Raamdeo Agrawal’s USP is his down-to-earth attitude and earthy wisdom. He candidly admits that he does not understand the nuances of what is happening in the stock market or in the macro environment. Yet, experience tells us that whenever investors have bought top-quality stocks at bargain basement prices and held on to them for long periods of time, they have reaped magnificent gains, he says. His valuable advice can be summed up in a few actionable points:
(i) It is guaranteed that investors will make money if they invest in the right companies and stay on for the long-term:
Raamdeo cited the example of an elderly IAS officer who bought shares of Asian Paints at the loose-change price of Rs. 1700 several decades ago. Today, after compounding at a CAGR of 29%, the investment is worth a couple of crore.
There is a lot of money to be made and it is guaranteed that investors will make that money if they buy the right stocks and hold them for long periods of time, Raamdeo emphasized.
(ii) Focus on what is important and knowable. Forget what is important but unknowable:
Raamdeo took a leaf from Warren Buffett’s timeless advice that investors make a big mistake in obsessing about macro-economic issues. While these issues are important, they are unknowable. Instead, investors should focus their attention on issues within their control such as the earnings of the company, its growth prospects, etc which are both important and knowable.
(iii) Forget GDP growth, Look for stocks growing top-line and bottom-line:
When someone asked whether Raamdeo was concerned about the slow growth in the GDP, he cited Britannia Industries as an example of a stock that is consistently growing its top-line and bottom-line despite the adversities in the economy. He also pointed out that there are several sectors which are growing at a steady pace, such as Aviation and Housing Finance. Buying the leaders in these sectors is a sensible investment strategy, he advised.
(iv) Remember there is a direct co-relation between the earnings of a stock and its stock price:
Raamdeo Agrawal took a leaf from Peter Lynch’s advice that investors should look for stocks growing their EPS at a rapid pace because there is a direct co-relation between the EPS and the stock price. Peter Lynch had cited the example of Coca-Cola. Raamdeo cited the example of Infosys where the EPS has grown 45% CAGR and the stock price has kept pace and given an astronomical return of 6000x.
(v) Adopt a “portfolio” approach. Don’t obsess over losses in individual stocks:
Raamdeo pointed out that investors are getting very agitated about losses in individual stocks like Indigo etc. He explained that this is a fallacious approach. He cited the example of how he had bought Financial Technologies and lost nearly 90% of his investment. However, he also bought Eicher Motors which multiplied 4x in the same period. The result is that the portfolio as a whole gave handsome gains.
(vi) Keep the portfolio diversified:
As a corollary to the point of how one should adopt a ‘portfolio’ approach, Raamdeo advised investors to be diversified with a limit of 5% to 8% for each stock. This way, if any stock suffers a melt-down, its loss will be absorbed by the other stocks in the portfolio.
(vii) India will become a $10 trillion economy by 2030 – It is a once-in-a-lifetime opportunity for investors to make tons of money on the way:
Raamdeo explained that it took 60 years for the Country to become a trillion dollar economy in 2007. It took another 7 years to become a 2 trillion dollar economy. By the next fifteen years, India will become a 10 trillion dollar economy, he said.
“This is a once-in-a-lifetime journey and we have a leader who will take us there” Raamdeo exclaimed. “This journey will happen even if Rahul Baba is there. Nobody can stop it” he added.