INDIA’S answer to Warren Buffet. The stock market’s ‘big bull’. The pin up boy of the markets: Rakesh Jhunjhunwala.
He made a fortune by investing in the stock market. From an initial amount of Rs 5,000, as it is rumoured, he has made Rs 5,000 crore in just over two decades!
Jhunjhunwala once said humorously, “Markets are like women; always commanding, mysterious, unpredictable and volatile.” And yet he lorded them. There is a lot I learnt from his investing quotes, and there’s something in it for you too.
– Invest in a business and not a company.
Jhunjhunwala identified and invested in Pantaloons much before the market discovered it. Today, he is gaining from that investment. That’s because he invested in the potential of the underlying business (of organized retail in this case) and it’s first mover advantage.
– Maximise profits and minimise losses.
Cut losses and move on with life. At the same time, hold on to winning stocks till their business has achieved its full potential.
– Always have an independent opinion. Observe and read relevant information with an open mind.
Jhunjhunwala believes in doing his own research before investing. A good example: he was lapping up the ignored Indian Public Sector (PSU) stocks when the herd was after the IT stocks during the late nineties. He made a fortune investing in PSU stocks, while many lost their shirts during the dot com led market crash in 2000.
–Be opportunistic but wait for the right moment.
Don’t jump to buy all at once. The market always gives a chance to buy more at a lesser price if you wait for the right moment.
– Be happy with your gains but learn to accept losses with a smile.
Jhunjhunwala has had his share of dud investments. A good example is Mid-day Multimedia. But that did not deter him.
– Study the markets thoroughly. Refer to history.
There have been many a bull and bear markets but in the long-term, the market is always trending upwards
– Do something you love.
Jhunjhunwala went on to pursue his passion for investing right after he completed his Chartered Accountacy. He also had the option to go abroad but he chose to do what he loved.
– Patience may be tested but your conviction will be rewarded.
Many of his holdings like Praj Industries, Hindustan Oil Exploration, Pantaloon, did not move for quite some time. However, he had the conviction in their business models and their potential to become multibaggers, which they eventually did
Market is always right. Markets cannot be taught, they have to be learnt.
According to him there are no kings or kingdoms in the stock market. Mr Market is the only prime force.
– Be an optimist!
I feel his genuine optimism rubs across the businesses he backs and they achieve success faster. For example: Bilcare, a clinical supplies management services, has suddenly become a hot story out of nowhere.
– Aspire, but never envy.
Jhunjhunwala believes in sharing his investment ideology and thought process in this highly secretive industry.
– Begin whatever you dream. Boldness has genius, power and magic in it.
No wonder he has backed many a first generation entrepreneurs like C.J. George (Geojit Financial), Mohan Bhandari ( Bilcare), Pramod Chaudhari (Praj Industries) etc.
And some more…
– Build a fighting spirit; take the bad with the good.
– Balance Fear and Greed
– Invest for the long term
– Be paranoid of success; never take it for granted. Realise success can be temporary and transient
Recently, while addressing an audience in Hyderabad, he predicted that the bull market is intact and the current phase is just a significant time-wise and price-wise correction.
Let’s hope he is right this time around too and we see the resurgence of the India bull market soon
Buy low, sell high: How Buffet does it
BUY low, sell high.
This is the most popular theory in stock market investing. But the question is -– how would you know when a stock’s price is ‘low’?
The key: Compare a stock’s price with its ‘value’.
How is price different from value?
– Price is what the market is willing to pay for the share at a given time. It fluctuates from minute to minute.
– Value of a stock is the worth of its underlying business. It is more stable as fortunes of a company do not change overnight.
Buy when price is lower than value
If a share’s value is Rs 150 and price is Rs 125, then you get the stock at a discount of Rs 25.
While there is no guarantee that the price will not go below Rs 125, the probability is low.
This principle is called the ‘margin of safety’ and finds it roots in the teachings of legendary investors — Warren Buffet and Benjamin Graham
Look at the PE (Price to earnings) growth ratio.
PE growth ratio = Market price/ Earnings per share
Annual EPS growth
where Annual EPS growth = Current year’s EPS – previous year’s EPS x 100
Previous year’s EPS’
Thumb rule: A PE growth ratio of 1 indicates a fairly valued share; less than 1 means undervalued; and more than 1 means overvalued
PE: an indicator of margin of safety
Let’s assume you buy a share at Rs 550 whose EPS is Rs 50. In one year, you earn Rs 50 on an investment of Rs 550, that is, a return of about 9 per cent.
You can earn 8-9 per cent risk-free returns on bank deposits as well. So, the margin of safety in this case is practically nil.
To reduce the risk, we must have a higher gap.
Thumb rule: Warren Buffett recommends this gap to be at least 1.25-1.5 per cent.
Last word: During a bull run, investors pay a high price for any and every share. So, it becomes difficult to find stocks with a high margin of safety.
It is in bear markets, as the one we are in now, that there are opportunities to spot the gems.