Jhunjhunwala: How he does it

There are plenty of people in the markets who are willing to give you tips on the market. But when Rakesh Jhunjhunwala tells you how to invest your money you are bound to take note.

Jhunjhunwala is one of the most well-known investors of the Indian market. Speaking at the national finance symposium organised by the Indian Institute of Foreign Trade and the Bombay Chamber of Commerce and Industry, he explained some of the things he looked at while investing and how he believes India is at the beginning of a long bull run.

The big bull does not try to beat the market as opposed to investment managers who have to answer to a lot of people, and hence look at indicators like how much alpha — or returns in excess of the general market — they are generating.

“The only person that I have to answer to is my wife, and she just wants to know what the absolute returns are, not whether I am beating the market,” he said.

The market, though, is expected to do very well, and he believes that India is at the beginning of an unprecedented multi-decade bull run. Putting his money where his mouth is, he says that his assets effectively have a 100% exposure to Indian equity.

“There are 7-8 stocks that make up 80% of my portfolio, and my holding period stretches from 3 years to 10,” he said.  Choosing the right asset class may play a major role in wealth creation, but it is important to have reasonable expectations as well.

While relaxing in the evenings in clubs or restaurants, he is often approached for stock tips. Once, unable to refuse a lady who asked him for investment advice, he suggested a stock that he expected to double in three years’ time. The lady, disappointment writ large on her face asked, “Just double?”

Picking that multi-bagger entails a lot of analysis. However, while a lot of time is spent analysing a company’s profits, it would also help if one were to understand the factors which create the numbers rather than crunch the figures themselves, Jhunjhunwala said.
If one understands the potential of technology, then one could identify IT firms early on.

Similarly, the increasing use of toothpaste would push one towards an FMCG company.
After one has identified a potential investment, it is important to keep an eye on scalability. If a company is able to duplicate its successes elsewhere, then it is worth buying. It should show a business model which it is able to grow beyond its current size.

Buying companies at a reasonable price and watching factors such as operating leverage can help make the right investment decisions. Factors other than analytical ones can also play a role, he suggested.

During the tech boom, Jhunjhunwala preferred more staid companies. His friends would laugh at his elation when his stocks moved up by Rs2, compared to their holdings, which often moved 20% a day.  With the tech bubble bursting, it is clear who had the last laugh.

“Patience and conviction are both important for investors. If you have both, while your patience may be tested, your conviction will be rewarded,” said the big bull.