Rakesh Jhunjhunwala, the greatest Indian Investor, officially announced on 21st June 2010 that he was buying more shares of VIP Industries. When Rakesh Jhunjhunwala bought the shares of VIP Industries, its CMP was Rs. 335.
Our crack team of investment sleuths put VIP Industries through the grinder to see if even after Rakesh Jhunjhunwala bought the shares, there was still any juice left in VIP Industries for us.
To our disappointment, we found that while VIP Industries had reported superb FY10 Results (Sales of Rs. 669 crores, EBITA of Rs. 77.40 crores, net profit of Rs. 48.3 crores and return of 33.52% of Equity Employed, its EPS of Rs. 19.3 (before extraordinary items) was discounting the PE is 17.35. We were also a little put-off by Dilip Piramal’s lukewarm prognosis that VIP Industries‘ volume growth in FY 2011 would be lower at 15% as compared to last year’s 25%.
We also found that after news came that Rakesh Jhunjhunwala has bought into the shares of VIP Industries, there was a 30% gain in just one week. VIP Industries‘s share had quintupled (577%) in one year.
So, we opined “Frankly, at its current PE, VIP Industries is expensive compared to its peers“.
Well, what do we know? We were so wrong! Because after that date, VIP Industries sprinted to a high of Rs. 507, a whopping 51% over Rakesh Jhunjhunwala‘s purchase price!!!
That means, that even after Rakesh Jhunjhunwala increased his holding of shares in VIP Industries on 21st June 2010, if you had bought the shares, you would have earned a mind-boggling return of 51% in just 45 days!!
The experience with Rakesh Jhunjhunwala and VIP Industries may not be unique. A study titled “Imitation is the Sincerest Form of Flattery” by two visionary university professors named Gerald Martin and John Puthenpurackal proves that if investors had just bought the stocks that Warren Buffett had bought, they would have made a lot of money.
The enterprising professors created a mock portfolio that bought shares that Warren Buffett had bought a month after they were publicly disclosed by Warren Buffett in the SEC filings. The result: The portfolio earned a CAGR of 14.26%!
So, the moral of the story: It pays to keep an eye on the heavy-weight investors and when the big boys go shopping – go along for the ride and don’t bother too much for niceties.