Carlos Slim amassed fortune of $66 Billion by buying stocks during every crises
Carlos Slim’s profile is not familiar to us in Dalal Street.
This is because this wily Billionaire does not invest in Dalal Street. Instead, he invests in the stock markets of Mexico.
However, the technique adopted by the mega-Billionaire is universally applicable in all stock markets across the World and we have to immediately master it.
In his latest podcast, Ramesh Damani described Carlos Slim’s game plan as a “very simple philosophy”.
All that the Billionaire does is that he takes advantage of every savage crisis that plagues Mexico.
For example, some years ago, Mexico faced the malaise of currency depreciation coupled with high inflation. This sent its economy into a tail-spin and created a crisis situation.
Predictably, the stock markets were deserted because all investors were cowering in fright and hiding in their bunkers.
However, Carlos Slim was on the streets, aggressively buying high-quality and fail-safe stocks at bargain basement prices.
“As a result, he built up large stakes in very serious companies,” Ramesh Damani said.
Needless to say, when the economy recovered and the miseries of the past were forgotten, the stocks that Carlos Slim had bought surged in value and he emerged as one the World’s richest men with a mind-boggling net worth of $66 Billion (Rs. 429,000 crore).
Wealth, current. ($ billion)
Jeff Bezos: 162
Bill Gates: 96
Warren Buffet: 87
Bernard Arnault: 85
Armancio Ortega: 68
Carlos Slim Helu: 66
Mark Zuckerberg: 65
Larry Ellison: 60
Larry Page: 57
Sergey Brin: 56
— The Spectator Index (@spectatorindex) September 4, 2018
Countries don’t go bankrupt; businesses always find a way out
Young-timers will not be aware that in the 1990’s, India underwent a similar crisis as Mexico.
The Country defaulted on its debts and got hauled up by the International Monetary Fund (IMF). Several crippling sanctions were imposed.
Naturally, the stock market was the last thing on anyone’s mind.
Thankfully, the dynamic leadership of PV Narasimha Rao and Manmohan Singh bailed out the Country from the crisis.
They ushered in several reforms which liberalized the economy and opened the gates for deep-pocketed foreign investors to pump in Billions of dollars of investment into the Country.
In retrospect, the crisis was a God-sent opportunity for the few investors who braved the storm.
“Countries don’t go bankrupt, businesses will find a way out,” Ramesh said, recollecting the difficult days of the past with a gentle smile on his lips.
“The worst it gets there are more chances of the economy reform will have to happen in a democracy,” he added.
CMC, my first 40x multibagger stock
Nobody can forget his first mega-bagger, whether he be a novice or a veteran.
Ramesh Damani’s first mega-bagger was a PSU named CMC Ltd.
Though the Company had executed ambitious projects such as the BSE BOLT trading system and Railways signaling system, its entire market cap was a paltry 30-40 crores.
GIC, another PSU and a major shareholder of CMC, was dumping the stock like there was no tomorrow.
Ramesh Damani knew from his experience as a software engineer in California and from having worked with blue-chip behemoths like IBM, that CMC had immense potential to deliver multibagger returns.
“If IBM had done the Indian Railways project, they would charge the Indian government hundred million dollars and here this whole company was available for like 5 million dollars somewhere there. So I am realized that there I was on a bargain,” he said.
Great stocks are rare; if you find one, aggressively load up the truck
In an earlier interview, Ramesh Damani has revealed that one of the problems plaguing his investing career is his inability to buy big stakes.
Even when he is thoroughly convinced about the merits of a stock (such as United Breweries & McDowell), he is unable to invest more than a petty sum in the stock.
“The inability to dream big is the biggest failing of my career,” he lamented.
“If I had bought 10% of United Breweries and McDowell when they were available at throwaway valuations, I would have been a certified Forbes Billionaire today,” he said.
Thankfully, in CMC, when he was contemplating buying a paltry 5000- 10000 shares, he father rapped him on the knuckles and insisted that he buy a larger stake.
“As only fathers can do, he literally held my hand to buy a larger block of that share,” Ramesh Damani reminisced the fond memories of that fateful day.
“As my good fortune would have it, the stock caught fire in the market. In 13 months after listing, it went from 20 to 800 rupees. After that, it got merged with TCS,” and delivered incalculable gains, he added.
Ramesh Damani emphasized that it is important to bet big when you have a good idea.
“Great ideas are very rare. You want to backup the truck and buy because in a Bull market you want to be loaded on good stocks,” he emphasized.
Hold on to great businesses for a lifetime
Ramesh Damani is well aware of the bad habit of novices of being obsessed about the price of a stock.
If a stock surges 30% in value, they get very excited and are eager to “book profits”.
Naturally, this sort of buffoonery keeps them in a poverty-stricken state for ever.
“If you really want to make money you have to invest in a business for long periods of time,” Damani said, trying to drill sense into the novices that they should hold onto their winning stocks.
(Ramesh Damani & Sanjoy Bhattacharyya in debate with distinguished mutual fund managers)
“Great businesses are built of great value over a long period of time. They keep compounding,” he added.
“Great ideas are very rare and if you get a good idea you need to hold on to those great ideas see them flower into great businesses over period of time,” he emphasized with a big smile on his face.
If you double your money every three years, Rs. 10 lakh becomes Rs. 100 crore
Ramesh Damani advised that all investors should have the benchmark of wanting to double their money every three years.
He pointed out that if this benchmark is achieved, it means that over a 30 year career in the stock markets, the initial investment would surge 10x or 1000%.
In other words, a paltry sum of Rs. 10 lakh invested at the beginning becomes a mammoth fortune of Rs. 100 crore at the end of 30 years.
“That’s a phenomenal amount of money to have,” he exclaimed.
How to double money every three years?
The concept of doubling money every three years is so simple that we have to wonder why we did not think of it earlier.
If money grows at a CAGR of 24%, it doubles every three years.
This is called the “principle of compounding” Ramesh Damani explained patiently.
“Great businesses compound over time, compounding your wealth over time. The trick to get wealthy is to double your money every 3 years. That should be the benchmark,” he added.
Which stocks will give 24% CAGR return?
Again, this is an elementary question.
The answer is that “great businesses” will effortlessly deliver such returns over long periods of time.
“Great businesses can last various market cycles. They outlive market cycles because human habits don’t change,” Damani said.
“Great businesses compound over a period of time to build great franchises,” he added.
“They have great management and pricing power,” he emphasized.
It is obvious that Ramesh Damani is referring to the ever-green and fail-safe stocks like Asian Paints, ITC, HDFC Bank, Nestle etc.
It is also obvious that in a great country like India, finding such great mid-cap companies ought not to be very difficult if we set our hearts and mind to it.
Ramesh Damani’s advice regarding investing in compounding franchise machines which are delivering 26% CAGR return makes a lot of sense. If we had followed his advice in the beginning of our investing careers, we would today be multi-millionaires instead of continuing to wallow in poverty. Thankfully, it is still not late for us to change course and tuck into these stocks!