Transcript

How PriceBridge Generates Consistent Alpha - Exclusive Interview with Mahesh Gowande | PMS Bazaar

Aravind Ravindran: Hello and welcome, everyone. I'm your host, Aravind Ravindran, and today we are privileged to have with us Mr. Mahesh Gowande, Founder & Fund Manager at PriceBridge. Mahesh is an equity futurologist with over two decades of experience. Welcome, sir. It's wonderful to have you here.

Mahesh Gowande: Thank you, Aravind. Thank you, PMS Bazar, for inviting me.

Aravind Ravindran: To begin with, could you tell us a bit about your journey? What led you to start PriceBridge and how has your experience shaped your investment philosophy?

Mahesh Gowande: After completing my B.Com and then my Masters in Economics, I was always keen towards the stock market and investing. While studying human behavior and economics, I was really attracted by the 1987 crash. I saw that a few Indians in the global market had actually predicted it and adjusted their portfolios. That showed me this could be done on a big scale, and that was my starting point.

My family background is in construction and contracting, so I did that for 10-15 years as a normal family business before eventually moving to the stock market. I started studying behavior analysis—why people get excited, and all that. With my economics and B,Com background, and from managing my own business, reading balance sheets and fundamentals was already part of my skillset.

What really attracted me was the growth trajectory India was going through, and I started looking at Indian markets as a big thing. I initially started as a consultant, advising others. I then realized it's not so easy; there is one more thing apart from research, which is an execution platform or execution skill. And after executing, there's managing those investments. So, there are three legs to investment: one is knowing what to buy, second is when to buy, and third is how to manage. That is where I started PriceBridge.

The name "PriceBridge" is about bridging the concept between price and time cycles. Let me give you an example: just like in a garden, you have to cut the tree for further growth—trimming is required. Similarly, in a portfolio, some element of trimming and adjustments is required. That will generate the alpha. You don't have to change the stocks. Even with the same stock you've held for 20 years, if you do small tweaking in that journey, the alpha can be 2 to 3% more. Over 20 years, that 2-3% will actually change the returns of that stock profile. That's how I started looking at managing portfolios. So, that's how PriceBridge began—bridging time cycle and pricing.

Aravind Ravindran: Wonderful, sir. It's clear how your experience has shaped how PriceBridge approaches portfolio construction. Now, compounding requires patience, but investors often get restless. How do you think timing, delayed execution, and discipline help in overcoming these psychological barriers?

Mahesh Gowande: SEBI data indicates that 92-97% of people lose money. What this really indicates is people get excited and carried away. You have to be away from the crowd, but it's very difficult to identify if you are in the crowd or not.

How to overcome it? It's very difficult because humans, even after knowing, struggle with execution. We are not trained to execute things; we can plan and visualize, but execution means patience and constant practice—the hammering—which we don't do. Most people lose patience and stop.

First, there is a lack of knowledge. We are not taught in school how to manage money. If there is no discipline, it becomes very difficult to inculcate those qualities. So, unless it's trained at a school level, it's very difficult. This is why we have put everything on a technological platform we built, where execution and risk management are managed by parameters.

For investors, instead of getting carried away with news and instantly reacting, they can just delay by waiting for maybe 10 days or 5 days. I always tell people the market gives you three or four opportunities. The market is there because of you and will always give you opportunities again and again. The FOMO (Fear Of Missing Out) gives more losses; that is a universal truth. Once you understand and accept that the market will give you one more opportunity to enter the same stock, you will not lose money.

I'll give one small example. People always talk about stop-losses getting triggered and then the price goes up. I always ask people, "Why don't you enter after your stop-loss gets triggered?" If you know that after triggering the stop-loss the price goes up, then wait for the stop-loss to get triggered and then enter. This simple action can actually save 50% of the losses.

Aravind Ravindran: It's clear how long-term success ties back to behavioral discipline. Sir, you have built PriceBridge around generating returns while keeping fees and volatility low. What drove this philosophy and how does your proprietary system translate this vision into real portfolio outcomes?

Mahesh Gowande: It is widely accepted that higher risk means higher returns. Somewhere I felt that is not the truth. You don't have to take higher risk to earn more returns. There are ways where you can take similar risk and still make good money.

That was the first thought: do I really have to take extra risk to make that extra earning? I felt no. We can do it better by using time cycles. You can delay your actions and improve your returns. While most fund managers globally say never try to time the market, I always believed you should not try to time the market, but you should try to time your actions.

That was the major thought that triggered me. I did a lot of data analysis and research and realized that if you time your actions—forget what the market is doing—you can earn similar returns without taking additional risk.

For example, if Nifty gives 12% return over 10 years, it's not linear. Out of 12 months, it would be only four, five, or six months where the actual momentum comes. You don't have to be perfect about your timing; you can have a range. You just have to extend your range and ensure you are avoiding only two or three months from the year.

If a stock is giving you 15% return, it will be only for 2-3 months. You just have to wait, delay your action, and participate. My simple observation is that most people use momentum indicators or breakouts, and the price becomes 20% more. But after 2-3 months, the price comes down in a correction or retracement. Instead of buying at the breakout and chasing it, wait for 3 months for the price to come down and then buy. You might earn 18% instead of 20%, but you are reducing your time invested from 13 months to 10 months. Your CAGR actually improves because you were not invested for the full period. That's how compounding improves.

Aravind Ravindran: Wonderful, especially how your process blends quantitative rigor with behavioral discipline.

Mahesh Gowande: I'll add one more thing about trend-following systems. An uptrend will have more corrections because of constant profit booking by swing traders. An uptrend stock gives you more dips because people fear losing small gains. 99% of people who don't make money in trading book profits on small gains and hold losses for a long time. So, in an uptrend, you get more opportunities to buy during corrections.

If you just follow that simple approach, you are saving time. Most traders lose money in trend-following because they buy and sell on small corrections. People have this vague idea of keeping a 2% stop-loss, and the moment it hits, they sell. But during an uptrend, you get better opportunities. The simple discipline is to invest in a stock during a correction.

Aravind Ravindran: Now, coming to your Honeycomb portfolio, designed to fall less during down markets and rise more during up markets. How did you design this strategy to achieve this outcome?

Mahesh Gowande: The Honeycomb portfolio is an ETF portfolio. We mix sector ETFs, smart beta ETFs, and index ETFs. We use some part of smart momentum strategies and plain index in our portfolio.

When our markets become expensive, we reduce our exposure to momentum indicators or smart beta portfolios because they are already giving higher returns. We then increase exposure to sectors which are cost-effective or at fair value. Since they are already undervalued, the fall in those stocks is less or limited. When the trend is down, everything comes down, but undervalued sectors will decline less. People prefer to book profits first in expensive stocks, so they sell those.

We ensure that wherever there is a fair-valued sector, we increase our exposure to those ETFs. For example, we used gold and silver ETFs. We bought a little gold, just 2-3%, but we had more than 10% in silver. At one point, my exposure to silver ETF was 14%. We also invested in the China market (via Nippon Hang Seng ETF), which had not recovered from the COVID era. There was value there, and we took exposure—about 5% in some accounts. We made good money; even Nippon Hang Seng gave us almost a 50% return.

Because of these allocations, we fell less. When I booked silver recently during the frenzy, I reduced exposure and shifted that money to metal, which has done well in the last month. We do these small switches; we are not traders, but we take strategic calls on which sector will do well over the next two years. We slowly accumulate; we don't buy in one go. It's like an STP approach. We are also invested in PSUs, PSU banks, Bank Nifty, and financial ETFs. So, when the markets came down, we fell less because we were exposed to these sectors, and that's why our alpha is good today.

Aravind Ravindran: For an investor coming into Honeycomb today, what is the ideal holding period to truly see the benefits?

Mahesh Gowande: I would suggest 2 to 3 years should be the minimum. Ideally, I would say 3 years.

Aravind Ravindran: Fantastic. We know maintaining lower beta than the benchmark while generating stronger alpha is rare. How does PriceBridge achieve this through asset allocation or any structural choices?

Mahesh Gowande: Sector allocation is one part. An interesting data point is that many low-beta stocks have given wonderful returns in the long term. We never believed in higher risk for high return. You can take moderate risk and still have better returns by timing your actions—by investing at the right time in a particular stock.

For that, we have quantitative models and behavioral pattern recognition models that give us those insights. So, even in a very high-beta counter, if my entry point is good—at a corrective level or a bottom-out level—then the beta will actually come down because I'm not buying at a high point. So, you don't necessarily need high-beta counters to outperform. At times, our beta is very low compared to the market, and we still outperform. It's more to do with behavior pattern recognition and, importantly, timing.

Timing plays a very important role, especially when you want low beta and better returns. The takeaway is timing our actions rather than just following the market. Trend-following can feel like a good model, but you must be with the trend and not with the crowd. If 90% of people are losing money, then in that trend, only 10% are not losing money, but real money is made by only 1-2% of people. The key is how to be part of that 2%.

Think like an operator, think like a seasoned player. They are not active every day. You have to be specific and calculative. If your timing is correct, you get the returns. You must disconnect from the herd mentality and, first and foremost, disconnect from FOMO.

I always believed one more thing: you don't have to show patience after investing. Show the patience before investing. Do all your homework. So, to keep beta low and have better returns, we do our homework before investing. We do proper analysis. We don't react to news or optimistic numbers from company management. We prefer to take action only after proper homework, quantitative analysis, behavioral analysis, and internal team discussions and debates. Let it be one more week. Before investing, do all your checks. That makes a major difference. Don't show patience after investing; show patience before investing.

Aravind Ravindran: That's it, like how Warren Buffett sits with cash waiting for the right time. Now, PriceBridge focuses on a uniform risk-reward experience. How do you ensure this consistency across diverse portfolios?

Mahesh Gowande: When I entered the markets in the early 90s, the Sensex was at 2,500-2,600. When it went to 4,500-4,600 and then crashed after the Harshad Mehta scandal, there were bankruptcies, defaults by brokers, individual investors, and even banks. Today, Nifty moves 1,000-2,000 points, but there are fewer bankruptcies. Why? Because of better safety margins and systems introduced by SEBI and exchanges. SEBI has done wonders.

It's all about how you take risk. Everyone talks about returns—"I'll give you 25% return"—but nobody discusses risk. Nobody asks me, "What were your drawdowns and how much time did you take to recover from them?" The day you invest, you don't know when the market will go down. The question should be: if you go into a drawdown, how long will you remain in it?

I always believed that if an investor comes in at Nifty 10,000 and another at 14,000, my job as a fund manager is to be fair to both. If I can keep the risk profile the same while investing their money, that's key. Every stock has its own risk profile. By shifting my weight allocation, I can maintain the same risk profile.

When I started my PMS, my first investor asked me at Nifty 18,500 if I would make money for him. I said I'll answer after one year, but I promised I would not lose more than 15% for him. We went down about 9% from there when the markets fell, but we fell 1% less. When the markets recovered, he was ahead. Even today, he is 2% ahead of the market. He fell less during the last March correction as well.

The reason is maintaining the risk profile. That is our unique approach. We have models, and we take actions for specific clients at a particular time. That's why PMS was introduced—it's a bespoke industry. The main customization is to maintain risk. Finally, the returns are given by the market and the company promoters. My job is to allocate funds so the risk profile is maintained for all clients at a unique level. It won't be perfect, but it will be similar—one client might be down 8%, another 9-10%, but not 8% and 20%.

Our whole point is that an investor coming in at 25,000 should have his money deployed in counters where the downside is limited. You can know the downside by using different quantitative models. That's why we have more than 30 stocks in one portfolio. We don't take more than 5% exposure in a single stock. We believe 5% should be the max, and we ideally avoid any exposure more than that. We control risk by not taking excessive exposure to one sector or stock.

Aravind Ravindran: That's a great explanation, underlining how risk profiling is very important. Now, we'll move to a quick rapid-fire round. Just pick the one that resonates with you. Which market segment do you see as offering the best risk-reward profile currently?

Mahesh Gowande: Medical.

Aravind Ravindran: When analyzing potential investments, which lens carries more weight: quantitative analysis or behavioral analysis?

Mahesh Gowande: Behavioral analysis. 

Aravind Ravindran: For stock selection, which method offers better conviction: top-down or bottom-up?

Mahesh Gowande: Bottom-up.

Aravind Ravindran: Super, sir. Thank you so much for gracing our show. We absolutely enjoyed it.

Mahesh Gowande: Thank you so much. Thank you, PMS Bazar, once again.