So, what is Ramesh Damani’s investment mantra? He puts it in six simple words: INVESTORS MUST ALWAYS LOOK FOR VALUE.
Damani built his vast investment empire on the strength of this mantra. And it has stood him in good stead in good times and in bad times. Value is the key to sustaining good returns and protecting capital says he.
If you think about it, this is solid and sensible advice from one of the foremost proponents of value investing.
Damani’s investment techniques says quite a bit of this investment maestro. Quiet and conservative. Not given to pomp and show or flourishes.
He explains his magic investment technique: Always look for shares that are beaten down in value. Always look for bargains. Always think of what the price is in relation to its value in the foreseeable future.
In this, Ramesh echoes the timeless advice of that other Master of investments Warren Buffett who says that investors must always look hard and long for value and bargains. And if they look hard, they will eventually find a bargain, says Warren Buffett confidently. And when you do find the bargain, you must ACT and not procrastinate.
Damani says that good investing is always value investing. Buy wherever you see as value, says this doyen of the Indian investment world.
If you carefully analyze his stock picks, you will see a pattern in them. Ramesh Damani has an unerring instinct to home in on shares that are not in favour at the moment but which are excellent value plays.
When he talks of value; what the investment Guru is also emphasizing is that you must cover your risk, protect your downside.
If you are like us, you are skeptical and questioning. What is the proof that this investment mantra really works, you ask.
Well, the proof of the pudding is in the eating. Lets look at a few examples to prove the point.
VIP Industries: Damani identified VIP Industries in June 2008 when it was begging to be bought at Rs. 83. What did he see in this stock? Well, RD saw an excellent promoter – Dilip Piramal, he saw a quality product (branded luggage) and he saw an unending demand for the products of VIP Industries from the urban consumer masses. He was also confident that the downside was limited. When he exhorted investors to buy VIP Industries, his advice was met with disdain (though we acted on his advice!). Well, in 24 months (July 2010), the stock is quoting at Rs. 363. That makes for an appreciation of 337%!! The share has more than quadrapled!
There are so many other examples one can think of: TTK Healthcare which RD homed in on in at Rs. 75 and which is today quoting at Rs. 381. Hitachi Home & Life Solutions was going a-begging at Rs. 45 when the master of investments spotted it in January 2009. Since then Hitachi Home & Life Solutions has spurted to Rs. 348. Whirlpool of India is another stellar example. It was languishing at Rs. 46 in June 2009 when RD homed in on it. In July 2010, Whirlpool is quoting at Rs. 288 and every two-bit analyst now has it on his buy list!
The beauty of his stock picks is that they would have give you a good night’s sleep. Why, because they were VALUE PICKS. The price you paid for the shares was low – the fundamanetals were sound – so there was no reason to worry or lose sleep over Damani’s stock picks.
RD is careful to caution amateur investors that his old picks have ceased to be Value buys – thanks to the steep increase in their price. Now the risk-reward ratio has turned adverse for these stellar stocks picks.
But that doesn’t mean that there aren’t new value picks for the discerning investor. As Warren Buffett says “You must never stop looking for bargains. And if you look hard enough, you will eventually find a bargain. And when you do find a bargain, you must act“.
RD’s new stock picks are in the same mould as the old ones. Let’s take a close look at a few of them:
GIC Housing Finance: At CMP Rs. 112 (the recommended price was Rs. 95) GIC HF offers an attractive dividend yield of 3.5%. GIC‘s 3 Yr CAGR Sales is 25.82%, Its 3 Yr CAGR Profit is 19.96% while its’ Return on Equity (ROE) is 17.20%. The PE is 9.1. Plus reputed promoters and a business that is always in demand – financing house purchases – makes for a perfect value buy. Can it catch up with its illustrious big brother LIC Housing Finance (CMP Rs. 996, PE 14.2)? That remains to be seen but don’t be surprised if it does!
Precision Wires India: This caught Damani’s eye when it was at Rs. 100 (CMP Rs. 138) for a couple of reasons. Precision Wires India was quoting at a cheap PE of 5.33, its’ then Market price of Rs. 100 was below the book value of Rs. 137. Further Precision Wires India offered a good dividend yield of 4.4%. RD also noted that Precision Wires India was Diversifying into wind power and this could lead to re-rating.
The point was that Precision Wire provided the protection of a low PE and good dividend yield and so the downside risk was nicely protected while there was tremendous potential for upside.
He has also homed in on Geometric. A share that is in the doldrums presently but with excellent promoters (Adi Godrej) and strong growth prospects. Will Geometric become another stellar stock pick? Only time will tell!