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Mind Over Money: Sandeep Tyagi’s formula to balance greed and fear for long-term investing success

Mind Over Money: Sandeep Tyagi’s formula to balance greed and fear for long-term investing success
In an exclusive interview with ETMarkets, Sandeep Tyagi, Chairman and Managing Director of Estee Capital LLC, shares his unique approach to both mental fitness and smart investing.

Drawing from decades of experience in the capital markets, Tyagi emphasises the power of simplicity, disciplined strategies, and the importance of understanding cognitive biases.

His latest book, The Little Book of Big Gains, offers actionable insights on how retail investors can adopt the same methods used by institutional players, avoid common pitfalls, and stay committed to long-term wealth creation—even in volatile markets.

Edited Excerpts –

Q) Thanks for being part of the segment. Tell us a little bit about how you keep yourself mentally fit.


A)
There are four things that I have learnt over time – 1) Meditate daily, I have a daily routine which cleans up the emotional baggage and brings stability to the mind. 2) Read and absorb knowledge widely.I read or listen to 15-20 books every year. I also read several blogs and other media to learn more. 3) Do a daily routine of crossword, sudoku and other puzzles. That is like going to the gym for your mind. And finally, 4) eat seven almonds a day (something prescribed by my mom since I was a kid)!

Q) You have recently launched a ‘The Little Book of Big Gains’ book. Tell us more about it. What inspired you?

A) It is a little book—all of 174 pages. Because good investing is about getting more than average returns by putting in less than average effort. Here are the key points to take away from the book:

● The Power of Simplicity and Discipline: I champion a simple, systematic approach to investing throughout the book. This includes starting with a basic portfolio of debt and equity investments, rebalancing regularly, and avoiding the temptation to chase fads or time the market.

● Recognizing Internal and External Noise: As I discuss in “Part 2: Avoiding the Noise,” one of the biggest obstacles to investment success is noise – both internal (our own emotions) and external (market hype, stock tips, etc.).1 Recognizing and filtering out this noise is crucial for making sound investment decisions.

● Understanding Risk Tolerance: I use the analogy of driving a car in different gears according to the conditions, to help readers understand how to build a proper portfolio. I suggest the use of “investment Gears” to tailor a portfolio to an individual’s comfort level with risk. Different Gears represent varying levels of equity and debt investments, allowing investors to choose the right mix for their situation.

● Tax Optimization: I highlight the importance of tax considerations in investing and recommend strategies like tax-loss harvesting to minimise the impact of taxes on returns.

● Liquidity Needs: I emphasise the importance of considering liquidity needs when building a portfolio. If you have a short-term goal (like buying a home next year), your portfolio should reflect that with appropriate investments.

The inspiration for the book came from my own experience in 2008 during the Financial Crisis. Despite an MBA and fairly deep knowledge of financial markets, it was difficult for me to handle my investments.

Also, as I talk with many of my family and friends, I realise the need for a simple book which cuts out the noise and helps people create a simple systematic plan.

I also feel that this is a way for me to share some things I have learnt over the years with everyone. Normally, hedge fund managers and professional investors keep their knowledge secret or only share it with large clients. Writing a book is a way of sharing.

Q) Based on your decades of experience in capital markets, how do traditional and quant investing differ in terms of risk management and returns?

A) Traditional and Quant investment firms don’t necessarily differ in terms of risk management and returns. They do differ in how they achieve those. A Quant firm will have a systematic process on how to make a buy or sell decision.

It will be based on rigorous analysis of historical data. Usually, it is a team effort where several people work together to build the infrastructure of data and analysis.

Traditional firms follow a manager-centric approach. The fund manager comes up with the decision to buy or sell based on their thinking.

Sometimes it may not be clear why they are making that decision. And the process is not as repeatable as in Quant firms.

Q) Is there a way that retail investors benefit from portfolio management strategies typically reserved for institutional investors?

A) The principles are the same. Building a diversified portfolio that balances risks and returns is key to both. The only difference is that for a retail investor, the amounts may be lower which means that full diversification may not be possible as for the institutional investors.

For example, in our investment portfolio for retail investors, we typically recommend a portfolio of about 20-25 stocks, whereas for large investors we may recommend a portfolio of 50-75 stocks.

Also, the implementation for the retail investors is more work as they have to do their own execution. In contrast, institutional investors can benefit from the execution capabilities of a professional investor.

Q) How does your book address common cognitive biases in investing, and what quant strategies can help investors avoid these pitfalls?

A) We are not always rational investors and dedicate a whole section to such biases. Overconfidence bias is a feeling that we can detect patterns where none exist.

People constantly try to time the market cycles trying to make a decision on when to invest in equity markets and when to stay away. This is futile for an average investor, if not downright impossible.

Loss Aversion is another bias, which makes people hold on to their loss-making investments for way longer than gain-making investments. Availability bias makes us invest in things we are more familiar with in our day-to-day lives.

Investors do not do in-depth analysis, relying instead on familiarity with brand names and other advertising.

Besides these cognitive biases which make us misjudge the investment opportunity, the biggest challenge is to balance between “greed and fear”. Investors oscillate between these two emotions. As a result, they chase performance, making big bets after the market goes up and withdrawing right after corrections.

As a result, they lose a big part of the potential upside. In the book, I provide an example where a fund produced very good returns but an average investor in the fund did not.

A systematic method, like the Quant method, allows an investor to avoid the “greed and fear” cycle. Computers and math are immune to these emotions.

Q) With Sensex and Nifty touching record highs — with market volatility ever-present, how can investors maintain long-term discipline in their investing plans?

A) Investors should rebalance their portfolios to the right mix of equity and fixed income. When the markets go up a lot (like they have done in the last 1-2 years), then we sell some of our equity positions and rebalance into fixed income.

Except for this rebalancing adjustment, investors should maintain a regular disciplined investment rhythm—putting away money regularly.

Do not try to time the market. I know a lot of people who sold off their investments after COVID-19 started and the markets were down and then waited on the sidelines while the market went up a lot over the next 18 months.

Q) How does your book emphasize the importance of ongoing financial education, especially for beginners?

A) Some things like the tax rules, products available in the market, performance of the products, and transaction costs change with time. It is important to stay abreast of all of these.

However, some things do not change with time—like the basic principles of disciplined systematic investments. Here less is more. You do not need to educate yourselves about the latest stock tips and tricks. They are a waste of time.

Q) How often should investors rebalance their portfolios to align with their financial goals?

A) Once every 6-12 months, investors should adjust their portfolio back to appropriate equity and fixed income allocations. If equity market returns have been very high, then sell some equity investments and buy fixed-income investments.

Also, pay attention to the tax considerations. There is a difference between short-term and long-term capital gains tax. So, when an investment is about to reach the year mark, one should assess it for tax loss harvesting. This allows you to keep your tax costs low.

Finally, if your situation changes—like you anticipate an expense or your earnings change significantly, then you should also look at your proper asset allocation plan and rebalance your portfolio.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

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