Vijay Kishanlal Kedia, like Rakesh Jhunjhunwala, Dolly Khanna and Bhavook Tripathi, is an individual who made a huge fortune from the stock market. His biggest success story so far is Atul Auto where he holds 20,69,498 shares which is worth about Rs. 58 crore at today’s CMP of Rs. 285. He also holds 3,15,000 shares of Cera Sanitaryware which is worth about Rs. 18 crores. He also holds a big chunk of stock in Stewarts and Lloyds and other companies.
Vijay Kedia had a very modest beginning. He came to Mumbai in 1990 and did not have much money to spare. He stayed in paying guest accommodation and changed places frequently. However, all that hardship did not diminish his enthusiasm for the stock market.
He started off as a compulsive trader but soon realized that there was more money to be lost than gained in trading. When he started investing based on fundamentals, his first success was Punjab Tractors which he bought at Rs. 50. The stock tripled in just three years. Kedia knew he was onto a good thing and his next big success was in 1992-93 when he bought a huge chunk of ACC shares. Thanks to the Harshad Mehta euphoria, ACC surged 10-fold and Vijay Kedia had his first super-duper multibagger.
After that there was no looking back for Vijay Kedia. He bought large stakes in upcoming companies like Atul Auto, Cera Sanitaryware, Aegis Logistics, Godrej Properties, Dish TV, LIC Housing Finance, TRF Ltd etc, in each of which he made multibagger profits.
In an interview to ET-Now in 2008, Vijay Kedia revealed his strategy for buying winning stocks. Though he was overly bullish at that time (he predicted that the Sensex would touch 100,000 in 5 years) and all his stock picks were not successful, his strategy is valid. He said that the number of rich middle class people in the population was increasing and the things that they would look for is things like housing, finance, cable TV, sanitary ware etc. As the demand and consumption for these items would increase, the companies that supplied them would prosper. Investors would do well to invest in such companies, he said.
The point to be noted is that Vijay Kedia’s tremendous success in the stock market is not just a question of luck or of being at the right place at the right time. There is a carefully orchestrated strategy at work on what type of stocks to buy and the time to buy them. This strategy can be distilled into a few actionable points.
|VIJAY KEDIA’S STRATEGY TO FINDING MULTIBAGGER STOCKS|
|– Buy aggresively in times of pessimism, especially when stocks are quoting at historical low valuations;|
|– Buy only after researching quality of the management, the business growth and understanding the downside risk ;|
|– Have a portfolio of a few high-conviction stocks that you can monitor closely;|
|– Have long-term vision of 5 years. Do not get frustrated early;|
|– Be mentally prepared for suffering losses. Do not get frustrated if your stock picks don’t work out.|
(i) Buy aggressively in times of pessimism:
This sounds very obvious but few of us have the courage to do this.
In his personal blog, Vijay Kedia writes “If you follow certain principles in stock market, then the worst situation in market is the best situation to invest”. He points that 1990 was the worst year for the Indian economy but since then the economy has grown four times.
He also advices that investors should not get unduly perturbed by factors like inflation, interest rate, IIP, GDP, politics etc which are beyond their control. Instead, if the stocks are quoting at historically cheap valuations, one cannot go wrong he says.
(ii) Prefer mid-cap stocks to large-cap stocks:
Vijay Kedia prefers to invest in mid-cap stocks because they are usually available at much cheaper valuations. If it is a good company, the stock valuations tend to rise much faster he says. He adds that the lower liquidity in the mid-cap stocks can sometime work to the advantage of the early investors because the latecomers drive up the price in their eagerness to enter the stock.
(iii) Only buy stocks with top-quality management:
Vijay Kedia explains that the quality of the management, the business growth and understanding the downside risk are the most important things that investors should look for before buying any shares in any company. He emphases that the best businesses can be ruined by bad management and bad businesses can be revived by the best management. If the management is experienced, aggressive, transparent and dedicated to their business, they will protect your investment in order to protect their own wealth and reputation.
On the all-important question as to how to assess the quality of the management, Vijay Kedia explains that the key is their past record and current practices. Investors need to analyze whether whatever the management predicted about the company or a group company, has been fulfilled or not. Also, how the management has behaved or performed during a slowdown in the past and how much management is devoted towards the company in which we are investing.
Kedia points out that other aspects that investors should be aware of is whether the management is ambitious enough to grow and what are the future plans and the capability of its team to deliver.
|VIJAY KEDIA’S PORTFOLIO Of MULTIBAGGER STOCKS|
|Company||% Holding||Nos of shares (lakhs)||Rs (Crore)|
|Stewarts and Lloyds of India||4.73||1.42||0.24|
(iv) Buy stocks that are on a growth trajectory and have a scalable business:
Vijay Kedia advices that investors should identify stocks that are doing well presently and have the ability to do better in the future. If a stock has to outperform, the company should be growing, and have the ability to continue to grow, more than the economy and its peers, he says.
(v) Be mentally prepared for a huge downside:
Even if the investor is 100% sure of the prospects of a stock, he should be mentally prepared to face a fall of 20 to 25% due to factors that one can not foresee and forecast, Vijay Kedia says.
In his personal blog, Vijay Kedia adds the words of wisdom that “if one wants to invest in the stock market then he should be prepared for the worst to happen … Any and every investment in stocks always has a content of speculation”.
(vi) Have a concentrated portfolio that you can monitor closely:
Vijay Kedia is no exception to the rule. He emphasizes that while one should not have all eggs in one basket, one shouldn’t also have a basket for each egg. He advices that investors should prepare a short-list of about 50 stocks and select one or two high-conviction stocks from them.
(vii) Have a minimum long-term vision of 5 years:
If one is investing in mid-caps in the hope that they become large-caps and deliver multibagger returns, that process is not going to happen overnight, Vijay Kedia says. Instead, it is a long drawn process which takes a minimum of 5 years. So, investors must have the clear cut understanding of what the time frame is so that they do not get unduly impatient and perturbed.
(viii) Buy a meaningful quantity of the stock in which you have conviction:
Consistent with his advice that investors should have a concentrated portfolio, Vijay Kedia suggests that they should buy a large quantity for it to have any meaning.
He cites from his own example. He points out that in the year 2004-05, he had identified Aegis Logistics as a potential multibagger but had no courage to buy a large quantity. He then met Rakesh Jhunjhunwala for advice. Rakesh advised him that if he (Kedia) did have the conviction in Aegis Logistics, then he should go ahead and buy a meaningful quantity. Kedia went ahead and bought a massive 5% stake in the company. This was the first time that he had invested so much in one stock. Luckily for him, the gamble paid off and the stock became a 15 bagger in just 2 years.
Interestingly, the same advice came from Ramesh Damani. Ramesh Damani called his own inability to dream big the “biggest failing” of his career. Though Ramesh identified several multibaggers, he always, by habit, bought piffling quantities. The result was that even though these stocks became super-duper multibaggers, the impact on Damani’s portfolio was minimal. “If I had bought 10% of the stocks that I had identified, I would have been a Forbes Billionaire today” Ramesh Damani said ruefully.