During the 2010s, the bearish decade for the Bangladesh stock market, mutual fund operator VIPB Asset Management generated enormous returns for its clients, in contrast to the thousands of stories of painful capital erosion.
VIPB-managed NLI First Mutual Fund in its listed life of ten years till February this year beat the industry and the market with 14.01% compound annual returns (CAGR), while the annualised price return of the broad-based index of the Dhaka Stock Exchange (DSE) was only 4.93%.
VIPB's Southeast Bank First Mutual fund, which was delisted and converted into an open-end one in May 2021, generated a CAGR return of 13.03% during its 10-year life against the annualised 1.32% return of the broad index during the corresponding period.
The champion asset management firm's Managing Director and Chief Executive Officer (CEO) Shahidul Islam in a recent interview with The Business Standard said ignoring short-term market fluctuations while taking long term position in stocks of the well-governed companies that enjoy competitive advantage have been his secret of the investment success.
"Our investment philosophy is long term value investing. It is not about buying a stock only because its price is rumoured to rise in the short term. Instead, we buy a portion of a worthy business to own it for a long period of time," said Shahidul, who is also a chartered financial analyst and a globally certified financial risk manager.
Intrinsic value is the key, which the market often ignores, he said while explaining the importance of looking for the deserving price of a stock based on the firm's capacity and potential to create value in the long run.
He looks for the strength of the company management, its brand reputation, distribution network, honesty of the management and reliability of financial statements, and very importantly the long-term orientation of the company's business strategy.
"As a believer of the long-term potential of Bangladesh's economy we only pick the firms that are expected to maintain long term growth in line with the country's economy," he said adding that short term market underperformance of good stocks in his portfolio never frustrates him as he feels no pressure to outperform the market in a particular quarter or year, not even in a series of years.
"We continuously monitor things to make sure the thesis based on which our long-term expectation was built still holds or not."
Responding to a question which one is more important - finding the right company or buying its stock at a cheaper price, Shahidul Islam informed that he focuses on analysing the fundamental factors to identify right companies than predicting the stock prices.
"Of course, you need a margin of safety," he said regarding the importance of buying good stocks at cheap prices.
Pharma giants Square, Renata, top telecom operator Grameenphone, leading paints maker Berger, and Brac Bank are the top holdings of VIPB-managed funds. Besides, VIPB funds hold shares of some other industry champions like hair care giant Marico, footwear multinational Bata.
Islam believes that chasing short term market rallies that are not supported by long term fundamentals only satisfies one's gambling instincts, not the objective of sustainable wealth creation.
Joining the market bandwagon if the rally is not supported by fundamentals can be very risky, he opines.
He believes that the success of the value investment approach would repeat in the next decade and the following ones.
"As the country and its economy mature, retail investors will shun their trading mentality and focus on long-term investing," he said.
He further said the ongoing crisis for the economy and businesses might create short term pains, but there should be turnarounds soon and people will forget these bad times.
"If the Bangladesh Bank relaxes the lending rate cap, there might be some upward trend in interest rates, but I do not think lending rates will go up to the previous highs like 16%-17%," he said adding that the world with aging population and their increasing savings rate is not expected to witness the high interest rates as seen in the 1980s.
"The ongoing market volatilities are good opportunities to pick some good stocks for a long-term holding," said Shahidul Islam.