Great investing tips from Rakesh Jhunjhunwala
"Markets are like women -- always commanding, mysterious, unpredictable and volatile," quipped 'Big Bull' Rakesh Jhunjhunwala (inset) while addressing a meet organised by Shailesh J Mehta School of Management, IIT, Bombay on August 10.
A champion broker, often termed as Warren Buffett of the Indian stock market, Jhunjhunwala had a full-to-the-brim auditorium spellbound as he traced how he made his fortune from a starting capital of Rs 5,000. His career path is stuff dreams are made of.
What earned him fame is his skill to pick under-valued stocks. Some of his renowned calls are Karur Vysya Bank, CRISIL and Bharat Electronics. There are, however, quite a few more. Talking about his company RARE (derived from the first two letters of his name and that of his wife Rekha) Enterprises, Jhunjhunwala says, "My company has only one client -- my wife -- so that I don't need to handle others' money."
One of the biggest bulls of the Indian market, Jhunjhunwala believes in trading by the hunches. "If in doubt, listen to your heart," is what he tells young investors. Extremely optimistic about India's growth story, Jhunjhunwala shared with his audience some valuable insights about the Indian economy, future of Sensex. Read on.
Rakesh Jhunjhunwala's secret to success
What paved the way to Jhunjhunwala's success?
A democratic growth process rather than an imposed one and a biological evolution, pat comes the reply.
He owes a lot to resurrection of a dormant and vigorous entrepreneurial gene of India. "The country has rediscovered its confidence."
There has been a strong improvement in India's macroeconomic indicators, combined with a robust banking system.
Improvement has also been observed in India's corporate performance, powered through productivity gains. Jhunjhunwala is convinced that on-going reforms would have a multiplier effect on India's economy.
Jhunjhunwala's investment strategies
Jhunjhunwala learnt investment strategies the hard way. And he was more than willing to share it with his audience. Here are a few gems from his book of learning
* Necessary for any investor is optimism.
* Be opportunistic but wait for the right moment
* Study the market thoroughly. Refer to history
* Maximise profits and minimise losses
* Invest in a business not a company
* Always have an independent opinion. Observe and read relevant information with an open mind
* Be happy with your gains but learn to accept losses with a smile
* Be prepared for challenges and risks
Predicting a brighter and better future for the Indian markets, Jhunjhunwala signed of by saying that the Indian markets will reach the peak by 2010.
Gems from Jhunjhunwala
For beginners in the market, here are a few invaluable gems from Jhunjhunwala's book:
* Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it.
* Do something you love
* The means are as important as the end
* Aspire, but never envy
* Be paranoid of success -- never take it for granted. Realise success can be temporary and transient
* Build a fighting spirit -- take the bad with the good
* When you see a horizon, it seems so distant. When you reach that horizon, you will realize how many more horizons are within reach
5 things you need to be successful
Asked how much patience should an investor have, Jhunjhunwala said, "Get married and you will understand how patient you need to be."
"Patience may be tested, but conviction will be rewarded," he asserted. He appealed to the budding investors to go by what George Soros said: 'It's not important whether you are right or wrong, it more important how much you lose when you are wrong and how much money you make when you are right.'
To be successful in investing, five things are critical. There has to be:
* an attractive, addressable, external opportunity;
* a sustainable competitive advantage;
* scalability and operating leverage; and
* a qualified and integral management
* Last but not least, it is of vital importance what one buys and at what price.
'India has everything'
Rakesh Jhunjhunwala believes that India has all ingredients that the stock markets value and hold in high regard. Some of them are:
* Efficient capital allocation
* Sustained earnings expansion driven by growth and productivity
* 8 per cent+ real GDP growth + 4%+ Inflation = 12%+ Nominal GDP growth
* Corporates to grow faster than unorganised sector
* Operating and financial Leverage to kick-in
* Corporate earnings to grow at 18%+
* Favourable framework for equity investing
* Rising savings, yet low equity ownership -- significant potential
* Corporate governance
* Transparency
* Effective regulation
* Electronic trading
* Dematerialisation
* Tax paradise for equity investing under the STT regime
'Be realistic'
Jhunjhunwala also spoke about his beliefs that made a case for sustaining the India growth story.
He said enormous wealth was created over the last five years because opportunities in India have grown manifold.
Admitting that gains were going to be moderate in future unlike the manifold rise over the last few years, he advised investors to be realistic in their expectations.
'The market is always right'
Jhunjhunwala takes the cue from Warren Buffett's words: "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."
"Blindly following stock picks by big investors is not a wise thing to do," he warns investors. "I don't think the government is necessarily interested in hurting growth. The government is interested in growth with controlled inflation."
"The market," he says, "is always right. Markets cannot be taught, they have to be learnt."
"We must have an attitude where we must balance fear and greed," was the hot tip by one of India's most high-profile investor.
Why growth will continue
Speaking on the strength in India's fundamentals, Jhunjhunwala elaborated on forces that would sustain the growth momentum.
According to him, growth enablers (such as favourable demographics, higher base of skilled people and education base), liberalisation catalysts (such as competition), fall in interest rates, multiplier effect (on account of reforms), structural changes in quality of corporate earnings and micro trends (such as change in mindset of companies who are aspiring to become global) are likely to drive India's growth story to a higher level.
Text, courtesy: RARE Enterprises and Shailesh J Mehta School of Management, IIT, Bombay
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