I made Rs. 1000 crore by buying stocks during bad periods
Normally, I am not inclined to listen to academicians waxing eloquent about theoretical issues relating to the stock market.
This is because if the academicians have not made big bucks for themselves, it is unlikely that their advice will make any bucks for us.
However, I always listen to Raamdeo Agrawal’s advice with rapt attention.
This is because Raamdeo has generated a mind-boggling fortune of Rs. 1000 crore from the stock market.
This clearly proves that he knows what he is talking about and that his theories work in real life.
Raamdeo has revealed all of his secrets in a youtube interview. The essence of his discourse is that we should buy high-quality stocks aggressively whenever macro issues drive prices down even though the fundamentals remain unchanged.
Difference between “quotational loss” and “permanent loss”
In his latest interaction with Sonia Shenoy and Latha Venkatesh, Raamdeo urged us to always keep in mind the difference between “quotational loss” and “permanent loss” before we get our knickers in a twist over a fall in stock prices.
“Permanent Capital Loss refers to a massive fall in stock price because the value of the underlying business is significantly eroded,” Raamdeo explained.
Obviously, this is a scenario where we have to press the panic buttons.
Raamdeo pointed out that Permanent Capital Loss can arise due to a variety of factors such as:
(i) Disruptive competition
(ii) Emergence of a new substitute
(iii) Change in government regulation (e.g. price regulation, import duty changes, etc)
(iv) Mega acquisition gone wrong
(v) Mismanagement or Fraud
However, Quotational Loss is merely a short-term fall in the stock price with the underlying value broadly intact, he added.
He explained that some factors contributing to a Quotational Loss are the following:
(i) Fall in the broader market itself
(ii) Very high valuations
(iii) A minor setback in the company’s fundamentals e.g. lower-than-expected profits for a quarter or two, fire in the company’s plant, slight delay in new project, etc.
“Quotational Loss in a stock offers an excellent buying opportunity due to unilateral lowering of valuations,” Raamdeo emphasized with a big smile on his face.
However, he cautioned that buying during the Quotational Loss phase demands two things from investors:
First, there should be high level of conviction in the fundamentals of the stock and the belief that the setback is temporary.
Second, the investors should exhibit high level of courage and patience in terms of their behaviour.
Examples of stocks which suffered “quotational loss” and “permanent loss”
Sonia Shenoy and Latha Venkatesh are both practically oriented. They demanded that Raamdeo provide us with real-life examples of the stocks that he is talking about instead of merely referring to Warren Buffett’s quotes.
Raamdeo tapped into his vast reservoir of experience to cite the examples of DSQ Software and Infosys to prove his theory.
In the Y2K boom, both companies stood shoulder to shoulder and were the cherished favourites of investors worldwide.
In the crash that followed, both stocks lost huge chunks of their valuations.
However, while Infosys rose like the phoenix and went on to become a block-buster megabagger, DSQ Software sunk like a stone and never recovered, leaving its poor investors poverty stricken.
Infosys was a case of “quotational loss” while DSQ Software was one of “permanent loss”, Raamdeo said in his earthy style.
Examples of stocks exhibiting “quotational loss” in the present melt down
At this stage, we have to compliment Sonia Shenoy because she cleverly pinned down Raamdeo and asked him to give names of stocks which are presently suffering from the so-called “quotational loss”.
Raamdeo provided three real-life examples:
(i) Oil marketing companies
Raamdeo came out with all guns blazing in favour of OMCs like HPCL, BPCL, IOC etc which have lost a mammoth 40% of their valuations in the melt down.
“It’s quotational loss,” he exclaimed, his eyes sparkling in defiance.
“It went from Rs 6,000-7,000 crore to Rs 70,000 crore and from Rs 70,000 it has come to Rs 40,000,” he explained emphasizing the fact that long-term investors are still sitting on a massive fortune of gains.
Raamdeo opined that OMCs make for a compelling investing opportunity given their high dividend yield of 6%, cheap valuations and sturdy franchise.
He rubbished fears that the Government would turn the clock back on deregulation.
“My understanding is that the government can influence only at best about 1/3rd of the profit through petrol and diesel … there is whole lot of other profit,” he said, implying that intrepid investors can dive into OMC stocks without any hesitation.
Voltas, the blue-chip powerhouse from the Tata stable, also received a clean chit from Raamdeo.
“The loss is purely quotational,” he thundered in reply to a direct question from Sonia Shenoy.
(iii) Tata Motors
Raamdeo was somewhat diffident about Tata Motors.
He opined that prima facie the savage 40% loss suffered by Tata Motors on a YoY basis is also ‘quotational’ in nature.
“I would say it’s quotational, because these are huge franchises, they will come back. You see their aggression in their strategy to bring back car, bring back truck and gain the market share in trucks, so they are very aggressive now,” he explained.
However, he made it clear that he is not an authority on Tata Motors and that the dice could land either way.
— CNBC-TV18 (@CNBCTV18Live) July 10, 2018
— CNBC-TV18 (@CNBCTV18Live) July 10, 2018
Dish TV – example of “permanent loss” due to technology changes?
Latha Venkatesh used immense tact and diplomacy while asking Raamdeo about the fate of Dish TV.
She did not want to spook the investors in DishTV and its compatriots like Hathaway Cable, Den Networks etc.
It is no secret that the fate of these companies is sealed and that they will soon be massacred en masse in the onslaught by Billionaire Mukesh Ambani’s Jio Giga TV.
“What would you do with more like technology changes for instance Dish TV India. They have reported excellent average revenue per user (ARPU) and yet there is a fear out there that if fiber to home happens. How do you read this?” she asked in a soft tone.
Raamdeo was blunt.
“Fiber to home is a 100 percent reality. Obviously, Dish TV has to find some other business model to be relevant,” he said, implying that if the Company does not change into a fiber to home or something like that it is the end of the road for them.
“I do not know what they will do,” he added curtly, suggesting that it is surprising that the Company has not yet made up its mind on what strategy it should adopt despite the impending onslaught by Jio Giga TV.
Exit broadband stocks like Hathaway , Den and dth players like dish tv
Jio will disrupt these once they launch all their services before Diwali . Big Rate cuts .
Good for Consumers.
— Avinash Gorakshakar (@AvinashGoraksha) July 5, 2018
— Anunjay Chouhan (@TheAnunjay) July 5, 2018
@DishTV_India @Videocond2h All d2h must not forget Reliance jio entry to d2h segment..take lessons from telecom where all companies already surrenderd..so preserve all your old and loyal customers other wise wud see yourself to sell peanuts on footpath
— Rahul Garg (@RahulGarg1312) July 15, 2018
— Aakash Sabikhi (@Aakash0106) July 5, 2018
Whenever I feel bad, it means the markets will take off
“Last 10-15 days I was feeling depressed that the markets are doing nothing … bad headlines … Iran crisis, Trump tweets … etc,” Raamdeo said in a despondent tone while Sonia and Latha stared at him with a look of concern.
“However, whenever I feel bad, it means the markets will take off,” he added with a chuckle, much to the relief of the two charming ladies.
“We will have a wonderful result this quarter … the Nifty earnings (excluding PSU Banks) will grow 25%,” Raamdeo said.
He also revealed that businessmen are gung ho about the economy because GST is through, demand is picking up, growth is 17-18%, MSP will revive rural demand, monsoons are looking good etc, etc.
So, if businessmen are optimistic about the economy there is no reason for investors to stay despondent, he advised.
The distinction drawn by Raamdeo Agrawal about “quotational loss” and “permanent loss” in stock prices is very timely. We should take advantage of “quotational loss” in high-quality stocks and aggressively buy more of the stock at bargain basement prices. Then, if we are patient, we will also be rewarded with mega multibagger gains!