I am not giving here 10 bullets but take one point at a time and explain my understanding in detail supported by further elaboration from TEDs.

 

 

Interpretation: It's a very simple maxim and very popular in english literature so one can struggle to see its relevance in Investing, here lies the greatness of RJ!

 

As per my understanding RJ mentally wired as more of a trader than invester. His investment theme is more of probabilistic than absolute unlike Mr Buffet. RJ is a moderate risk taker so what he means above is to select a boquett of companies not a single stock and be prepared that few grapes from this basket would be definitly sour.

 

Having said above, its easy to understand but hard to follow. RJ once said trading is against human nature so goin by this normal soul will find it hard to hold a basket with the acceptance of the fact that few selection will bound to go wrong but few others will give stupendous results to compensate the losses.

 

Another problem is above trick is painful and requires a lot of patience and conviction. One needs a lot of courage to hold such probabilistic portfolio for reasonable period. During this holding period portfolio will swing like googagli ball and can give sleepless night to ordinary mortal. But as long as portfolio is sound then value catches up and desired results happens.

Example: Few stocks like Garware Wall ropes, Infomedia 18 turned out to be bad stocks to RJ but few unknown stocks (10 yrs before!) like Karur Vysya bank has returned profit to the tune of many 1000%. Basantji once mentioned that this stock become 100 times in 10 year. It means 1 Lack invested in 2000 is worth now 1 Cr+, not a shabby return by any means!!! This is proven example now but at the time of this investment this was a small bank in Karur so thats the sheer example of courage! 

 

One more failed company in RJ's bag is Zenotech....I know this since this was one of my early invested and i thought it would become big in biosimilars.

 

One more point .. like you pointed out...RJ has limitless patience and an extremely long holding horizon (something which most of his imitators don't)

 

So, while he's still holding Zenotech (not sure how the dispute with Ranbaxy is panning out) I sold out long back...

 

 

Its a waste of time to persue this, except RJ nobody knows it precisely. Even if we knew that he took leverage still its a risk taking approach which many of us cant emulate.

 

Instead it would be good if we focus on what we can learn from his investing style. If many TEDs share their wisdome on RJ tenets then all of us will benefit a lot.

 

RJ has a tendancy to buy 100% domestic theme and Nagarjuna Construction is one of that. Do you know anything on his buying rational for Nagarjuna Construction vis-a-vis other players in same field?

This is a good thread. I think you can write a book (like "how to invest like RJ"). One constant theme in all the great investors is their patience and complete trust in their method.

 

Thanks for appreciation!, you will see many more RJ's tenets i gleaned from various sources shortly.

 

RJ bought about Rs 2000 worth of KVB shares about 20 years back. I am sure he bought more in the meantime....total worth of his KVB holding is about 100 cr about 3-4 months back.

 

Subu,

 

Above is a classic example of the beauty of portfolio mgmt by RJ. He starts with set of stocks and over time remove the weeds and water the plants. If story is tried in very start and later found to be true then it makes sense in beleiving the story.

I can tell you my simple logic. Per me, stock was avaialble at 4 pe forward and was growing at 100% p.a. The next big stocks in the same sector(Gammon and HCC) were available at 15-16 pe. The only company with similar valuation and growth profile at that time was IVRCL, which I believe has performed better than NCC, price wise since then.

 

May be, domestic theme was behind RJs purchase, but all construction companies were growing rapidly at that time(remember, these were golden quadrilateral days) and it did not require a genius(as I bought it) to buy these stocks. All that one needed was to buy something cheap in construction sector and hold tight. Alas, second part is tough for many. It requires a lot of experience to buy right and hold tight.

 

Secondly, at that time, every other analyst(topiwala) was saying that construction sector has a very low profit margin(probably 8% used to be the highest). Any price change in the underlying materials like cement steel etc. will make these companies bankrupt. The higher the order book growth, the more the chances of bankrupcy . So, these companies should trade at sub 5-6 pe. The large ones(Gammon and HCC) are overvalued and the small ones (Nagarjuna and IVRCL) are rightly valued . But to their utter dissapointment and to RJs utter happiness, came price escalation clauses and the game changed.

 

RJ probably entered the sector knowing about acceptance of price escalation clauses going forward(after discussing with promoters of the company) and  took a calculated risk. Since then the rules of game has  changed. Now nobody feels that a construction company trading at 20 pe is costly :).

 

 

1) Factors which can cause company to increase the profit e.g. new unique offering or niche sector (Bilcare, Praj, Lupin etc). There could be many other factors but RJ looks at them and i guess beleives that those factor will result in ciumulative profits and hence justify the growth. Eventually in long term its the earning growth which is important not any business metrics as they converge to good figure automatically. Identification of such factors is not simple and requires thorough business understanding.

 

2) Is business scalable like Titan, Crisil etc. Titan was a classic example, RJ purchased Titan when its MCap was mere 162 Cr and debt was even more than that. RJ argued that every indian needs a watch and one third population of the world is in India and only niche player at that time HMT was rotting. This call eveentually turned out very lucrative to RJ. Notable point is here that  many others would have thought the same at that time but couldnt gather the guts the invest huge amount and remain stay invested for long.

 

Pantaloon is another decent example of business scalability as well as unique proposition. Need sfor retail was very strong for vaste indian consumers and Pantaloon was having first mover advantage.

 

3)  How much capital a business need and how a company is going to fund it?

 

I am again tempted to give Titan as an example. Titan's RoCE/RoE is very hight because its expansion is based on franchise model and Titan only manages brand recall and inventory and focuses on new products. Franchiser invests his own money to run the shop.

 

 

One more broad principle that RJ seems to follow is to focus on earnings growth....i don't see him paying too much attention to factors like corp governance.

 

I don't believe Nagarjuna guys ever had a clean reputation but RJ still derived a multi bagger from the company.

 

 

For me above is a "kaala akshar bhains barabar"

Pardon my ignorance...

  I have heard many times that KVB has given 100cr/2000 rs= 5,00,000 (five lakhs) times return to RJ. Going by the data total market cap of KVB is almost 4000 odd crores now...if we divide this figure by 5,00,000 the market cap at the time of buying KVB was mere 80,000 rs (at max). I dont know how come a bank of market cap less than 1 lac was listed 20 years back.

 Please clear my doubt...am i missing some important link...

 

This tenet seems to be very much uncomprehesible so far, at least to me. As per this RJ mentions very clearly that price is important, future profit after all depends on at which price one enteres in the stock. But theres some contradictions, RJ himsels says :

 

1) Beauty lies in the eyes of beholder so deas right price of stock

2) If theres any maths in valuation then anybody can feed this in computer and become rich

3) #2 above means investing can not be learned by some magic formulas. RJ is very clear here and mentions that there are two ways to understand the market first by investing and later investigating and second by being in the market itself!

 

It appears that RJ evaluates the business more in macro terms (MCap, scalability, capital needs etc) and at initial stage and simply sit tight.

 

In another way RJ looks contrarian as per below examples:

 

1) Investment in Geometric and recent Bharati Airtel

2) Rishi laser and Garware wall ropes - nobody knows the criteria except RJ

3) When tech boom was in full swing then RJ invested heavily in PSU stocks which were dusting later post tech book they turned out to be a bonanza to RJ.

 

 

 

 

l am not comparing here whos more great here instead giving my observation. RJ himself once said that do not insult the great man (Warren Buffet) by comparing me with him.

 

Similarities:

 

1) Both are extrememly successful in investing and become extra ordinarily

    rich by investing alone.

2) Both are full time investor i.e. its their main business,passion,life etc.

3) Both are value investors though definition of value for both of them is

    very different. RJ measures value for future MCap due to scalalbility

    while WB is more keen on buying price value.

4) Both are having good sense of humor :-)

 

Differences:

 

1) Occasionally RJ trades and WB is a arbitagueaur

2) WB looks for absolute buying price of the business. His buying

     procedure is very well documented and bsed on certain crisp tenets.

    While RJ's approach is portfolio deriven i.e. not absolute buy of any

    individual business.

3) WB documents and rationalize his purchases in annual reports while RJ

    has no such obligation to follow.

4) WB invests with great conviction and in huge amount (Burlington Railway is baught @27 Bullion USD!!!!!). This conviction comes from extreme confidence in the business and years of observation. While RJ seems to be starting with some amount which he later increases as per the growth of the business.

 

 

I can lend if you assure me that you have guts of RJ .

 

Anyway i do not know about RJ but WB is not exactly using leverage of insurance premium. If we go by this definition then any MF Mgr is also using leverage i.e. partners' money.

 

TRUE!!! Provided one has the judgemental capability on that invested sum would be profitable. Jus imagine the contrary.....

 

By the way, wish you very happy birthday!!

 

 

Thanks a lot for B'day wishes!!!!

Wish you all a a very rewarding investing experience in your life ahead.

 

One more point I'd like to add here is that WB starts of with the desire to score 100/100 => he really does not expect to lose money on any deal. (though not always successfully)

 

RJ expects that not all his shots will be a sixer or a boundary and expects a few duds.

The ULIP-type funds available with the insurance companies are very different from their floating capital. The stock market investment restrictions are on the floating capital, not on the ULIP-type funds where the insurance company is merely acting as a pass through vehicle, much like mutual funds.

 

Although I am not sure of the exact percentage of floating capital permitted to be invested in the stock market by indian insurance companies, as per my knowledge its somewhere in the 5-15% range. If someone knows the exact figure, he/she is welcome to update the forum.  

 

Your posts are great. It is really inspiring to know RJ's philosophy. I am a big fan of his optimism and belief in Indian growth story. His no-nonsense discussion on TV is great to watch.

 

Now A2Z is planning for IPO and as per the proposed offer price, RJ's stack worth whopping 800 Cr  !!!!!!

 

I wonder whwther WB has even earned 40 times on any investment in 4-5 years so in this way Desi Guy is far ahead of Legendary W Buffett.

 

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/Investor-Jhunjhunwala-reaps-big-with-A2Z-Maintenance/articleshow/6771753.cms - http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/Investor-Jhunjhunwala-reaps-big-with-A2Z-Maintenance/articleshow/6771753.cms

 

 

I know of a 170 bagger but that was over 18 years...

 

RJ is rocking...also let's not forget RJ's involvement will probabily mean the stock will command a premium (atleast in the beginning)

this is not possible it is imposibble

 

Hence we cannot compare them. In any case, WB is an extraordinary investor and businessman.

 

RJ is certainly a great investor but comparing him with WB and proving him better than WB by giving some sporadic example is not right. I am sure in almost every country in the world, the investors think one of them in their own country is better than Warren Buffet.

Well i was trying to correlate it to investment world and incidently noticed that RJ is already too good at it. His investment is mostly in companies who are in new emerging mkts. For example Bilcare, Praj, Titan and so on.

 

As mentioned before RJ has a probabilistic portfolis not an absolute kind of investment. Many of his stocks gives whopping returns but few fails too like

 

Punj LLoyed

Infomedia

Praj

 

etc.

 

But his absolute gain of portfolio is much higher to overshadow the losses. I think RJ Investment philosophy should be must for MBA course as a must subject for Portfolio Mgmt .

 

 

As RJ used to emphasis that analysis is a paralysis instead look for the factors which can drive the profit of a company in future. If ones calculation turns right then you have a winner. Going by this dictum, i come across following stock which could lead to profit escalation in future:

 

KS Oil - Palm oil is RM and its imported hence expensive,Mgmt tried a small model of planatation of Palm oil in Indonesia and due to its success they invested heavily in palm farming. It resulted in erosion of profit due to mounting interest cost. Palm oil plantation has a cycle for growing plants and once its complete then real benefits will start appearing in the books after few years. Only risk is mother nature, any natural calamity may damage the entire investment.

 

Stock is cheap and legendary Sivasankar has recently baught it heavily from open market.

Words of wisdom from Rakesh Jhunjhunwala
------------------------------------------
(The following piece is published in rediff(dot)com, Im hereby reproducing it for TEDies.)
One of India's savviest stock market players, Rakesh Jhunjhunwala has been called the 'pin-up boy of the current bull run.'

It's an epithet that sits lightly on his shoulders. A chartered accountant with a penchant for dabbling in stocks with an uncanny eye for success, Jhunjhunwala started as a trader and investor in 1983. He now runs his Rare Enterprises company from offices in Mumbai's Nariman Point business area. What earned Jhunjhunwala fame is his skill to pick under-valued stocks, thus earning him the sobriquet: India's Warren Buffett.

Talking about his company RARE (derived from the first two letters of his name and that of his wife Rekha) Enterprises, Jhunjhunwala says, "My company has only one client -- my wife -- so that I don't need to handle others' money."

Enter the market when no one else does
---------------------------------------
Jhunjhunwala takes the cue from Warren Buffett when he says: "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."
• Don't follow stock picks by big investors
• Remember: the market is always right
• You can never be taught about market, you have to learn it
• You must balance fear and greed
Jhunjhunwala says he is 'well invested' in key growth areas like banking, retailing and infrastructure, all of which are based on India's domestic performance.

His private equity interests offer more detail -- education (private schools in Mumbai), hospitals and health care, a security company, pharmaceuticals, and dredging.


Markets are like women -- always volatile
----------------------------------------
"Markets are like women -- always commanding, mysterious, unpredictable and volatile," 'Big Bull' Rakesh Jhunjhunwala had told a gathering in Mumbai a few months back.

For Jhunjhunwala, trading by the hunches is the best thing to do. "If in doubt, listen to your heart," is what he tells young investors. Given below are some investment gems from him:
• Be optimistic
• Be opportunistic
• Study the market thoroughly
• Maximise profits and minimise losses
• Invest in a business not a company
• Have an independent opinion, always
• Be happy with your gains but take losses in your stride
• Be prepared for risks
• Despite sharp corrections, early this year Jhunjhunwala predicted that the Indian markets will reach its peak by 2010


Markets plunging? Don't sell in panic
-----------------------------------
Jhunjhunwala states that there is nothing to fear despite a sharp plunge in the Sensex this year. He assures investors thus:
• Nothing has changed as the Indian market is 'deep-rooted'
• Corrections, however sharp, are indispensable
• Panic selling during a sharp fall is the worst thing to do
• Stay invested and calm when the markets nosedive
• The country is poised to soon achieve a double-digit economic growth along with an impressive corporate profit growth
• This is bound to drive the bourses
• It does not take rocket science to understand that India's economic growth will be in double digits

Tips for beginners
-----------------
And for beginners in the stock market, this is what he has to say:
• Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it
• Do something you love
• The means are as important as the end
• Aspire, but never envy
• Be paranoid of success -- never take it for granted. Realise success can be temporary and transient
• Build a fighting spirit -- take the bad with the good
• When you see a horizon, it seems so distant. When you reach that horizon, you will realize how many more horizons are within reach
• Jhunjhunwala said enormous wealth was created over the last five years because opportunities in India have grown manifold.

Admitting that gains were going to be moderate in future unlike the manifold rise over the last few years, he advised investors to be realistic in their expectations.

 

Very correct, Ruchi Soya i read has already got Palm Plantation in Hyderabad so safer. I gave KS Oil as an example only though.

 

1) DCB

2) IFCI

3) VISAKA

4) SREI Infra

 

All above are cheap by any definition and turnaround except last 2. Next 5 years will tell who is right.

 

You seem to have got confused with his trading deals and investment deals.

 

Deals done in name of - Rare Enterprises are Trading Deals

Deals Done in name of - Rakesh and Rekha Jhunjhunwala is Investment deals.

 

i.e -

 

 Trading deals -  Visaka , DCB , IFCI,  Chemfab Alkalis Limited 

 

Investment -  IFCI, SREI.

 

 

 

He might enter his leveraged bets when the markets correct big time, as per technicals, that period seems to be around the corner.

 2 Brokers : they are not earning bread and butter out of brokerage.

3 small retail investors: they are totally out , look at the IPO responses.

4 big investors : they are slowing buying and selling: may be churning portfolios.

5 Politicians: they were busy with elections and curving inflations.

Hello,

When you write, RJ "values the stock for very long term" - what kind of a time horizon do you interpret from this.  I can understand that many people, who have an in depth understanding of a business sector, can forecast cash flows for predictable firms like a candy company, a newspaper or in some cases even a regional bank. But the other piece of the puzzle is the discount rate - that is where the rub lies.

I am truly baffled - how can one man, understand so many sectors and so many businesses in such a short time. On top of this, I came to know from your posts that he at times have invested in bad managements, negative worth and loss making stocks just to see them turnaround.

If there is nothing fishy about this, then surely business schools should trash their finance chairs.

 

Warren Buffet once said that id market is rational [whats taught in          B- School] then i would be on th e street with tin cup.

 

Valuing thr business does not require strong maths background. Once RJ said if investing is so easy then anybody could have becom rich by feeding some formula in the computer. In order to learn how market works one has to be in the market.

 

1) VIP Ind - increased stake

2) Kesoram Industry

3) Escorts - Looks undervalued indeed and delivered excellent results in past 3 qtrs but unable to figure out any long term trigger in this business

4) One realty company - AnantRaj Industry  or DB Realty

5) SPICEJET

 

Surprisingly all are cyclicals, looks like a trading bet.

 

Wait and watch till Q3. To me, long term prospects are bright but some headwind in short term. Love to accumulate near 200.