4% of Stocks. 100% of Wealth | Gautam Baid on the Brutal Math of Compounding
What this covers
In this wide-ranging conversation, Gautam Baid joins Excess Returns to discuss the principles that shaped his investing philosophy, the lessons learned through bear markets, and why compounding, patience, and quality matter far more than forecasts or short-term performance. Drawing from his books The Joys of Compounding and The Making of a Value Investor, Baid shares a deeply reflective framework for long-term investing, portfolio construction, behavioral discipline, and global diversification, with insights spanning Indian and US markets, liquidity cycles, AI, and investor psychology.
Main topics covered • The asymmetric power of compounding and why being wrong half the time can still lead to exceptional long-term returns • Why patience, temperament, and behavior matter more than analytical precision in investing • The role of journaling in improving decision-making and avoiding repeated behavioral mistakes • How investor sentiment reveals itself through IPO markets and portfolio quality late in bull cycles • Why long-term investing requires continuous monitoring rather than buy-and-forget complacency • Letting winners run, cutting losers, and understanding power-law outcomes in stock markets • Liquidity cycles and how they drive market returns in both India and the United States • How bear markets reshape investing philosophy toward resilience, quality, and diversification • When averaging down makes sense and when it is dangerous • The differences between Indian and US equity markets, valuations, and governance • Why home country bias can be a major risk for US-based investors • AI, productivity, profitability, and where future market winners may emerge beyond mega-cap tech • Why passion for investing matters more than money in sustaining long-term success
Timestamps 00:00 Introduction and the asymmetric nature of compounding 01:00 Gautam Baid’s investing background and books 03:00 The importance of journaling and learning through bear markets 06:00 Investor sentiment, IPOs, and late-cycle market behavior 10:20 Long-term investing versus complacency and monitoring risk 14:15 Convex upside, concave downside, and letting winners run 18:30 Liquidity cycles and lessons from Stan Druckenmiller 22:45 Identifying market bottoms and the anatomy of bull and bear markets 28:00 Averaging down, quality, and risk management 30:30 How bear markets change investor psychology and strategy 33:00 Patience, management quality, and long-term optionality 36:15 Mr. Market, price signals, and market intelligence 39:00 The Federal Reserve, inflation, and asset price dynamics 44:00 Understanding the Indian equity market and valuation structure 46:45 Why global diversification matters for US investors 50:30 AI, margins, and the future of value investing 53:00 Passion, purpose, and the psychology of long-term investing 54:30 The single most note investors should learn
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Gotham Bhatnagar argues that long-term investing success requires combining patient capital with active monitoring, quality stock selection, and behavioral discipline—particularly during market cycles—and that understanding the asymmetry of compounding enables investors to be wrong half the time and still achieve exceptional returns.
- Compounding is convex on the upside and concave on the downside, creating positive asymmetry that rewards patience with big winners over many losers
- Market cycles are driven by liquidity flows, sentiment extremes, and valuation cycles—not just fundamentals—requiring active re-evaluation of investment theses
- Quality businesses in structural growth industries with capable management create embedded optionality and positive surprises that cannot be modeled upfront, justifying long holding periods
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No matter how well you have prepared and calculated odds, risk surfaces from places you cannot imagine; even if careful crossing a road, a drone might kill you from above; the only defense against an unknown future is prudent diversification across 20-25 stocks across industries and risk factors.
“no matter how well you have prepared and calculated your odds, risk surfaces from places which you cannot imagine. Even if you are very careful in crossing the road by looking left or right, a drone might still kill you from above. Things can go wrong in ways you cannot even think of. And your only defense against an unknown future is prudent diversification. a portfolio of 20 to 25 stocks diversified across industries and risk factors.”
Compounding is convex on the upside and concave on the downside, meaning it increases at an increasing rate on the upside and decreases at a decreasing rate on the downside, creating a positive asymmetry that enables an investor to be wrong half the time and still make spectacular returns over the long run.
“Compounding is convex on the upside and concave on the downside. The true power of compounding lies in this positive asymmetry. The true power of compounding lies in its power to which enables you to be wrong half the time as an investor and still end up making spectacular returns over the long run.”
Behavioral aspects of investing are far more important than analytical aspects; investors should continuously educate themselves on behavioral biases and the importance of patience through reading Charlie Munger and other great thinkers.
“So patience I would say which basically ties in with behavior and temperament. I think you know the behavioral aspects of investing are far more important than the analytical aspects of investing in my view and that's why you should continuously educate yourself on the various behavioral biases and the importance of patience by reading PE know people like Charlie Mer and all the other great thinkers of history”
Compounding is convex on the upside and concave on the downside, which creates positive asymmetry enabling an investor to be wrong half the time as an investor and still end up making spectacular returns over the long run.
“Compounding is convex on the upside and concave on the downside. The true power of compounding lies in this positive asymmetry. The true power of compounding lies in its power to which enables you to be wrong half the time as an investor and still end up making spectacular returns over the long run.”
A US investor who stayed invested in Amazon from $6 (post-internet bubble crash) would have made extraordinary returns, but interviews showed that most who were bullish at $6 sold after doubling, illustrating the difficulty of maintaining conviction in quality stocks through volatility.
“I was talking to somebody who decided to talk to everyone that was bullish on Amazon before the internet bubble burst or right after around that time and there were interviews very few people were still excited about it when the stock went from 106 to $6 or something like that. So he looked them up and he thought, "Wow, they must be really rich by now because we bought the stock at six and just held it until today." I mean, do the math. Unbelievable. And he called them up and you know what he learned that that after doubling money from the $6 to 12 or whatever it was, they all sold.”
Risk surfaces from places you cannot imagine; even if you carefully look left and right before crossing the road, a drone might still kill you from above, and your only defense against unknown future is prudent diversification of 20-25 stocks across industries and risk factors.
“no matter how well you have prepared and calculated your odds, risk surfaces from places which you cannot imagine. Even if you are very careful in crossing the road by looking left or right, a drone might still kill you from above. Things can go wrong in ways you cannot even think of. And your only defense against an unknown future is prudent diversification. a portfolio of 20 to 25 stocks diversified across industries and risk factors.”
Maintaining a diversified portfolio of 20-25 stocks across industries and risk factors allows investors to participate in various tailwinds while resisting FOMO, helps maintain patience when quality stocks underperform, and protects against FOMO-driven decision to sell quality and chase speculative names.
“by having a diversified portfolio basically you are able to participate in a variety of tailwinds while resisting FOMO fear of missing out. Many times what happens buming bull market especially is because your high quality stocks you know they tend to underperform and the more speculative names start outperforming. We are very tempted to you know sell our family silver and go down the quality curve to chase quicker returns. But by having a diversified portfolio, what happens is while your quality stocks are taking rest, some of the other factors which you're exposed to in your portfolio, they start outperforming.”
The biggest learnings of investing come from bare (bear) markets, particularly for passionate, eager learners who document their learnings and mistakes in a bare market.
“The biggest learnings of investing always come from a bare market. As a investor you evolve and develop the most if you're a really passionate eager learner and you are able to document your learnings and mistakes in a bare market.”
Long-term investment horizons must be married with an investment process willing to continually question the core investment thesis rather than becoming complacent when prices rise, requiring active patience that involves diligent verification of the thesis until something materially adverse emerges.
“it pays to have a long-term view, but a long-term investment horizon must be married with an investment process that is willing to continually question the core investment thesis. Investors should exercise active patience that is diligently verifying their original investment thesis and doing nothing until something materally adverse or negative emerges.”
Even with excellent investing skill, if a midcap/small cap focused investor's market liquidity cycle is not favorable, the investor will struggle to make returns despite best efforts, requiring patience to wait out the unfavorable liquidity cycle.
“however good an investor you may be but if the but if you're a midcap small cap focused investor and if the market cycle that is liquidity is not in your side even after your best efforts you will struggle to make returns you know you have to be just patient and wait out that difficult period and wait for the market cycle that is liquidity cycle to turn back in your favor.”
Different stocks require varying degrees of patience: be extremely patient with able management teams in structural growth industries (especially in midcap/small cap with large opportunity and sectoral leadership) because such managers spring positive surprises through pivoting into adjacencies and expanding terminal value in ways difficult to model in spreadsheets.
“uh m that different stocks require varying degrees of patience. So be very patient with able management teams operating in structural growth industries because such management usually find ways to pivot into adjacencies and uh you know if you are able to find such stocks in the midcap or small cap space with a large size of opportunity and with sectoral leadership then be the then be the most patient with such investments because there are certain embedded optionalities in a business which the markets cannot price up front”
The biggest advantage of investing in quality is that it enables you to view market corrections as buying opportunities rather than being dependent on market recovery and kindness of strangers, providing emotional and financial resilience during downturns.
“The biggest advantage of investing only in quality is that it empowers you or enables you to view market corrections as buying opportunities. Because if you the moment you're out of quality in every market decline, you'll start you know wondering you know if if my stocks will ever recover back then you're dependent on the markets you know depending on the core variable that is earnest growth to bail you out in the long run. You're basically depending on the kindness of strangers to bail you out.”
A diversified portfolio of 20 to 25 stocks across industries and risk factors enables investors to maintain patience during bull markets when quality stocks underperform, as other portfolio factors generate returns while quality stocks take rest.
“by having a diversified portfolio, what happens is while your quality stocks are taking rest, some of the other factors which you're exposed to in your portfolio, they start outperforming. So this helps you maintain patience and remain disciplined in bull markets.”
No matter how good an investor you may be, if you are a midcap-smallcap focused investor and the liquidity cycle is not in your favor, you will struggle to make returns and must patient wait for the liquidity cycle to turn back in your favor.
“however good an investor you may be but if the but if you're a midcap small cap focused investor and if the market cycle that is liquidity is not in your side even after your best efforts you will struggle to make returns you know you have to be just patient and wait out that difficult period and wait for the market cycle that is liquidity cycle to turn back in your favor.”
You get a sharp bear market only when interest rates are raised very fast and furiously; when raised in slow and steady fashion in orderly fashion, you do not get a sharp bear market.
“even if interest rates go up in a slow and steady fashion in in an orderly fashion you will not get a sharp bare market. You get a sharp bare market only when interest rates are are basically taken up in a very very fast and furious pace. For example, in from late 2021 to late 2022, the Federal Reserve basically went from 0% interest rate to 5.25% interest rate in just 1 year. So because of the sharp pace of interest rate increase, that's why you saw the Dow and S&P fall 35% and the NASDAQ called 40%.”
The US government cannot allow the stock market to fall because a large part of US tax receipts are now driven by capital gains, and given the fiscal deficit situation, the government is compelled to keep the stock market high to maintain capital gains tax revenue to fund the deficits.
“See a large part of the US tax government tax receipts are now driven by capital gains and given the fiscal deficit situation in the US the US government cannot allow the stock market to fall. The they're compelled to keep the stock market high so that the capital gain taxes can keep flowing in to fund the deficits. So it's a very precarious situation I would say as far as the US markets are concerned.”
Higher productivity from AI does not automatically mean higher profitability; new business models may have margins different from those previously seen, requiring careful analysis of whether productivity gains translate to margin expansion.
“He talked about productivity and profitability when it comes to AI. and he made a point that stayed with me and I I can't get it out of my head that sometimes higher productivity doesn't mean higher profitability. And I think that's something that we have to ponder because we're so fascinated with what AI can do to us for us and maybe to us too on the productivity side. But does it mean that the new business models will have the margins we've seen before?”
Many investors become complacent in bull markets and stop analyzing holdings when stock prices are rising, only resuming detailed analysis when prices fall, but this is a critical error because rising prices do not indicate the absence of deteriorating fundamentals.
“Investors become complacent in bull markets and stop analyzing their holdings when the stock prices is going up. They resume analyzing in detail only when the stock prices start falling. But you should not do that. Don't analyze your stock holdings only when the prices fall. Just because the price of your existing holdings is going up. It doesn't mean that there's nothing wrong taking place with the existing business.”
You should not average down on levered business models like banks, operationally levered business models like commodities, businesses facing technological obsolescence, or levered businesses involving fraud.
“There are four conditions or four situations where you should not average down on declining prices. Number one, you should not average down on levered business models like banks. Number two, you should not leverage you should not average down on operationally levered business models like commodities. Number three, you should not average down on businesses facing technological or technical obsolescence. And number four, you absolutely must not average down in lever businesses involving fraud.”
Steve Jobs innovated the iPhone, iPad, and iPod, with each new product launching surprises that created exponential value over time—analogous to how great managers continuously spring positive surprises through product and business innovation.
“Similarly Steve Jobs in Apple innovation of the iPhone followed by the iPad before that we had the iPod. So you know multiple they keep posit springing these positive surprises like a magician draws a rabbit out of hack.”
In the subsequent bear market following a bull cycle, both quality and junk stocks fall, but quality eventually bounces back during recovery while junk stocks lie dormant for many years until the next bull run.
“In the subsequent bare market that follows, both quality and junk stocks fall. Quality eventually bounces back in the final recovery whereas junk stocks lie low for many many years until the next bull run takes over.”
Patience is the biggest equalizer of cycles in financial markets; if you can just be patient, buy good stocks, and do nothing over time, you cannot help but become rich and very wealthy because the incentives in capitalism are designed to make you rich over time, but only if you're patient.
“Well, it's very difficult to teach it because you're either born with this gene or not. But if you can just develop patience because that is the biggest equalizer of cycles and financial markets. If you can just be patient, buy good stocks, be patient and do nothing that you know over time you cannot help but become rich and very well wealthy because the incentives in the capitalist society and capitalism system is so so powerful. It's designed to make you rich over time but only if you're patient.”
Different demand and supply dynamics in India mean that comparing valuations of Indian markets with the US and Western markets is not appropriate.
“there are different demand supply dynamics at play and that is why comparing the valuations of the Indian markets with that of the US and the western world is not exactly appropriate.”
Investing success over a long time period is very challenging, and it is essential to have great enthusiasm for the intellectual process of investing to sustain in the field, because without passion for investing to carry you during periodic phases of pain and suffering in bear markets, it is unlikely you will survive in the field long-term.
“Investing success is very challenging over a long time period. You know even though a bull market or two in between may fool us into thinking otherwise. And it is essential to have great enthusiasm for the intellectual process of investing in order to sustain in this field for a long time because without the inner strength of our passion for investing to carry us during the periodic phases of pain and suffering in bare markets, it is unlikely that we will we will be able to survive in this field for long.”
Investor memory is fallible and tends to rewrite events in hindsight; without written documentation at the time events occur, investors cannot accurately recall what they knew at the moment, losing valuable learning about the difference between obvious (in hindsight) and uncertain (at the time).
“our memory is finicky and we kind of rewrite things in our head. I definitely do. So if I don't write it down as it's happening, when it's happening, two years down the road, some things seem obvious that I didn't know at the time. So keeping a journal, it's very humbling to go back and say, I really had no idea what's next, how this is going to play out, and you can learn a lot from it.”
You must hang on for dear life to your big winners in the portfolio because they are the ones which will drive the bulk of returns, and once you find the goose that lays the golden eggs, you cannot kill the goose.
“So once you found the goose that lays the golden eggs, do not kill the goose. You have to hang on for dear life to your big winners because they are the ones which will drive the bulk of the returns in your portfolio.”
You cannot know the exact bottom of a market in real-time; fear and pessimism are at absolute peak near the depths of a bear market, making precise timing impossible despite knowing the pattern in hindsight.
“However, you will get to know the exact bottom only in hindsight. I remember in uh by middle of March 2020 when the Federal Reserve had already announced big liquidity injections still the markets was collapsing non-stop till 23rd March 2020 that was the exact bottom in hindsight but you know fear is and pessimism is at is at is at its absolute peak near the depths of a bare market.”
The most important thing to teach average investors is that patience is the biggest equalizer of cycles and financial markets; if investors can buy good stocks and do nothing, over time they cannot help but become rich because capitalism is designed to make you rich if you're patient.
“If there's one thing you could teach the average investor...Well, it's very difficult to teach it because you're either born with this gene or not. But if you can just develop patience because that is the biggest equalizer of cycles and financial markets. If you can just be patient, buy good stocks, be patient and do nothing that you know over time you cannot help but become rich and very well wealthy because the incentives in the capitalist society and capitalism system is so so powerful. It's designed to make you rich over time but only if you're patient.”
Do not just buy and forget; you must buy and monitor because things are changing very rapidly and if the terminal value of a business gets disrupted, the price rating can be very sharp and stiff.
“do not just buy and forget. You have to buy and monitor because things are changing very very rapidly and if the terminal value of your business gets disrupted then the PED rating can be very sharp and stiff.”
Because domestic mutual funds receive constant monthly inflows from retail investors, they are forced to continuously buy into the same limited set of 150-200 largest quality stocks, which is why valuations of these high-quality Indian stocks never go down—the best investors can hope for is to buy them less expensive during bare markets or sharp selloffs.
“the domestic mutual funds with the constant monthly inflows coming from retail investors they are forced to buy into the same same set of 150 to 200 largest stocks in the market and which are the best quality stocks. That's why the valuations of these high quality stocks in India just do not go down. You will never get them cheap. The best you can expect or hope for is to buy them less expensive in a bare market or a sharp market selloff.”
The US government cannot allow the stock market to fall significantly because a large part of US tax receipts are now driven by capital gains, and given the fiscal deficit situation in the US, the government is compelled to keep the stock market high so that capital gains taxes can continue flowing in to fund deficits, creating a precarious situation.
“See a large part of the US tax government tax receipts are now driven by capital gains and given the fiscal deficit situation in the US the US government cannot allow the stock market to fall. The they're compelled to keep the stock market high so that the capital gain taxes can keep flowing in to fund the deficits. So it's a very precarious situation I would say as far as the US markets are concerned.”
It is only after going through the pain of a couple of such market cycles that an investor can finally develop the discipline to avoid going down the quality ladder to chase quicker returns in bull markets.
“And it is only after going through the pain of a couple of such market cycles that an investor can finally develop the discipline to avoid going down the quality ladder to chase quicker returns in bull markets.”
You can safely average down on structural growth businesses and high-quality businesses during declines because the underlying value supports recovery, whereas with non-quality businesses, lower prices may indicate fundamentally higher risk rather than safety.
“You can buy structural growth businesses or highquality businesses on dips. And this again brings to the forefront of investing in quality. The biggest advantage of investing only in quality is that it empowers you or enables you to view market corrections as buying opportunities.”
Investment journals are highly valuable because they document investment decisions, subsequent developments, and investor behavior patterns during market cycles, enabling investors to recognize and correct their recurring biases rather than repeating mistakes in future bull markets.
“I spent $10 on buying a journal in late 2014 and I consider that to be one of the best value investments I've ever made ever since that time I've been keeping track of my investing decisions and my the subsequent developments in an investment journal”
You must buy and monitor your stock holdings continuously because terminal value can be disrupted rapidly, and when that happens, the price adjustment can be very sharp and severe, making detection of deterioration critical to risk management.
“do not just buy and forget. You have to buy and monitor because things are changing very very rapidly and if the terminal value of your business gets disrupted then the PED rating can be very sharp and stiff.”
You cannot know the exact bottom of a bear market in real-time; you can only understand it in hindsight, though you can identify the beginning of a new bull market by observing several consecutive weeks or months of significantly positive advance-decline ratios suggesting broad market breadth recovery.
“However, you will get to know the exact bottom only in hindsight. I remember in uh by middle of March 2020 when the Federal Reserve had already announced big liquidity injections still the markets was collapsing non-stop till 23rd March 2020 that was the exact bottom in hindsight but you know fear is and pessimism is at is at is at its absolute peak near the depths of a bare market.”
The biggest learnings in investing come from bare markets, and investors evolve most during severe downturns when they are able to document their learnings and mistakes, particularly in specialized market segments like midcap and small cap stocks.
“The biggest learnings of investing always come from a bare market. As a investor you evolve and develop the most if you're a really passionate eager learner and you are able to document your learnings and mistakes in a bare market.”
In the US market from 1926 to 2016, only 4% of listed stocks accounted for 100% of wealth creation; in India between 1990 and 2020, only 1% of listed equities accounted for 100% of wealth creation, demonstrating the power law distribution of returns.
“In the US market, for instance, from 1926 to 2016, only 4% of the listed stocks accounted for 100% of the wealth creation. In India, the difference is even more stark. Between 1990 and 2020, in 30 years, only 1% of listed equities accounted for 100% of the wealth creation.”
There are multiple valid investing styles (momentum, deep value, growth at reasonable price, special situations) and the right approach for any investor is one they can stick with consistently for a long period of time, not the absolute best theoretical approach.
“there are multiple roads to heaven in the stock market but often I keep hearing different investors you know just talking over each other because people have got different investing styles some focus on momentum some focus on deep value some focus on growth at a reasonable price some focus only on special situations there's no one right way to investing the right way for investing is one which you can stick with for a long period of time.”
You should not average down in declining prices for four types of businesses: (1) levered business models like banks, (2) operationally levered models like commodities, (3) businesses facing technological or technical obsolescence, and (4) levered businesses involving fraud.
“there are four conditions or four situations where you should not average down on declining prices. Number one, you should not average down on levered business models like banks. Number two, you should not leverage you should not average down on operationally levered business models like commodities. Number three, you should not average down on businesses facing technological or technical obsolescence. And number four, you absolutely must not average down in lever businesses involving fraud.”
Investors should maintain calm and discipline through market cycles, avoiding extreme reactions at peaks of pessimism or euphoria, because the collective wisdom of the market correctly prices information over time even if individual investors cannot perceive it in real-time.
“The key here is not to do big mistakes at the extremes at the extreme bouts of pessimism or at the extreme bouts of euphoria that is when you have to maintain your humanity and calm and not uh fall prey to the common biases of greed and fear. And I think if you can do that, it sounds very simple but it's not easy.”
The market is an extremely smart discounting machine that prices in forward-looking information correctly even when current earnings do not support it, as evidenced by the market's recognition of AI's revolutionary power in November 2022 when ChatGPT was introduced despite murky earnings outlook for mega-cap tech companies.
“we realize only in hindsight that the market was an extremely smart discounting machine. For instance, from uh early 2022 to late 2022, we had a severe bare market in the NASDAQ. The NASDAQ fell 40%. You had Apple, Google, Meta, Amazon, all the stock prices crashed significantly. And in November 2022 when CAD GBT was introduced for the first time, you would have noticed a pattern that suddenly these large cap tech names their stock falling, started forming a bottom and they started and their you know stock prices started started going up again. So even though the earnings outlook at that particular point of time in November 2022 was very murky and and very poor for these large cap tech companies and only in the hindsight we got to realize that the market was an extremely smart discounting machine”
Behavioral aspects of investing are far more important than analytical aspects of investing, making continuous education on behavioral biases and development of patience through reading great thinkers like Charlie Munger essential to investment success.
“the behavioral aspects of investing are far more important than the analytical aspects of investing in my view and that's why you should continuously educate yourself on the various behavioral biases and the importance of patience by reading PE know people like Charlie Mer and all the other great thinkers of history”
If a group of stocks from a single industry rapidly goes up together for successive days amid overly negative sentiment for the sector, it is a strong signal that the industry's fortunes are turning around and should be studied further—a reliable way to identify sectoral inflection points.
“if a group of stocks from a single industry are all rapidly going up together for a few successive days in a row, then there that is a strong signal that the industry's fortunes may be turning around and should be studied further. So this scenario is even more significant if it takes place amid overly negative sentiment for the sector in question. And this is one of the best ways to identify inflection points in a sectoral trend.”
Fundaments do not determine stock price at a given point in time; demand and supply does, and that is driven by prevailing investor sentiment.
“fundamentals do do not decide or determine the stock price at a given point of time. Demand and supply does and that in turn is driven by the prevailing investor sentiment.”
Jeff Bezos and Amazon exemplify how capable management cannot be modeled ex-ante; no analyst in 2000 could have imagined AWS, and Steve Jobs similarly generated unmodeled value through iPhone, iPad, and iPod innovations.
“You know, uh businesses led by dynamic managements t to keep springing positive surprises as they keep pivoting into adjacencies and they keep expanding the terminal value something which is quite difficult to model in an expense spreadsheet. So the over time you realize the importance of management is paramount as an investing. You know the management creates so much unexpected value over time for you when you invest in a high quality business which is operating in an industry with tailwinds and led by a very capable smart managements. You know just look at what Jeff Bezos has done. You know he was no analyst in 2000 could ever imagine or model uh the emergence or discovery of AWS right this is a great example. So basically you had Jeff Presos at the helm and he was he was able to innovate a new segment altogether. Similarly Steve Jobs in Apple innovation of the iPhone followed by the iPad before that we had the iPod.”
Valuable feedback comes from revisiting the journal, which helps correct biases; Charlie Munger has taught that it is a moral duty to be as rational as possible and minimize mistakes rather than repeating old ones.
“I receive a lot of valuable feedback from revisit revisiting the journal from time to time and I use that insight to correct my biases as Charlie Mer has taught all of us. It's a moral duty for all of us to be as rational as possible. None of us can be 100% 100% rational but we can always try to minimize our previous mis minimize our mistakes and avoid repeating old mistakes.”
Bhatnagar evolved from being a highly concentrated investor focused on statistically cheap securities to one focused on quality and prudent diversification, prioritizing return of capital before return on capital, with a focus on capital preservation taking precedence.
“But the bare market from January 2018 to March 2020, that particular bare market ingrained in my mind the significance of resilience and longevity which is the key to compounding. And by the time the bare market ended, I'd evolved from being a highly concentrated investor who is to focus on statistically cheap securities to one focused on quality and prudent diversification. And the bare market brought about a profound shift in my thought process as an investor. Henceforth, I would focus on return of capital before return on capital. Quality and a focus of capital preservation would take precedence for me.”
In the US market from 1926 to 2016, only 4% of listed stocks accounted for 100% of wealth creation, while in India between 1990 and 2020, only 1% of listed equities accounted for 100% of wealth creation.
“In the US market, for instance, from 1926 to 2016, only 4% of the listed stocks accounted for 100% of the wealth creation. In India, the difference is even more stark. Between 1990 and 2020, in 30 years, only 1% of listed equities accounted for 100% of the wealth creation.”
Over time, you should respect the collective wisdom of the market by maintaining humanity and calm at extreme bouts of pessimism or euphoria, avoiding the common biases of greed and fear.
“you know that's why over time you start respecting the collective wisdom of the market. The key here is not to do big mistakes at the extremes at the extreme bouts of pessimism or at the extreme bouts of euphoria that is when you have to maintain your humanity and calm and not uh fall prey to the common biases of greed and fear. And I think if you can do that, it sounds very simple but it's not easy.”
IPO market quality progression is a reliable indicator of market cycle stage: Stage 1 has good companies at cheap valuations, Stage 2 has good companies at expensive valuations, Stage 3 has bad companies at ludicrous valuations heavily oversubscribed by retail investors, signaling late cycle dynamics.
“So during stage one, good companies come out with IPOs at cheap valuations. In stage two, good companies come out with IPOs at expensive valuations. And in stage three of the IPO market that is when you have uh bad companies coming out with IPOs at ludicrous valuations which are heavily overs subscribed by retail investors”
Stock market behavior depends on the pace of change in earnings growth or interest rates, not the absolute values, because markets are concerned with shock and surprise.
“It's all all about the pace of change. The stock markets are always concerned with the pace of change, be it earnings growth or be it interest rates.”
China is entering the AI space aggressively but with a different approach than the US—decentralized, focused on efficiencies and integration into daily life rather than centralized compute-heavy models—and when China enters any industry globally, margins of that industry start collapsing sharply, so if China disrupts US AI economics, the 73% of US market cap gains tied to AI could face severe margin compression.
“and history tells me that whenever China enters any industry in the world the margins of that industry start collapsing very sharply and now China is entering into a big way be albeit decentralized in US it's more of centralized AI and more of a focus on compute power raw computing power in China it's more on getting lot of efficiencies and decentralizing AI and integrating it into the life life of daily you know Chinese citizens in living that country.”
Many investors that were bullish on Amazon before and after the internet bubble burst remained bullish and held through the decline from $106 to $6 per share, and when they sold at $12, they left enormous future returns on the table despite doubling their money.
“I was talking to somebody who decided to talk to everyone that was bullish on Amazon before the internet bubble burst or right after around that time and there were interviews very few people were still excited about it when the stock went from 106 to $6 or something like that. So he looked them up and you know what he learned that that after doubling money from the $6 to 12 or whatever it was, they all sold.”
If you were in the market in March 2020, by mid-March the Federal Reserve had already announced big liquidity injections but markets were collapsing non-stop until March 23, 2020, which was the exact bottom in hindsight, illustrating that certainty is impossible even with policy support.
“I remember in uh by middle of March 2020 when the Federal Reserve had already announced big liquidity injections still the markets was collapsing non-stop till 23rd March 2020 that was the exact bottom in hindsight”
India is fundamentally a socialist country even today because more than half of the population still lives below the poverty line, and as a result the government has an indifferent approach towards the stock market and is not pro-stock-market like the US administration; the Indian government does not proactively act to stop steep stock market declines but only intervenes when there is a crisis in the real economy.
“are fundamentally different fundamentally different countries. So America is a capitalist country India is a socialist country even today because more than half of the population in India still lives below the poverty line. So the D government honestly has a pretty you know u I would say indifferent approach towards the stock market. They are not really pro stock market like the US administration is. So you know in in India you don't have policy makers acting until there is a crisis of big proportions.”
The three ingredients for a new bull market to begin are: low valuations on depressed corporate earnings with strong recovery capacity, and loosening liquidity from tight levels.
“there are three ingredients for a new bull market to start. There has to be low valuations on depressed corporate earnings with strong capacity to recover and grow and lossening liquidity from tight levels.”
After the 2018-2020 bare market, Bhatnagar shifted his investing principle to prioritize return of capital before return on capital, with quality and capital preservation taking precedence, a practice he has maintained since launching his fund in 2022.
“I would focus on return of capital before return on capital. Quality and a focus of capital preservation would take precedence for me. Henceforth, I also learned a very big lesson for the rest of my investing career”
The Indian market has the lowest government free float (publicly available float) among global stock markets, with very high insider ownership, resulting in low supply of quality equities available for purchase and quality with growth available only at expensive valuations.
“a government free float or publicly available float uh in the Indian market is possibly the lowest among global stock markets. There is no other stock market in the world which has got such high levels of insider ownership and as a result there is a low supply of quality equities available for purchase in the Indian market and consequently quality with growth is available only at an expensive valuation in the Indian market.”
Corporate earnings growth is a function of nominal GDP growth (real GDP growth plus inflation), so as long as nominal GDP growth is very high, stock markets should do well, demonstrating that the combination of inflation and growth is supportive for equity returns.
“I basically see corporate earnings growth in any stock market of the world Matt is a function of nominal G it's a function of nominal GDP growth nominal GDP growth is real GDP growth plus inflation. So you know as long as you have got a very high nominal GDP growth rate in any part part of the world I think stock market you know stock market should continue to do to do well”
Even if interest rates rise slowly and steadily in an orderly fashion, you will not get a sharp bear market; you get sharp bear markets only when interest rates are raised very quickly and furiously—for example, the Fed going from 0% to 5.25% in just one year (late 2021 to late 2022) caused Dow to fall 35% and NASDAQ to fall 40%.
“even if interest rates go up in a slow and steady fashion in in an orderly fashion you will not get a sharp bare market. You get a sharp bare market only when interest rates are are basically taken up in a very very fast and furious pace. For example, in from late 2021 to late 2022, the Federal Reserve basically went from 0% interest rate to 5.25% interest rate in just 1 year. So because of the sharp pace of interest rate increase, that's why you saw the Dow and S&P fall 35% and the NASDAQ called 40%.”
For Stanley Druckenmiller, the single most important metric he tracks in the market is liquidity, as he positions himself on the right side of the market cycle.
“For Stanley Draen Miller the single most important metric that he tracks in the market is liquidity. For him it's all about liquidity liquidity liquidity. So you know he basically positions himself on the right side of the market cycle.”
Unprecedented levels of margin funding in primary and secondary markets are a predominant characteristic of the final blowout phase of a bull market, currently observable in US markets as a warning sign.
“very high levels of margin funding in the primary and secondary markets is a predominant characteristic of the final blowout phase of a bull market. So in the US markets also right now if you observe carefully you'll see huge levels of know unprecedented levels of margin funding taking place in the stock market which means that there is speculation flying all around.”
The US represents only 4% of world population and 26% of global GDP but comprises 71% of global market cap, a structural imbalance that is not sustainable, creating significant valuation concentration risk for investors overweight US equities.
“the US for instance is 4% of the world's population today, 26% of the global GDP, but today it is 71% of the global market cap, which means that seven out of every $10 allocated globally come into the US stock market. And this in my view is not simp simply not sustainable. The market cap to GDP ratio is simply out of whack.”
Indian market liquidity is driven by two sources: Foreign Institutional Investor (FII) flows and Domestic Institutional Investor (DII) flows, with DII including pension funds, insurance companies, and domestic equity mutual funds, and as of April 2020, retail individual investors have become the dominant liquidity driver rather than foreign investors.
“in the Indian market liquidity is driven by two kinds of flows. One is the global investor flows or what what we call FII foreign institutional investor flows. Second is DII domestic institutional investor flows. Domestic institutional investors refers to pension funds, insurance companies, domestic equity mutual funds.”
Monthly domestic equity mutual fund investments in India have grown from $500 million in April 2020 to $2.5 billion as of November 2025, a 5x increase in 5.5 years, driven by improving literacy, digitization, smartphone prevalence, and awareness about equity investing.
“the monthly investments in domestic equity mutual funds has grown from half a billion dollars in April 2020 to $2.5 billion as of November 2025. So a 5x jump in monthly investment in domestic mutual funds by the retail investors in 5 and a half years”
As of end of November 2025, 73% of market cap addition in the US over a three-year basis has come only from AI stocks, meaning betting on the US market today is essentially a single bet on AI, creating dangerous single-factor concentration risk.
“70 as of end of November 2025 on a trading three year three-year basis 73% of the market cap addition in the US has been only from AI stocks so betting on America today and on the American stock market today is essentially a single bet on AI”
Very high levels of margin funding in primary and secondary markets is a predominant characteristic of the final blowout phase of a bull market, and current US market margins are at unprecedented levels indicating significant speculation.
“very high levels of margin funding in the primary and secondary markets is a predominant characteristic of the final blowout phase of a bull market. So in the US markets also right now if you observe carefully you'll see huge levels of know unprecedented levels of margin funding taking place in the stock market which means that there is speculation flying all around.”
Home country bias causes investors to miss global diversification opportunities and higher growth foreign markets, and the US market cap to GDP ratio is out of whack at 71% of global market cap despite being only 4% of world population and 26% of global GDP.
“Home country bias refers to to refers to the tendency to favor investments from one's own country ignoring global diversification and as a result you end up with an allocation solely in domestic stocks and bonds and what is the impact on your investing. As a as a result, you basically miss out on higher growth foreign markets and participating in global equity profit pools. You also end up with significant concentration risk because the US for instance is 4% of the world's population today, 26% of the global GDP, but today it is 71% of the global market cap, which means that seven out of every $10 allocated globally come into the US stock market.”
Once AI gets integrated into the application layer (S&P 493 excluding Mag 7), you will suddenly see sharp margin improvement in actual AI users, leading to emergence of many new winners and a phase where Mag 7 underperforms as value outperforms growth.
“Once AI gets integrated into the application layer you will suddenly start seeing a sharp margin improvement in the actual users of the AI. That's the the S&P 493. That is when you know you you know a lot of new winners will start emerging and you may have a phase when the max events underperform and value finally comes back in favor”
From early 2022 to late 2022, large-cap tech (Apple, Google, Meta, Amazon) crashed, but when ChatGPT was introduced in November 2022, these stocks formed a bottom and went up despite murky earnings outlook, revealing the market as an extremely smart discounting machine that understood AI as revolutionary.
“from uh early 2022 to late 2022, we had a severe bare market in the NASDAQ. The NASDAQ fell 40%. You had Apple, Google, Meta, Amazon, all the stock prices crashed significantly. And in November 2022 when CAD GBT was introduced for the first time, you would have noticed a pattern that suddenly these large cap tech names their stock falling, started forming a bottom and they started and their you know stock prices started started going up again. So even though the earnings outlook at that particular point of time in November 2022 was very murky and and very poor for these large cap tech companies and only in the hindsight we got to realize that the market was an extremely smart discounting machine and it got and the market as a and its collective wisdom understood the power of AI as a revolutionary technology”
Monthly domestic equity mutual fund investments in India have grown from $0.5 billion in April 2020 to $2.5 billion as of November 2025, a 5x jump in 5.5 years reflecting financialization of savings.
“the monthly investments in domestic equity mutual funds has grown from half a billion dollars in April 2020 to $2.5 billion as of November 2025. So a 5x jump in monthly investment in domestic mutual funds by the retail investors in 5 and a half years”
Most value is currently being captured by upstream hardware players and media in the AI value chain, but in the long run real margin improvements will occur in the S&P 493 (non-Mag 7) when AI gets integrated into the application layer.
“I think my personal view that you know right now it's most of the value is being captured by the upstream guys more on the hardware side and media is basically know getting most capturing most of the economics in the AI value chain today but the I think in the long run this is the short run but in the long run the real margin improvements will take place in the S&P you know non-MAX7 you know in the 493 stocks outside the max 7 because once AI gets integrated into the application layer you will suddenly start seeing a sharp margin improvement in the actual users of the AI.”
Home country bias causes investors to favor domestic stocks while ignoring global diversification, resulting in missing higher growth foreign markets and participating in global profit pools while taking on excessive concentration risk.
“Home country bias refers to to refers to the tendency to favor investments from one's own country ignoring global diversification and as a result you end up with an allocation solely in domestic stocks and bonds and what is the impact on your investing. As a as a result, you basically miss out on higher growth foreign markets and participating in global equity profit pools.”
Stock prices at any given time are determined by demand and supply, which is driven by prevailing investor sentiment, not by fundamentals alone, making sentiment measurement essential to understanding price movements.
“fundamentals do do not decide or determine the stock price at a given point of time. Demand and supply does and that in turn is driven by the prevailing investor sentiment.”
Jeff Bezos and Amazon exemplify the power of capable entrepreneurship: no analyst in 2000 could model the emergence of AWS, but Bezos' ability to innovate new segments and pivot from e-commerce to cloud infrastructure created unexpected value that investors who held through uncertainty captured.
“You know the management creates so much unexpected value over time for you when you invest in a high quality business which is operating in an industry with tailwinds and led by a very capable smart managements. You know just look at what Jeff Bezos has done. You know he was no analyst in 2000 could ever imagine or model uh the emergence or discovery of AWS right this is a great example. So basically you had Jeff Presos at the helm and he was he was able to innovate a new segment altogether.”
During sectoral bear markets in the US (NASDAQ fell 80% from March 2000 to end of 2002; fell 20% in December 2018; fell 40% in 2022), the Indian market significantly outperformed, demonstrating the diversification benefit of geographic allocation.
“the NASDAQ if I talk about the NASDAQ in particular from March 2000 from March 2000 to end of 2002 the NASDAQ fell 80%. In December 2018 in just one single month the Nasdaq fell 20%. In 2022 the NASDAQ fell 40%. So during all these periods the Indian market significantly outperformed the NASDAQ.”
From 2022 when the S&P fell 35% and NASDAQ fell 40%, the Indian market (Nifty and Sensex) went up 2%, demonstrating how global diversification provides protection from sectoral bear markets.
“For example, in 2022 when the down the S&P fell 35% and the NASDAQ fell 40%. The Indian market, the Nifty and the Sensex, the headline indexes, the primary indexes, they went up that year 2%. So you know you because you were exposed only to the domestic market of the US you could not benefit from global diversification”
A bull market typically kicks off with a few consecutive weeks and months of hugely positive breadth, where the advance-to-decline ratio in the market is significantly positive for successive weeks and months.
“a new fresh bull market usually kicks off with a few consecutive weeks and months of hugely positive breath trusts which means that the advance to decline ratio in the market has to be significantly positive for a few successive weeks and months in a row.”
Corporate earnings growth in stock markets worldwide is a function of nominal GDP growth, which equals real GDP growth plus inflation, so as long as nominal GDP growth is very high, stock markets should do well.
“I basically see corporate earnings growth in any stock market of the world Matt is a function of nominal G it's a function of nominal GDP growth nominal GDP growth is real GDP growth plus inflation. So you know as long as you have got a very high nominal GDP growth rate in any part part of the world I think stock market you know stock market should continue to do to do well”
The US stock market has the lowest free float and highest levels of insider ownership of any global stock market, resulting in low supply of quality equities available for purchase.
“a government free float or publicly available float uh in the Indian market is possibly the lowest among global stock markets. There is no other stock market in the world which has got such high levels of insider ownership and as a result there is a low supply of quality equities available for purchase in the Indian market”
Memory is finicky and people rewrite things in their heads; not writing things down as they happen means that two years later, some things seem obvious that were not obvious at the time, making journaling humbling and educational.
“I'll add real quick that our memory is finicky and we kind of rewrite things in our head. I definitely do. So if I don't write it down as it's happening, when it's happening, two years down the road, some things seem obvious that I didn't know at the time. So keeping a journal, it's very humbling to go back and say, I really had no idea what's next, how this is going to play out, and you can learn a lot from it.”
In the Indian market, liquidity is driven by two kinds of flows: foreign institutional investor (FII) flows and domestic institutional investor (DII) flows, and since April 2020, it has been individual investors powering the bull market rather than foreign investors.
“In the Indian market liquidity is driven by two kinds of flows. One is the global investor flows or what what we call FII foreign institutional investor flows. Second is DII domestic institutional investor flows...ever since April 2020, it has been the individual investor who has been powering the bull market in India.”
As of end of November 2025, 73% of US market cap addition over a three-year basis has come only from AI stocks, making a bet on America essentially a single bet on AI, and further down the rabbit hole, a bet only on one sub-factor within AI.
“70 as of end of November 2025 on a trading three year three-year basis 73% of the market cap addition in the US has been only from AI stocks so betting on America today and on the American stock market today is essentially a single bet on AI you're basically betting on one on top of the single factor is single geographer is now you're going even further down the rabbit hole and you're actually taking a full-on bet only on one single factor a sub factor AI.”
A phase will come when Magnificent Seven (Mag7) stocks underperform and value finally comes back in favor, providing value investors with enough opportunities to hunt in the S&P 493, making value a factor that outperforms mega-cap tech growth.
“That's the the S&P 493. That is when you know you you know a lot of new winners will start emerging and you may have a phase when the max events underperform and value finally comes back in favor and value investors you know have enough opportunities to hunt in the S&P 493. So I think that is the time when you know value as a factor will start outperforming a mega cap tech growth.”
The Fed has been one of the biggest drivers of liquidity and financial markets since 2008, and will continue to be so; policies pursued by the Trump administration are very inflationary in the medium to long term (deregulation, re-industrialization, tax cuts, tariffs).
“the Fed has been since 2008 one of the biggest drivers of liquidity and uh the financial markets around the world and this time is going to be no different. However, the most of the policies being pursued by the Trump administration are very inflationary in nature, medium to long term. Be deregulation, be re-industrialization, be tax cuts, be tariffs, all of these are inflationary in the medium to long term.”
You should definitely consider global diversification out of the US, given single-factor and single-geography risks, combined with the structural overvaluation relative to economic output and the concentration in AI stocks.
“So you should definitely consider global diversification out of the US.”
India has approximately 5,000 listed stocks but more than 3,500 are illiquid microcaps; of the remaining 1,500, only 150-200 qualify as quality stocks with good corporate governance, with remaining stocks being cyclical, commodity, or questionably governed.
“in India are you know there are almost 5,000 listed stocks but more than I think 3 and a half thousand out of the 5,000 is are basically illquid micro caps. So they are anyways not considered for purchase. Of the remaining 1500 stocks, I would say 150 to 200 stocks, you can consider them as quality stocks with good corporate governance. The remaining stocks are basically either cyclical or commodity stocks or have questionable corporate governance.”
Stanley Druckenmiller tracked liquidity as the single most important metric for positioning himself on the right side of market cycles, compounding capital at 30% annually for 30 years, demonstrating the critical importance of liquidity cycles to investor returns.
“For Stanley Draen Miller the single most important metric that he tracks in the market is liquidity. For him it's all about liquidity liquidity liquidity.”
In the US market today, you have peak valuations and peak margins but the Federal Reserve has announced fresh QE and started cutting rates, so until the Fed tightens monetary conditions, you cannot have a severe bear market.
“Today the today in the US market you have the first condition which is you know peak valuations peak margins peak earnings but on the other but on the other side you have had the you piece is missing the Federal Reserve has just announc announced a fresh amount of QE quantitative easing and they've also started cutting interest rates. So until the feds tightens uh monetary conditions you cannot really have a you know severe bare market in the US.”
Trump administration policies (deregulation, re-industrialization, tax cuts, tariffs) are inflationary in the medium to long term, but because the labor market is weakening, the Federal Reserve is focused on employment rather than inflation and is cutting rates even though asset prices have already risen significantly—creating a Goldilocks scenario of high growth policies and loose monetary policy.
“most of the policies being pursued by the Trump administration are very inflationary in nature, medium to long term. Be deregulation, be it re-industrialization, be tax cuts, be tariffs, all of these are inflationary in the medium to long term. But because of the weakening labor market, the Federal Reserve is being forced because of its dual mandate. It's focusing right now more on the unemployment mandate. They're being forced to cut interest rates at the time when asset price asset prices have already risen. So so much. So this is a Goldilocks scenario for the financial markets. You have high growth economic policies being pursued by the government and you have a lossing policy from the central bank.”
You are seeing a meltup in risk assets including precious metals and commodities due to the current Goldilocks policy environment, and may witness a very big meltup in risk assets for the next possibly heading into 2026 before inflation resurfaces.
“So this is why you're seeing a meltup in risk assets including precious metals like palladium, platinum, gold, silver and in the commodity space also. If you look at copper and if you look at various commodities excluding oil you can see there's a big rush of money going into various asset classes be precious metals, commodities, equity markets. So, you know, you may witness a very big meltdown in risk assets for the next possibly heading into 2026 as well before inflation resurfaces in a big way.”
You cannot make it big in investing if you are doing it only to get rich; genuine passion for the intellectual process and intrinsic rewards of investing is essential to breakthrough success.
“you can't really make it big if you are doing this only to get rich”
A long-term investment horizon must be married with an investment process that is willing to continually question the core investment thesis rather than becoming complacent when prices rise.
“it pays to have a long-term view, but a long-term investment horizon must be married with an investment process that is willing to continually question the core investment thesis. Investors should exercise active patience that is diligently verifying their original investment thesis and doing nothing until something materally adverse or negative emerges.”
You can average down on or buy dips in structural growth businesses and high-quality businesses because the moment you are out of quality, you start wondering if your stocks will ever recover, making you dependent on the kindness of strangers for bailout.
“You can buy structural growth businesses or highquality businesses on dips. And this again brings to the forefront of investing in quality. The biggest advantage of investing only in quality is that it empowers you or enables you to view market corrections as buying opportunities. Because if you the moment you're out of quality in every market decline, you'll start you know wondering you know if if my stocks will ever recover back then you're dependent on the markets you know depending on the core variable that is earnest growth to bail you out in the long run. You're basically depending on the kindness of strangers to bail you out.”
Domestic mutual fund constant monthly inflows force Indian mutual fund managers to buy into the same 150-200 largest quality stocks, preventing valuations from compressing as they can in other markets.
“the domestic mutual funds with the constant monthly inflows coming from retail investors they are forced to buy into the same same set of 150 to 200 largest stocks in the market and which are the best quality stocks. That's why the valuations of these high quality stocks in India just do not go down.”
At the end of the euphoric phase of a bull market, most investor portfolios contain only junk stocks; in the subsequent bear market, both quality and junk stocks fall, but quality eventually bounces back while junk stocks remain depressed for many years until the next bull run.
“At this point of time, the bull market usually tops out and at the end of the euphoric phase, most investor portfolios have only junk stocks left in them. And in the subsequent bare market that follows, both quality and junk stocks fall. Quality eventually bounces back in the final recovery whereas junk stocks lie low for many many years until the next bull run takes over.”
IPOs are a very effective indicator of prevailing investor sentiment: in stage one, good companies IPO at cheap valuations; in stage two, good companies IPO at expensive valuations; in stage three, bad companies IPO at ludicrous valuations heavily oversubscribed by retail investors, indicating late-cycle excess.
“initial public offerings or IPOs. They are a very effective indicator of prevailing investor sentiment. So during stage one, good companies come out with IPOs at cheap valuations. In stage two, good companies come out with IPOs at expensive valuations. And in stage three of the IPO market that is when you have uh bad companies coming out with IPOs at ludicrous valuations which are heavily overs subscribed by retail investors”
Different stocks require varying degrees of patience; be most patient with capable management teams operating in structural growth industries because such management creates embedded optionalities that markets cannot price upfront and that keep generating positive surprises.
“be very patient with able management teams operating in structural growth industries because such management usually find ways to pivot into adjacencies and uh you know if you are able to find such stocks in the midcap or small cap space with a large size of opportunity and with sectoral leadership then be the then be the most patient with such investments because there are certain embedded optionalities in a business which the markets cannot price up front for managements that can scale.”
America is a capitalist country while India is a socialist country because more than half of India's population still lives below the poverty line; the Indian government has an indifferent approach towards the stock market, not intervening until crises of big proportions occur.
“America is a capitalist country India is a socialist country even today because more than half of the population in India still lives below the poverty line. So the D government honestly has a pretty you know u I would say indifferent approach towards the stock market. They are not really pro stock market like the US administration is.”
Until CPI inflation goes up very significantly, the Federal Reserve will not act in a hurry to tighten monetary conditions; if Fed independence goes away with appointment of new Fed chair by Trump administration and that chair cuts rates even more aggressively during high inflation, it will lead to very sharp volatility in 2027.
“Until CP inflation goes up in a very big way, I don't think you'll see the Federal Reserve really acting in a hurry to tighten monetary conditions. In fact, like you rightly mentioned, if Fed independence is is goes away next year with appointment of the new Fed chair by the time administration and that Fed chair starts cutting interest rates even more aggressively heading into high inflation then you know that may lead to very sharp volatility in financial markets in 2027 or whenever inflation resurfaces in a big way.”
China's entry into AI through decentralized approaches focused on efficiency and integration into daily life is different from US centralized, compute-heavy approach, and if China disrupts AI economics and margins, it will jeopardize US market gains since 3/4 of cap creation came from AI stocks.
“now China is entering into a big way be albeit decentralized in US it's more of centralized AI and more of a focus on compute power raw computing power in China it's more on getting lot of efficiencies and decentralizing AI and integrating it into the life life of daily you know Chinese citizens in living that country. So, but if China, you know, as and now they've entered full throttle into this AI space, I think over time, if they start disrupting the economics and the margins of these AI players in the US and because 3/4 of the market cap creation in the last 3 years has come only from AI stocks, I think, you know, you're really putting yourself, you know, at exposing yourself to significant single factor risk.”
Gotham has maintained an archive of investor behavior and media commentary during various market panic episodes over the last 11 years and finds it highly beneficial to refer to this information during periodic sharp market corrections.
“I've also maintained an archive of the investor behavior and media commentary during various episodes of market panic over the last 11 years and I find it highly beneficial to refer to this information whenever the market underos its periodic sharp corrections because human behavior and human nature in the markets has not really changed much over time.”
Portfolio diversification ensures against catastrophic outcomes and opens the door to optionality for investors, with a focus on quality and prudent diversification being the two investing mantras Gotham practices.
“This practice ensures against a against a catastrophic outcome for the portfolio as a whole and it also opens the door to optionality for you as an investor. So a focus on quality and a focus on prudent diversification. These are the two investing mantras by which I invest even today”
Bhatnagar's journal writing frequency in an investment journal witnessed a sharp rise from 2018 onwards due to experiencing a severe and very big bear market in mid-cap and small-cap stocks in India from January 2018 to March 2020.
“my writing frequency in the journal actually witnessed a sharp rise from 2018 onwards and there is a reason for that... From January 2018 to March 2020 for 27 long months we had a severe and very big bare market in medcap small cap stocks in India. That is the area of the market in which I specialize and during that particular period I really evolved as an investor.”
You may witness a meltup in risk assets for the next possibly heading into 2026 before inflation resurfaces in a big way; until CPI inflation goes up significantly, the Federal Reserve won't act in a hurry to tighten monetary conditions.
“So you know, you may witness a very big meltdown in risk assets for the next possibly heading into 2026 as well before inflation resurfaces in a big way. Until CP inflation goes up in a very big way, I don't think you'll see the Federal Reserve really acting in a hurry to tighten monetary conditions.”
Stock market investing is the most fascinating analytical sport Bhatnagar has encountered, makes him feel more connected to the world, and provides intellectual delight beyond just wealth creation, making passion for the process itself essential to long-term success.
“stock market investing remains the most fascinating analytical sport I've ever come across. Because of investing, I feel more connected to the world around me. And to be a truly passionate investor means that you're always thinking about the future and direction of the world. It means that you're always enthusiastically observing everything around you. And investing is not just a process of wealth creation. It's a source of great happiness and sheer intellectual delight for the truly passionate investor.”
Three ingredients are required for a new bull market: low valuations on depressed corporate earnings with strong capacity to recover and grow, and loosening liquidity from tight levels.
“there are three ingredients for a new bull market to start. There has to be low valuations on depressed corporate earnings with strong capacity to recover and grow and lossening liquidity from tight levels.”
Stellar Wealth Partners India Fund is managed according to the original Buffett partnership fee structure and focuses on listed Indian equities with a long-term, fundamental, value-oriented approach.
“a fund modeled after the original Buffett partnership fee structure, but focused on listed Indian equities with a long-term fundamental and valueoriented approach.”
Investment journaling has greatly helped Gotham learn about himself as both an individual and investor; he spent $10 on a journal in late 2014 and considers it one of the best value investments ever made.
“I spent $10 on buying a journal in late 2014 and I consider that to be one of the best value investments I've ever made ever since that time I've been keeping track of my investing decisions and my the subsequent developments in an investment journal”
Stock market investing is the most fascinating analytical sport ever encountered; because of investing, one feels more connected to the world, and it is a source of great happiness and intellectual delight rather than merely a process of wealth creation.
“stock market investing remains the most fascinating analytical sport I've ever come across. Because of investing, I feel more connected to the world around me. And to be a truly passionate investor means that you're always thinking about the future and direction of the world. It means that you're always enthusiastically observing everything around you. And investing is not just a process of wealth creation. It's a source of great happiness and sheer intellectual delight for the truly passionate investor.”
Matt Ziggler hosts the Excess Returns podcast and discusses access returns, stock market investing, and portfolio strategy with Gotham Bhatnagar.
“I'm Matt Ziggler. Bogam Baronowski is with me today...This is Excess Returns.”
Gotham's personal experiences led him to evolve from December 2013 to December 2017 through a highly risky investing style focused on illiquid microcaps, deep cyclicals, and commodity stocks during a midcap-smallcap bull market.
“I was very fortunate and lucky to deploy a decent sum of capital in December 2013 for the first time just as a new bull market was about to begin. So from December 2013 to December 2017 there was a big bull market in midcap small cap stocks in India and during that phase I used to take very very high risks. I used to invest in illquid micro caps, deep cyclicals and commodity stocks.”