Rakesh Jhunjhunwala‘s interview in the economic times cannot just be read – it has to be studied – because hidden in the fine print is precious advice from the master stock picker, to his less fortunate brethren.
Rakesh Jhunjhunwala did not become a billionaire with super-duper multi-baggers like Titan, CRISIL, Lupin etc by buying stocks when every over-exuberant Tom, Dick & Harry was in a buying frenzy. Instead, he picked his multi-bagger stocks when the average Raju had got fed up of the stock market and thrown in the towel.
So, let’s interpret Rakesh Jhunjhunwala‘s words of wisdom and see how it can benefit us:
Advice No. 1 – Buy Now Because The Problem Is A Short-Term One:
Rakesh Jhunjhunwala, with his usual sharp perceptive ability, pinned the entire problem down to two issues: “inflation” and “government inaction”. He explained that “inflation controls everything, interest rates, growth” and also pointed out that though there were very good people at the helm of government and they knew what needed to be done, they were unable to take big-ticket decisions.
Rakesh Jhunjhunwala emphasized that problems like these are temporary in nature by categorically stating that “The next three months are going to be a very difficult period for the markets”.
What is implicit is this assertion is that once inflation begins to cool down and the government gets its act together to bring in reforms in infrastructure, GST etc, the stock markets would begin to fly again.
Rakesh Jhunjhunwala did not want to leave anything to the reader’s imagination so he made it explicit “If the monsoon is good and commodity prices ease which I personally expect, oil prices should be at $80-85 and some government action comes through and inflation may not have come down, but it becomes apparent that in future months, inflation is going to come down, then the Indian markets will have a very strong ride after that. So I am saying that the next 2 to 3 months are uncertain depending on how events turn out. The period for the next 9 months could be very good or could be okay.”
Rakesh Jhunjhunwala’s emphasis that “the Indian markets will have a very strong ride” after the problem of high inflation and government inaction is resolved deserves to be noted by every investor.
Advice No. 2 – Buy Stocks For The Long-term:
Rakesh Jhunjhunwala could not have been clearer in his thoughts “I am extremely bullish in the longer period”, he declared and added that “the golden period for Indian equities has not even started”. He explained the logic behind his optimism by pointing out that “the Indian economy is going to grow for the next 30-50 years and that growth is going to surpass everybody’s expectations. In terms of consequence of that growth, equity and with such low exposure to equity markets, local investors and India this year will save about $650-700 billion. It is legitimate to expect that at least 10% of that should come to equity markets, but we are not seeing that at all. It will come with time. So the golden period is still ahead”.
Rakesh Jhunjhunwala gave his own specific examples to back up his thesis. He said “When I bought VIP, I have been looking for a five to seven-year angle. Even Relish, Orchid Chemicals and Delta Corp are long-term bet. These are four investments I made in the last two years. It has not essentially changed”.
Rakesh Jhunjhunwala‘s words of wisdom that stocks should be bought with a “five to seven year perspective” cannot be ignored by any investor because it is only with this kind of long-term thinking that the Oracle of Mumbai has been able to garner multi-baggers like Titan, CRISIL, Rallis and Lupin.
Advice No. 3 – Keep Looking For Stock Opportunities:
Rakesh Jhunjhunwala made it very clear that the days for multi-baggers was far from over and that he was constantly looking for opportunities like Titan, Rallis and CRISIL. He said “if I see an opportunity, I will surely invest” meaning thereby that when the investor has spotted the opportunity and is convinced of the prospects, he must not dither but must go all out and grab it.
Advice No. 4 – What To Look For In A Stock:
Rakesh Jhunjhunwala explained that there were three things that the investor has to look for in a stock: (i) High Entry Barriers, (ii) Good Growth Prospects and (iii) Excellent management.
He pointed out that Titan had become a multi-bagger because it met all these criteria. He said “the business has the highest entry barriers. They have good growth. They have excellent management. They are expanding very aggressively. They have good brands. So I think the retailing is going to be one of the biggest growth stories in India and Titan is in a sector which dominates whether watches or jewellery and now they are coming to frames. They could enter other areas also. So with such high entry barriers and growth and very high return on equity and good positive cash flows, Titan surely is a very sweet spot”.
Advice No. 5 – Keep An “Exit Value & Time” But Don’t Shuffle Your Portfolio – Ride Your Winners:
Rakesh Jhunjhunwala explained that even though Titan was “expensive” on all parameters of investment, he was not going to sell it just yet. He explained that for every stock that he bought, he had an “exit value and time” which was dynamic and subject to change. He stated that the fact that Titan could get expensive for six months did not bother him because it did not change the long-term prospects for Titan.
Rakesh Jhunjhunwala made it clear that “I do not want to buy something, sell something because it is expensive in the hope that I will buy cheap. I do not trade my investments”. He also clarified that he had a consolidated portfolio and he did not want to reshuffle it for the sake of doing so. He said he was not interested in selling something where he was getting a 20% return in place of buying something where he was hopeful of getting a 25% return. “I do not want to do all that” he thundered.
Advice No. 6 – Be Reasonable In Your Expectations
Rakesh Jhunjhunwala, in one of his earlier discources on how to find multi-baggers had made it clear “Don’t seek multibaggers – let them come to you”. The Oracle of Mumbai expanded further on the same theme by statting that if his portfolio generated “anything above 18%, I will be very happy”. There is a very significant message in this for investors. What the living legend is emphasizing is that investors must always invest in “High Conviction – Reasonable Return” stocks of well managed companies. Investors must be temperate in their expectations. As we have already seen, if a stock compounds even at a sedate pace of 18%, it becomes a multi-bagger in a few years (see Blue Chips Stock Portfolio: Compounding Multi-bagger).
Advice No. 7 – Focus Only On The Business
Rakesh Jhunjhunwala was asked why none of his stock picks were a part of the Nifty or Sensex and why he did not have any commodity stocks in his portfolio. His answer is very educative. Never buy stocks on the basis that they are – or are not – a part of the Index or that they belong – or do not belong – to any particular sector. Instead buy stocks purely on their fundamentals and price he emphasized.
Rakesh Jhunjhunwala, however, expressed his dislike for realty stocks but this dislike was based on issues like opaqueness / lack of transparency / unaccounted money etc.
The advice that one should focus only on the fundamentals and the price of the stock may seem like common sense but it is surprising how many investors get carried away and focus on irrelevant issues while missing out on the real picture.
Advice No. 8 – Never Time The Market – Always Buy Systematically
Rakesh Jhunjhunwala puts his authoritative seal of approval on a time-tested investment technique that every sensible investor ought to follow – Never time the market and always buy under the Systematic Investment Plan (SIP).
The advantages of the Systematic Investment Plan (SIP) was first laid down several decades ago by the legendary Benjamim Graham in his classic treatise “The Intelligent Investor”. Benjamin Graham described this “ultrasimple investment formula” with the striking sentence: “No one has yet discovered any other formula for investing which can be used with so much confidence of ultimate success, regardless of what may happen to security prices, as Dollar Cost Averaging.”
Benjamin Graham explained that by putting the portfolio on permanent autopilot this way, the investor prevented himself from either flinging money at the market just when it seemed most alluring (and is actually most dangerous) or refusing to buy more after a market crash has made investments truly cheaper (but seemingly more “risky”).
Advice No. 9 – Buy What You Know – Don’t chase new fads
Rakesh Jhunjhunwala was asked a frivolous question by the interviewer – who would he like to date. Rakesh Jhunjhunwala‘s chose Sharmila Tagore and justified it by saying that she was a youth icon in his time. Though the Question was frivolous and the answer probably flippant, it reveals the master’s preference of sticking to what he knows and not venturing to explore the unknown. This is also reflected in Rakesh Jhunjhunwala‘s portfolio which is made up of well known companies with established management track record like Titan, CRISIL, Lupin and Rallis.
Warren Buffett also echoed the same advice “Buy What You can understand”. Peter Lynch also said the same thing “You must be able to explain to a 5th Grader in 5 Minutes what the company’s business is and how it makes money”.