Investing secrets of top Indian investors
When it comes to investment advice for financial goals, you can get it from every other person. This article will throw some light on the investing secrets of top Indian investors like Raamdeo Agrawal, Rakesh Jhunjhunwala, and Ramesh Damani. For asset allocation and goal planning, many Indian investors swear by the investment philosophy of some of these investment gurus.
The investment philosophy of Raamdeo Agrawal and his company Motilal Oswal Asset Management Company (MOAMC) is on the two critical pillars of equity investing: “Buy Right: Sit Tight”.
The Buy Right part of the investment philosophy focuses on buying quality companies at a reasonable price.
The Sit Tight part of the investment philosophy focuses on holding on to quality companies for long periods to realise the full growth potential of the companies.
Raamdeo Agrawal created the unique and focused investing process of QGLP. This investment philosophy helps an investor to invest in quality businesses at a reasonable price. The QGLP investment process focuses on:
Q (Quality): Quality has 2 aspects: quality of business and quality of management. Both of them should be the best in class. If any of them is compromised, it affects the overall equation.
G (Growth): Growth represents the earnings growth of the company. Earnings growth adds value only when the company earns returns on capital higher than the cost of capital.
L (Longevity): Having established the present quality (Q) and earnings growth (G) of the company, the investor should assess how long the company can sustain both.
P (Price): Price represents the amount that you pay to buy a quality (Q) business with growth (G) prospects for a long (L) time. An investor should ensure that he/she has paid a favourable purchase price for buying a stake in a quality business. Price is what you pay, but the value is what you get.
Diagram: Buy Right (QGLP investment process)
The Buy Right investment philosophy (QGLP process) involves buying a good quality (Q) business with growth (G) prospects for a long (L) time at a favourable price (P). Once you Buy Right, you need to Sit Tight on a good buy with focus and discipline. You need the skill to hold on to a business to benefit from the entire growth cycle and compound your returns. Raamdeo Agrawal believes in buying high conviction focussed portfolios with 20 to 25 stocks, giving adequate diversification.
Diagram: Sit Tight
Rakesh Jhunjhunwala is one of India’s most successful investors and is also popularly known as India’s Warren Buffet. A lot of investors look up to Rakesh Jhunjhunwala and follow his investment philosophy. Some of the investment lessons that we can take from Rakesh JhunJhunwala include:
- Invest in companies with a competitive edge
Rakesh Jhunjhunwala tries to identify companies that have a competitive edge that is hard for others to replicate. You should look for:
- Companies that either have a monopolistic position or are leaders in their sectors
- Companies that have unique products/services with pricing power
- Companies that are into industries that have high entry barriers
Such companies have a competitive edge and tend to do well and make a lot of wealth for their investors.
- You don’t always have to be right as an investor.
From the companies that Rakesh Jhunjhunwala has invested in, not all have made money for him. He has lost money in some companies that saw their stock price crash for various reasons. But, some of his investments are so successful that he made a lot more money to make up for his losses. As a result, his net worth has grown by leaps and bounds.
The key message to take away is that you don’t always have to be right as an investor. The amount of wealth created by Rakesh Jhunjhunwala with his investments in companies like Titan, CRISIL is far more than what he lost in some of his investments.
- Go with your conviction.
If you are convinced about something, then go big with your conviction. For example, in 1989, many people thought that the VP Singh Government would present a budget that won’t be business-friendly, and because of this, the market will go down. But Rakesh Jhunjhunwala felt that the budget would be business-friendly and went long on the market. His conviction turned out to be accurate, the budget was business-friendly, and the market rallied, and Rakesh Jhunjhunwala made a lot of money.
- Patience pays in the long run.
Rakesh Jhunjhunwala buys a business and not a stock. So if the stock price doesn’t do well in the short-term, it doesn’t bother him. As long as the fundamentals of the business are doing well, he continues to hold the stock. In the long run, his patience pays, and the stock price corresponds to the business performance and goes up, and he makes money. The key message to take away is, you will have to develop a very high level of tolerance for stock market fluctuations, be rational and patient.
- You should have a passion for stock markets.
Rakesh Jhunjhunwala has been passionate about stock markets right from his childhood. Even today, he participates in the conference calls of companies in which he has a stake. He asks questions to the management and also gives feedback if required. If you want to become a successful investor, you should have a passion for learning, doing your research, and investing your hard-earned money.
- Life is about learning and not about regrets.
Rakesh Jhunjhunwala has made mistakes with some of his investments, and he lost money. But, instead of regret, he has learnt from these mistakes and has become a more mature and better investor.
Information on the above investment lessons from Rakesh Jhunjhunwala has been sourced from https://www.youtube.com/watch?v=Xn7L-61JEX8
Ramesh Damani is a veteran of Dalal Street. He started his investment journey in the 1980s, much earlier than most of the other successful investors, including the likes of Raamdeo Agrawal and Rakesh Jhunjhunwala. With his vast knowledge and experience of investing in Indian markets, he is also referred to as the wizard of Dalal Street. A lot of investors swear by his investment philosophy. Let us understand the investment philosophy that he follows.
- Have your conviction
Ramesh Damani did his first big trade-in, CMC, which built the BSE BOLT trading online software and the Indian Railway System software. The Government was divesting the company at a valuation of Rs. 30-40 crores. He was convinced that the Government was selling CMC at a very cheap valuation. So he went with his conviction and bought the shares of the company. Over time, the company share price multiplied several times, and Ramesh Damani made a lot of money with his investment.
- Bet big when you have a good idea
Betting big when you have a good idea is something that Ramesh Damani learnt, again with his first big trade-in, CMC. When he was convinced that the Government was selling CMC at a cheap valuation, he wanted to buy 5,000-10,000 shares. His father held his hand and asked him if this was worth a bigger trade, to which he responded by saying yes. So his father made him buy a more significant number of shares than he initially wanted to. Fortune was on Ramesh Damani’s side, and the CMC share price went from Rs. 20 to Rs. 800, multiplying his wealth by 40 times in a year.
The CMC investment taught Ramesh Damani two important investing lessons early on in his investing career. First, have your conviction and second, when you have a good idea, then bet big on it. Before CMC investment, nobody knew Ramesh Damani in the market, but nobody would ignore him after CMC.
- Successful investing is a business of patience.
Ramesh Damani says that you have to invest in a business for an extended period if you want to make money. Don’t bet on stock prices going from Rs. 100 to Rs. 130 or Rs. 150, making 30% or 50% in the process. Great businesses build great value over a long period as they keep compounding. The stock prices of such companies go from Rs. 100 to Rs. 200, then to Rs. 400, then to Rs. 700, and eventually Rs. 1,000 and beyond overtime.
- Don’t buy stocks just because they have fallen.
One of the investing lessons that Ramesh Damani learnt early on in his investing career is that you don’t want to buy stocks that have fallen a lot in a bear market. Such stocks would tend to lose even more, and hence it is best to avoid them. Instead, you should find new ideas, new companies that would-be leaders in the next bull market.
Information on the above investment lessons from Ramesh Damani is sourced from https://www.moneycontrol.com/news/business/markets/podcast-how-ramesh-damanis-thumb-rule-of-24-returns-can-make-you-really-rich-2916951.html
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