In a recent interview with the Economic Times, Rakesh Jhunjhunwala sent out the clarion call to all his disciples that it was time for them to come out of their rabbit holes, put their money to work and buy quality stocks.
The last time, Rakesh Jhunjhunwala sent out that clarion call was in June 2011. Investors who bought quality stocks by heeding the master’s call would have taken home a handsome profit. Let’s take a few examples from Rakesh Jhunjhunwala’s own real and model portfolio in the period from June 2011 to date:
Titan Industries is up 20% (Rs. 218 to Rs. 258)
Lupin is up 28% (Rs. 465 to Rs. 597)
CRISIL is up 40% (Rs. 684 to Rs. 958)
Page Industries is up 87% (Rs. 1712 to Rs. 3204)
Hawkins Cookers is up 39% (Rs. 1315 to Rs. 1835)
HDFC Bank is up 29% (Rs. 477 to Rs. 619)
So, let’s study Rakesh Jhunjhunwala’s sayings and decode the secrets therein that are useful to us:
Forget the Index; Look At Individual Stocks:
If you look at the Index over a period of time, you will see that it hasn’t budged at all. For instance, in June 2011, the Nifty was at 5441 and in October 2012 it is at 5731, giving gains of only 5%. However, if you look at the chart above, the prices of top quality and well managed companies has given a return in excess of 20%.
Rakesh Jhunjhunwala cautioned that amateur investors focus excessively on the Index and think that gains are made only when the Index moves up. However, because the Index is made up of several straggler & worthless companies, by the time the Index moves, the quality stocks have become multibaggers.
Rakesh Jhunjhunwala advised that investors should just buy a basket of 20 top quality & well managed companies that were growing at about 20% per annum and sit tight. They will make money irrespective of what the Index is.
Why the “Mother of Bull Markets” is coming:
Rakesh Jhunjhunwala explained that the Indian economic growth story was driven by factors like democracy, demographics, skills and entrepreneurship. None of these factors are reversible. India is at a very initial stage of economic growth. Its’ per capita income is only Rs 1500. Its GDP has a composition which is very balanced. It has very large consumption. There is space for investment to grow. Indians have large savings. It may take 12, 24 or 36 months, but India can be expected to grow double digit for a long period of time to come.
A lot of foreign capital is waiting to come into India both as FII and FDI. As India has the capital, system, democracy, demographics, entrepreneurship and skills, foreign money will flow into India.
Rakesh Jhunjhunwala also pointed out that while India is 2% of world GDP, not even 1% of the institutional wealth in the world is invested in India. India has very good trading systems, transparent regulations, some of the best regulation in the world, some of the best corporate governance. It has growth and foreign money will come into India in a big way, he said.
Stock Market Returns Come in Bulges. So, don’t get disillusioned by temporary “dry runs” or set backs.
Rakesh Jhunjhunwala explained that naive investors get disillusioned by the stock markets because the returns don’t come in a steady manner. They see that the stock markets last year gave heavy returns and so they plunge in at the peak expecting identical returns year after year. However, when that does not happen, they get disappointed.
Investors must get used to the fact that stock market returns come in bulges, Rakesh Jhunjhunwala explained. He gave the example of the period from 1992 to 2003 when, despite stupendous earnings, the stock market did not rise at all. However, in the period from 2003 to 2007, investors made 40% CAGR returns on the Index and several individual stocks became multibaggers several time over. Investors who stayed invested in the “dry” period became multi-millionaires when it started to pour returns.
However, even in the “dry” period, when the Index goes nowhere, individual stocks of top-notch companies are growing (as shown in the above example), Rakesh Jhunjhunwala emphasized.
Invest Systematically (SIP):
Rakesh Jhunjhunwala reiterated the precious advice that he had given investors in June 2011, namely, that they should invest regularly and systematically.