a game that, okay, fine, can I get better at this? Can I wake up and do better research?

You got to realize that the money should not get to your head. You don’t want to spend based on how much you made. You want to spend based on how much you need, right? So you could essentially have a very simple lifestyle and you don’t need to stay in a place like South Bombay.

Also, especially in this game of investing, it’s just your intelligence that’s required. You don’t need to speak to 20 people around you. There are enough books and enough work on the Internet that can help you make good decisions.

So ideally I think 1.5 crores in Bombay is that you can live a very luxurious lifestyle. After which I think, whatever spending is, essentially, I don’t think it’s adding as much value. But up to then, because Bombay is an expensive place, right? So most people end up, a professional making like 30, 40 lakhs or 50 lakh rupees ends up spending most of it if you’re living in Bombay, like rent and other things.

So idea is that first you try to save as much to get to that corpus, right? Say you get to 10 crores, 12 crores, that number to get to. So even Ramdeo Agrawal says this, right? To get to the first crore is the hardest, right? Somehow you get to the first crore. Then the compounding journey, once it kicks in, you’ll not even realize. The number will keep getting bigger and bigger and bigger.

And the moment you have say like 5 crore, 6 crore rupees and you’re making 20, 30% per annum. So that’s 1, 1.5 crore a year.

SHARAN HEGDE: Yeah, you’re adding additional.

RISHABH NAHAR: Yeah, you keep adding. And you don’t spend all of that. You get to a number after which you realize, okay, fine. Because see, if you’re growing your money at 15, 20%, inflation is growing at 7, 8%. Eventually your number is going to be a lot bigger, right? Your purchasing power is going to improve a lot more, right?

So you want to figure out how to grow your money. I think I never looked at, I never looked at how can I cut down my expenses. I always looked at it that, how can I increase my income?

Errors of Omission vs. Commission

That’s also the same way I look at a stock. So, often ask this question, right? Like what is my regret? Financial regret. So there are two kind of errors that happen in the market. There’s errors of omission and then there’s errors of commission.

Errors of commission are, for example, I bought a stock, I shouldn’t have bought it. I bought Zomato, I shouldn’t have bought it. It’s down 30%, right? That’s an error of commission. When I bought it and it fell 30%, so I lost 30% of whatever I invested.

Error of omission is I should have bought the stock. I had all the knowledge, but I didn’t buy it because I was scared and it became a 10x. If you look at Buffett, he says, “My biggest mistakes are not the stocks that I lost money on, it’s the stocks that I didn’t buy. My biggest mistake is I didn’t buy Amazon early on. My biggest mistake is that I didn’t buy Walmart. It was a 10 billion dollar mistake.” Those mistakes are too big.

I think the same thing when you’re looking at life, right? I think you got to look at how much money you can make because that’s infinite. And you can make a lot of money. So if you cut down the expenses, but how much will you cut down, right? You can only cut down to so much. So I think rather put your time in engine, figure out how can you make a lot more money.

The Power of Compounding

SHARAN HEGDE: So realistically speaking, today if you have 10 lakhs, it is possible in the next 20 years that 10 lakhs can become 100 crores. If they generated 25% CAGR, it can become 10 crores in 20 years or 100x, right?

RISHABH NAHAR: Sorry, 100x.

SHARAN HEGDE: If I have 10 lakhs, 10 lakhs can become 10 crores in 20 years. Assume you can grow it by 25% CAGR every year.

RISHABH NAHAR: It’s that simple. Just 26% CAGR. So your first, the first 10 years is your 10 lakhs becomes a crore and then the next becomes 10 crores. And honestly, I don’t think you need to actively pick a stock to do that. You can do that using models. Idea is that to go through those 20 years, right? Can you actually be disciplined?

Book Recommendations for Quant Investing

SHARAN HEGDE: So what is your last question? What is your first, your favorite book for the audience watching here on how they can get started on this quant investing and build those kind of portfolios for themselves which they can get on 25, 26% CAGR?

RISHABH NAHAR: So I think there are two books that I would look at. I think the first thing is that to get into quant investing you need to be inspired. And for inspiration you would look at say like maybe three books for inspiration. You want to look at Ed Thorp and you want to look at Jim Simons.

So Ed Thorp has this book called “Beat the Dealer.” He also has a book around the markets also. And Jim Simons, there’s a book written on him called “The Man Who Solved the Market.”

And I think when you read about these guys, you figure out how they came from a humble background, how they actually did this just because they were curious. They just wanted to know that how markets work and how they didn’t play this game to become rich. They played this game because they wanted to beat the market.

SHARAN HEGDE: Curiosity.

RISHABH NAHAR: Yeah, out of curiosity. And if you really want to take action, I think that little book that builds wealth. And there’s “The Little Book That Beats the Market,” right? So that book essentially gives you that formula that how you can actually build wealth.

SHARAN HEGDE: There’s a formula.

RISHABH NAHAR: There’s a formula. In fact, you can just take that formula down, run a few tests, you can make it on Excel. So that’s how we did it back in the day when I didn’t know how to code. So in 2016, the first thing I did, can I build this model on Excel? And I picked up ROC, EV, EBITDA, gave it a ranking and actually so I was like, damn, this is giving like 25% per annum. And then obviously continued working on that.

So I think it’s a great starting point. So if you want to be successful, you have to build knowledge and with that knowledge, conviction will come. Once you get that conviction, then you can go all in.

SHARAN HEGDE: And then you can be rich.

RISHABH NAHAR: Then you can be rich. Exactly.

Final Words of Advice

SHARAN HEGDE: On that note, guys, thank you so much, Rishabh. I think it was a very, very insightful conversation into the incredible world of quant investing. Thank you so much. And any last words of advice for the audience?

RISHABH NAHAR: I think, thanks, Sharan. I think when I came to speak to you, I think the idea was that to tell people that, absolutely, anyone can do this, right? You don’t need to be an ace fund manager, you don’t need to have any sort of insider information. You can beat institutions by simple models. So I think, why don’t you get your hands dirty and start. And starting early is probably the most important thing.

SHARAN HEGDE: Absolutely, yeah.

RISHABH NAHAR: Thanks, man.

SHARAN HEGDE: Perfect, guys. On that note, I’ll see you in the next one.

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