Listing to the collective wisdom of Ramesh Damani & Kalparaj Dharamshi can be very inspiring. In fact, Kalparaj Dharamshi himself revealed that the reason for his own spectacular success with stocks is because he listened to, and acted as per, the wisdom of other great investors like Warren Buffett, Rakesh Jhunjhunwala, Radhakishan Damani etc.
Ramesh Damani and Kalparaj Dharmashi have offered important advice to us on how we can also find the “100 Ten-Baggers and Ten 100-Baggers” that are lurking around. I have distilled their advice into a few actionable points:
(i) Never miss an opportunity to take advantage of a crises situation:
In a crises situation, we get paralyzed with fear and go into a shell. That is the biggest mistake because such situations provide the greatest buying opportunity.
Kalparaj tasted his first big success when he aggressively bought stocks in the wake of the 9/11 crises. “Uncertainty, doubt, fear, panic, despondency always gives you an opportunity” to buy stocks at throwaway valuations Kalparaj explained.
(ii) Look for companies which are in a niche and are addressing large opportunities:
Examples of such stocks are Titan Industries and Amara Raja Batteries.
(iii) Ensure the financials are ship-shape:
Avoid companies that are heavily indebted. Look at the cash flow, profits, EPS, PE, dividend record, payment of taxes and track record of investor friendliness.
(iv) The management makes all the difference to whether a stock is a multi-bagger or a “multi-beggar”:
Kalparaj Dharamshi cited the example of Infosys and Mastek to emphasize how the quality of management makes all the difference to how the stock turns out. While both companies, Mastek and Infosys, started their operations at about the same time and are engaged in the same business, one has been a super-duper mega bagger while the other is still struggling to make ends meet.
(v) The present market condition is ideal for investment:
One should avoid markets where there is froth, euphoria and optimism. Presently, the markets are probably somewhere between fear and panic. The froth has been taken care of. Stocks may be expensive or cheap based on their individual capacity and you should have a look at them.
(vi) Keep looking for opportunities:
There will be as many opportunities for 100 or 200 winners available in the future as there were in the past 25 years. Don’t keep looking in the rear view mirror. There are probably 100 ten baggers and ten 100 baggers sitting right there. You do not know, you need to figure that out.
(vii) Take responsibility for your mistakes and learn from them:
You have to take responsibility for all decisions. If you do not own up to that, at some point in time, you will get into a psyche where you start blaming others. You are then headed for trouble.
(viii) Keep questioning the validity of the stock hypothesis even after you have bought it:
Within the first six months, I have a fair idea whether an investment is going to work or not. Till the time you invest your money in it, you have an idea of a stock which is entirely different. It changes as soon as you put your money into it. Then you start digging more, you spent sleepless night.
Even after the initial investigating, once you invest the motivation; your intellect does ten times the work it is supposed to do or prior to investing. So, what I find is within a first six months I probably have a decent idea of whether something is going to work or not.
(ix) The characteristics of a good investor – temperament, discipline and conviction:
The characteristics of a good investor are temperament, discipline and conviction. These are more important than intellect or curiosity. Intellect is required but you need to figure things out in your own sweet time, but you need to be ahead in terms of deciding – if you can decide fast, when you see an opportunity.
You do not need to listen to everybody’s opinion on your stock. If they have an opinion, listen to it and form your opinion, hold your conviction. First get yourself convinced, once you have conviction, hold on to it. If you feel that there is actually a reason – there may be the best of investors out there telling you that your investment is wrong. It happens to us because we all move around in a circle where the next guy is as smart as you or probably smarter than you. And his opinion, you have to give weightage to. But you need to stick to your own conviction also and that is what I meant by discipline.
(x) When you find a great stock opportunity, bet big and back up the truck with it:
In all the successful investors, 10 stocks stand out. That means, they have an omission of 190, 290, 390 stocks which went on to become 1,00,000 baggers and they did not invest in. It does not matter. You need to get your 10 stocks right. Bet big on those 10 stocks and then wait it out. Back up the truck. Find a great idea, bet big and back up the truck.
(xi) Money is only a means of keeping score. Don’t make it the driving force of your life:
Money is a way of keeping score, nothing else. At a point in time, you decide you have enough. I come from a middle class background, I do not want a private jet, I do not travel business class, no yachts for me, I am fine living the way I am. Once in a while, I need an expensive holiday, but that is about it. I do not need expensive scotches, I do not drink scotch. So, my lifestyle I can probably maintain with what I have. That is not what drives me. Finally, an investor who has crossed the threshold is what I believe in.