Rocky
“The quest to learn is a journey and not a destination”- Rakesh Jhunjhunwala.
Debate could be made as to who is the 2nd best investor in the Indian Markets. There’s no doubt as to who’s the best one, undoubtedly it’s Rakesh Jhunjhunwala.
Considered as the pin up boy of the Indian markets often referred to as Big Bull. In true sense his ability to segregate between trading and investing is a god given skill. As he jokingly says: As you keep your mistress and wife apart keep your trading and Investing apart.
His trading skills are something which at least I can’t grasp so today I will only focus onto his Investing aspect.
Here is a summary of the lessons I have learned about Investing and Markets in general:
Identifying Top of a Bull market/ IPO top:
1. Valuation froth.
2. Commitment froth.
3. Bad News.
All three combined will lead to cracking of the markets or any particular Industry in the market.
While speaking on the valuations of the small and mid cap sector of 17-18, RJ gave three aspects of topping out of any stock or a specific industry.
Coming first to valuation froth he said “Market bhul gya hai 35 ka PE kya hota hai” meaning valuations in that space were so speculative that no one considered paying attention as to what may lead to a downfall. Second point regarding Commitment froth, when every investor/punter starts talking about a specific sector and most of them are the retailers, such cases are known as commitment froth. Third point is Bad News, if the company or the sector is hit with bad news and above conditions are fulfilled, the downfall is inevitable.
In any bull market the Large Caps first Underperform.
(Interview with Nikunj Dalmia of ET Now)
Investing in startup
“Show me tha cash. 8 rupay ka idli 2 mei bechoge toh customer ayega hi na.”
Nandan nilekani once said to him that startups which don’t need much offline integration are more likely to succed like google/ facebook. Amazon uber Lyft etc needs to be constantly in the race.
Radhakishan Damani taught him to look at the present prospects rather than predicting much on future i.e to look how the company has sustained in the past rather than betting on promises made by promoter of the companies.
He lost money into many technology companies in the unlisted space but after that he used the past prospects and invest.
Choosing an Investment
Opportunity size
Business model or business economics (Don’t confuse with the product it sells)
Predict EPS to some extend and let it grow overtime, P will automatically expand as soon as EPS expansion happens. If the girl is pretty the suitor will come.
What happens to high PE stocks:
Over one or two years earning will come but the price won’t appreciate. As a long term investor I don’t have the skills to predict that now price won’t move for a year or two ,hence I choose to do nothing. Remember there were two 3 year periods when Lupin gave me zero returns.
Shift from unorganized to organized is a reality. It will get accentuated in future. Retail space is something which you cant ignore in Indian markets. Very few retailers in India who have true cash flows and are profitable. Metro shoes I think it will be one the most profitable retailers India has ever seen.
Can brick and mortar business sustain? Definitely look at Tiffany, look at Costco.
Great businesses of the world have two characteristics:
They all pay Taxes.
Built will cash flow of their own business.
Hence he is skeptical to invest where business is burning cash like Zomato and other startups.
Price = EPS X PE
You have to make an estimate for EPS to grow and not worry about the P, if earnings go up P will automatically come.
India has huge amounts of saving and gradually these savings are getting financialized i.e conversion from physical form such as real estate, gold to equity, debt etc.
“Sab naffe ka daru hai.. pehle chacha ayega, fir chachi ayegi fir mausa ayega mausi ayegi fir sabko bolenge ki dekh maine kitna paisa kamaya. Isliye kisiko market mei bulaane ki jaroorat nahi hai, apne aap log ayenge”
(I will keep on editing this write up as i look through his various interviews)