Templeton Asset Management’s Mark Mobius said he’s been buying stocks in Brazil, Russia, India and China in the past month and called the slump in emerging-economy shares a “correction” in a bull market.
Templeton Asset Management’s Mark Mobius said he’s been buying stocks in Brazil, Russia, India and China in the past month and called the slump in emerging-economy shares a “correction” in a bull market.
“Despite the fact that a lot of people think that we are entering into a bear market, we don’t believe so,” Mobius, who oversees about $34 billion in emerging markets as Templeton Asset Management’s Singapore-based executive chairman, said in an interview yesterday in Cairo. “This is a correction in an ongoing bull market.”
The MSCI Emerging Markets Index has dropped 15% from an April 15 high on concern China’s steps to slow inflation and European nations’ struggle to finance their deficits will derail a global economic recovery. The measure has climbed 96% from a four-year low in October 2008 and gained 3.2% on Wednesday, rebounding from the steepest drop since March 2009, on speculation valuations are attractive. “When the time comes, emerging markets will recover faster and in a big way,” Mobius said. “We’ve been buying stocks because we have had net flows into our funds. And most of the buying has been in the BRIC countries.”
Templeton has also been buying equities in other nations, including Dubai and Egypt, he said. The firm hasn’t reduced holdings in South Korea because the companies it owns were “relatively inexpensive” when it purchased them and may benefit from international sales should South Korea’s economic rebound stall, Mobius said.
Source: Economic Times
This very fact that the global investment guru is buying stocks in Indian stock markets assures that the correction happening in stocks will not go much below the present levels and that people may but stocks bit by bit for their long term investment portfolio.
Showing posts with label Investment Legends. Show all posts
Showing posts with label Investment Legends. Show all posts
Contrarian View on Stock Markets By Marc Faber
Investment guru Marc Faber, likes Japanese stocks and banks, real estate in India, wheat and natural gas as the New Year approaches.
"I think as a contrarian, you really want the contrarian play," Faber told The Economic Times. "You should buy Japanese stocks and Japanese banks.”
“(Banks in India) did not play in the CDO market and mortgage backed securities market … so for the banks that are well run, there is a huge opportunity,” he notes. “I can see in that in India urbanization will accelerate and there will be entirely new cities coming up,” he observes. “So I think there is a big opportunity in Indian real estate in the long run."
As to commodities, Faber notes he was “very positive about sugar,” which he still thinks may go up, but believes that wheat and natural gas offer better opportunities.
“In real terms inflation adjusted (wheat) is at 200 years low,” Faber says, and natural gas is “very cheap” … but it is not so easy for investors to play these commodities.”
The tightening of Tier I quality standards recently proposed by the Basel Committee on Banking Supervision is “overall negative for the Japanese banks,” Stephen Church, a research partner at Japaninvest KK, told Bloomberg.
Mark Mobius said plenty of opportunities still exist in emerging markets, BusinessWeek reports.
Mobius, a longtime Templeton Asset Management manager, said stocks of emerging markets are selling at good rates. Stock buys in Brazil, China and other smaller markets are still abundant since their economies are growing at a quicker pace, he said.
“Their economies are growing faster, four times faster [than the U.S. and global markets]. They were building up reserves, keeping their currencies low and reducing debt,” he said. Investors should seek buys in large emerging market countries such as India and Russia, Mobius said. Other countries such as Jordan, Lebanon, Qatar, Saudi Arabia, Dubai, and even Pakistan are also good investments. Mobius is making investments in consumer and commodities.
"I think as a contrarian, you really want the contrarian play," Faber told The Economic Times. "You should buy Japanese stocks and Japanese banks.”
“(Banks in India) did not play in the CDO market and mortgage backed securities market … so for the banks that are well run, there is a huge opportunity,” he notes. “I can see in that in India urbanization will accelerate and there will be entirely new cities coming up,” he observes. “So I think there is a big opportunity in Indian real estate in the long run."
As to commodities, Faber notes he was “very positive about sugar,” which he still thinks may go up, but believes that wheat and natural gas offer better opportunities.
“In real terms inflation adjusted (wheat) is at 200 years low,” Faber says, and natural gas is “very cheap” … but it is not so easy for investors to play these commodities.”
The tightening of Tier I quality standards recently proposed by the Basel Committee on Banking Supervision is “overall negative for the Japanese banks,” Stephen Church, a research partner at Japaninvest KK, told Bloomberg.
Mark Mobius said plenty of opportunities still exist in emerging markets, BusinessWeek reports.
Mobius, a longtime Templeton Asset Management manager, said stocks of emerging markets are selling at good rates. Stock buys in Brazil, China and other smaller markets are still abundant since their economies are growing at a quicker pace, he said.
“Their economies are growing faster, four times faster [than the U.S. and global markets]. They were building up reserves, keeping their currencies low and reducing debt,” he said. Investors should seek buys in large emerging market countries such as India and Russia, Mobius said. Other countries such as Jordan, Lebanon, Qatar, Saudi Arabia, Dubai, and even Pakistan are also good investments. Mobius is making investments in consumer and commodities.
Jim Rogger's Investment Guidance On Where To Invest Now..
Jim Rogers is a legendary investor, a swashbuckling traveller, a man who made his fortune before he turned 40. Now, he is an author and commentator. The man Times magazine once called the Indiana Jones of the world of investing has now morphed himself into a modern dad. In an exclusive interview with Ramesh Damani on CNBC-TV18's show RD 360, Roger discusses his latest book, A Gift to My Children: A Father’s Lesson in life and investing.
On the economic scenario right now, Rogers said we are in for an extended period of difficult times.
Jim Rogers' investment strategy is to look countries where valuations are cheap or paths that are less trodden. He said, "I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin. People are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do that it is not cheap. That is how he said he realised commodities was a good play in the 90s. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the 70s. But by the end of the 90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply."
Here is a verbatim transcript of Jim Roger’s exclusive interview on CNBC-TV18.
Q: You came into fatherhood fairly late, didn’t you?
A: Yes. I always felt sorry for people who had children. I never wanted to have a child. I thought children were a terrible waste of time, energy, and money. I literally felt very sorry for people who had children. I was never going to do something so foolish. I was totally, unbelievably wrong. I am telling you, it is the best thing that has happened to me. If there is anybody watching this show who has not had children, I urge you to get home and get on with it. You take a day off if you have to. You don’t take a day off these days, go home for lunch. But you should definitely have children.
Q: Let’s talk about the lessons in investing, some of which you have outlined in your book. The first lesson is, how do you size up a country? Can you give us an example of which country you are sizing now?
A: As I look around the world right now, I am not investing in many countries because if I am right about the world economy, we are in for an extended period of difficult times. So, the only place where I bought shares in the past year or so has been China. I have got Sri Lanka on my mind. It is just that I have been busy doing other things that I haven’t been able to get to Sri Lanka. But one of the things that I have learnt is that if you get to a country after a long and bitter war, you usually will find that things are very cheap, you will find a lack of capital, there is low morale, and everything is despondent, and there are usually great opportunities. So, Sri Lanka is on my list as a place where that sort of thing is happening, but there are not many, not these days.
Q: How do you size up a country? What are you looking for?
A: I am looking for two things. I am looking for them to be cheap, for whatever reason: War is a good reason. Cheap and change, where there is some kind of positive change taking place. Sri Lanka is cheap, because it has had a 30-year war and if I am right there is positive change because the war is over now. So, there is going to be peace and so the country can spend a lot of its time, energy and money on pursuing peaceful pursuits.
Q: When you gave an idea and people laughed, is that actually a good sign?
A: Yes. You know that, you have been investing a long time that the more sceptical people are – it doesn’t mean you are right because sometimes I am wrong anyway and I am sure you are wrong too sometimes and sometimes the sceptics are right. But the more scepticism there is, in my experience anyway usually you are probably on to something good, especially if there is a lot of scepticism or ridicule. Ridicule is even better. When they ridicule your idea you are probably really on the right track.
Q: The way your method works is. You look at the dustbins; you look where people are bearish because that is where you find the bargains?
A: Frequently, I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin; people are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do, it is not cheap.
Q: More certainty equals less profit?
A: Exactly.
Q: A good lesson in investing is learning the laws of supply and demand. Can you explain that to us?
A: It is very simple. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the ‘70s, people found oil and a lot of things happened, huge inventories of food buildup. But then by the end of the ‘90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply.
I had driven around the world a couple of times as you know, and I could see that demand was booming. I mean Asia was exploding. The difference in Asia in 1998 and in 1978 was very dramatic. So, I could see that demand was going up for 20 years, and supply going down and that had to mean that the bear market in commodities was going to come to an end. So, I started buying commodities for the first time in the last 15-20 years at that time. Lo and behold, I got it right. Sometimes I get it right.
Q: That works every time, the law of supply and demand. No dictator, no monetary authority has ever been able to change that?
A: They all try. Not just dictators, democracies try. I mean the Indian government, the American government. They all try to abolish the laws of supply and demand, think that they are smarter than anybody else. Periodically, governments put price controls on to food. Recently, the Filipinos put price controls on rice. Now if you were a farmer, you are not going to go into the field over 12 hours a day in the hot sun to raise rice if the government says you can only sell it for 2 pesos. You are just not going to do it.
Q: As Russia found out also?
A: As everybody finds it, every time they try it they always find out. No politician is going out there in the hot sun to work 12 hours a day to sell rice for 2 pesos, I promise you. Indians find out periodically. Your government’s always doing absurd things, so is mine. It just doesn’t work. You cannot repeal the laws of supply and demand.
Q: So the black market price is a good indicator of government policies?
A: Yes. You will need to find that there is a black market price with a very high premium or you’ll find that there is no supply at any price depending on how draconian the government is. If they execute you for selling something on the black market, there is usually nothing at any price. The government’s can sit there and yell all day long. Evil capitalists or evil speculators. Listen, you set the price too low, nobody is going to produce and you will have nothing.
Q: Whenever you hear the word new era or this time it is different, what are the lessons that you learn and are you seeing anywhere that people are talking?
A: Anybody who has read anything to do with financial history knows that every time there is a new era or that it is different this time, or that there is a new economy, those are signals. You hear a bell ring; you know that something is wrong. Some of the most dangerous words are, it is different this time, because it is not different this time. The laws of supply and demand, the laws of greed and fear, the laws of economics just don’t change.
Q: But markets can remain irrational for long periods of time?
A: Oh yes. It was Keynes who said that, “The market can stay irrational longer than you can stay solvent”. Well it certainly happened to me at times you know. I would sell something short. No way, it is too high, only to see it go higher and higher. I’ve learned the difficult way. Some of the things right now, right now everybody seems to be convinced that government bonds are going to go through the roof and that government bonds are a safe investment. Everybody seems to be convinced that there is deflation in the world. Long-term government bonds are yielding nothing.
Q: The perceived safety?
A: They perceive safety and they perceive – you don’t have to worry about inflation, deflation is here. So, you can buy long-term government bonds. In my view that is one of the next great bubbles, which is developing. I am not short bonds at the moment. I have them but I cover. That is a huge bubble. Apparently if you look at the market, most people don’t think inflation is coming – if government bond yields are any indication – nobody thinks that inflation would ever come back. So, I am afraid, I think that that is probably the next bubble developing.
Q: Let’s talk about something that you have been bullish on, the dustbin of history: Airline stocks?
A: Yes, I have been, they are not doing much good right now. I think I see that the supply demand – I mean nobody has been building airplanes. All the airlines have lost huge amounts of money over the past nine years now. It is a terrible place to be. Many of them went bankrupt. Normally, when I see a lot of companies in an industry going bankrupt, it is a good sign that we are near a bottom, which is what initially attracted me to the airlines this time around. So, I have been buying international airline stocks. Most of them are down from where I bought them, fortunately not down a whole lot.
I am still convinced because I don’t see anybody building a lot of planes. I don’t think we are all going to take boats to London again, or New York. I think we are probably going to continue to fly.
Q: It is almost an irreplaceable business?
A: It seems to me. We also know that throughout history many people who have managed airlines haven’t done a horrible job of managing airlines, which again means that if you don’t have enough seats eventually we’re probably all going to fly on planes and eventually they are going to make money. So, I am convinced this is one of the places that will come out of this, if we have to come out of this in a good way. I am much more optimistic about commodities than I am about any stocks right now. But that is one place where I bought some shares a year or so ago.
Q: One lesson you mentioned that you wanted to teach your daughter is that, economics and markets are two different things. Can you explain that?
A: Yes. Let’s look at China. The Chinese economy has boomed for quite some time. But between 2001 and 2005, the Chinese stock market went down every year for four years in a row, even though the economy was going through the roof. So, just because an economy is strong doesn’t mean you can have a good stock market, and just because an economy is weak – they don’t necessarily go together. In the long-term of course there is some correlation. But don’t think that good news means good stock market.
Q: Philosophy and history are important subjects to learn?
A: In my view, yes. Philosophy teaches you how to think. I was not very good when I was in university in philosophy. In fact I think that was probably one of my worst subjects. Later I realised what they were trying to do. They were trying to teach me after I had graduated but it certainly did teach me.
Q: Why is it important in investing?
A: It teaches you to be sceptical. It teaches you to think. Like if you hear something from somebody it makes you stop and think. Now, could that possibly be true? Merrill Lynch says it, Morgan Stanley says it then it must be true. I don’t know if it was the philosophy that I studied or what but I have learnt that when you hear all that kind of stuff, when everybody is thinking the same way, somebody is probably not thinking and so you better do your scepticism. That is one of the things that philosophy taught me, as I though I wasn’t very good at it when I was in University. History teaches you that the world is always changing. Pick any decade, 15 or 20 years later the world is dramatically different.
Q: There are lessons that you interrelate to the market with this, in terms of Asian or the American century?
A: Again, whatever you see now is not going to be true if somebody comes to you and says that this company is a great growth stock and in 15 years they are going to own the world. Rarely has that been the case. Remember the projections that were made about dotcom companies, only 10 years ago. Well if those projections had been true, the whole world would be one big dotcom. Dotcom has come a long way but it not one big dotcom world.
Q: One of the things you stress, in your own personal life and for your daughters, is savings. Tell me about it, tell me about the lessons, savings you did and how you teach your daughters?
A: My oldest daughter is six years old. When she was born, I got her a piggy bank and a globe, an atlas so that she can learn about the world, but she’s got five piggy banks now and I tell her that she has to earn her money and she has to save her money and if she wants to buy something like a Barbie doll, which she loves, she has got to go take her own money.
She always tries to get her daddy to buy it for her. I certainly buy her clothes and things like that. But things like Barbie Doll and she has got to get her own Barbie doll, and I see that she is learning the value of money because I see that she doesn’t want to take her money out of the bank and put it to buy something. So, I think she is learning the value of money and that is the main thing.
You must know this, many people just don’t seem to understand money or be able to handle money or control themselves with money. I know that is extremely important. If you have savings, and something goes wrong, you are in much better shape than the people who don’t have savings when something goes wrong and you can cope better.
Equally important, if you have some money saved up and an opportunity comes along, you can do something about it. If you have got Rs 10,000 and you see a great opportunity, you can see opportunity. But if you are Rs 10,000 in debt, and a great opportunity walks in the door, you sit there helpless.
Q: The one thing that stood out in your career and a lot of successful investors is passion, the importance of being 24 hours in the market. Talk to me about the importance, why is it important to have that in children?
A: I try to speak to my little girl. The thing that I have found, people who love what they do are normally successful people. It doesn’t matter what you love. If you want to be a gardener, and your parents say no you’ve got to be a lawyer, or a doctor or an accountant, you should really go be a gardener because that is what you are going to love.
People may laugh at you but you love it so much, you’ll never go to work. You wake up every day and you can hardly wait to have fun. You are going to be much more successful at it. Some day you are going to be the gardener at Buckingham Palace, some day you are going to be the gardener for Hyde Park, some day you are going to have a chain of gardening shops all over the world, and be listed on the Mumbai Stock Exchange or the New York Stock Exchange. And you will be extremely rich and really successful, and even if you are not terribly rich and successful you are going to be a lot better off than all those guys who are lawyers who hate being lawyers and are doing it because they have to make money because their parents said become a lawyer, or their wives said we need the money. No, pursue your own passion. And that is where you will be successful.
Q: The best advice that you said in the book that you could give anyone was learn Mandarin. Why?
A: If I am right in the 21st century then China is going to be the great country of the 21st century. The 19th century was the century of the UK. The 20th century was the century of the US. The 21st century is going to be the century of China.
My little girls were born in 2003 and in 2008. I think that the best skill that I can give people born in those years is to know Mandarin and to know Asia. We sold our place in New York and we moved to Asia because I want my little girls to know Asia and specifically I want them to know Mandarin. There are other countries in Asia; there are other countries in the world. But in my view, China is the one that is going to dominate this century and Mandarin is going to be the most important language.
Q: What would be the best piece of investment advice that you ever got?
A: Buy low and sell high. No, the real one is do your homework. Do not listen to what other people tell you.
Q: Attention to detail?
A: Be very attentive to detail. Cover all the bases; most people don’t cover the bases. If you read an annual report for a company on Wall Street, you would have done more than 98% of the people on Wall Street.
Q: Really?
A: Come on, you know that. How many people in India ever bother to read the annual report? They get hot tips if somebody says, they see it on TV or read it in the newspaper and very few of them read the annual report. None of them read the notes to the annual report. If you just do simple things like that, you’re way ahead of everybody else, but that does not mean you are going to be successful. I promise you. But if you’ve learnt to cover all the bases, if you cover attention to detail, and you are sceptical, chances are that you’ll be a successful investor.
Q: You also said stock traders should learn how to drive tractors? That is where the money is, the next decade?
A: What I said was, the last 30 years has been an era in the developed world where finance has been the centre. The ‘80s, ‘90s and this decade, people in Wall Street, the City of London, once you had all the money and the influence. We’ve had many periods like that in history but we have also had many periods in history when it is the people who produce real things, whether it is miners or farmers or whatever, where they have been the centre. In my view, we are in a historic shift now away from the financial centres to the people who produce real goods.
Farming has been one of the worst professions, the worst jobs for the past 30 years. I am telling you that in my view, farming is going to be one of the great professions in the next 30 years. All these people who were stockbrokers should turn in their degrees and go down and learn how to drive a tractor. They will be a lot better off. Atleast they will be working for rich farmers if nothing else and if they are smart they will become the rich farmer themselves.
Source: MoneyControl.com
On the economic scenario right now, Rogers said we are in for an extended period of difficult times.Jim Rogers' investment strategy is to look countries where valuations are cheap or paths that are less trodden. He said, "I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin. People are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do that it is not cheap. That is how he said he realised commodities was a good play in the 90s. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the 70s. But by the end of the 90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply."
Here is a verbatim transcript of Jim Roger’s exclusive interview on CNBC-TV18.
Q: You came into fatherhood fairly late, didn’t you?
A: Yes. I always felt sorry for people who had children. I never wanted to have a child. I thought children were a terrible waste of time, energy, and money. I literally felt very sorry for people who had children. I was never going to do something so foolish. I was totally, unbelievably wrong. I am telling you, it is the best thing that has happened to me. If there is anybody watching this show who has not had children, I urge you to get home and get on with it. You take a day off if you have to. You don’t take a day off these days, go home for lunch. But you should definitely have children.
Q: Let’s talk about the lessons in investing, some of which you have outlined in your book. The first lesson is, how do you size up a country? Can you give us an example of which country you are sizing now?
A: As I look around the world right now, I am not investing in many countries because if I am right about the world economy, we are in for an extended period of difficult times. So, the only place where I bought shares in the past year or so has been China. I have got Sri Lanka on my mind. It is just that I have been busy doing other things that I haven’t been able to get to Sri Lanka. But one of the things that I have learnt is that if you get to a country after a long and bitter war, you usually will find that things are very cheap, you will find a lack of capital, there is low morale, and everything is despondent, and there are usually great opportunities. So, Sri Lanka is on my list as a place where that sort of thing is happening, but there are not many, not these days.
Q: How do you size up a country? What are you looking for?
A: I am looking for two things. I am looking for them to be cheap, for whatever reason: War is a good reason. Cheap and change, where there is some kind of positive change taking place. Sri Lanka is cheap, because it has had a 30-year war and if I am right there is positive change because the war is over now. So, there is going to be peace and so the country can spend a lot of its time, energy and money on pursuing peaceful pursuits.
Q: When you gave an idea and people laughed, is that actually a good sign?
A: Yes. You know that, you have been investing a long time that the more sceptical people are – it doesn’t mean you are right because sometimes I am wrong anyway and I am sure you are wrong too sometimes and sometimes the sceptics are right. But the more scepticism there is, in my experience anyway usually you are probably on to something good, especially if there is a lot of scepticism or ridicule. Ridicule is even better. When they ridicule your idea you are probably really on the right track.
Q: The way your method works is. You look at the dustbins; you look where people are bearish because that is where you find the bargains?
A: Frequently, I do try to find things that are cheap. Normally if something is cheap, it is because it is in the dustbin; people are not looking at it. If everybody is looking at something or if everybody is investing in something, you know as well as I do, it is not cheap.
Q: More certainty equals less profit?
A: Exactly.
Q: A good lesson in investing is learning the laws of supply and demand. Can you explain that to us?
A: It is very simple. I came to the conclusion at the end of the ‘90s that the commodities had been in a bear market for about 20 years because there had been excess supply in the ‘70s, people found oil and a lot of things happened, huge inventories of food buildup. But then by the end of the ‘90s, I came to the conclusion that nobody built a drilling rig for 20 years and nobody had been discovering oil, farming had been a terrible business, farmers were going bankrupt all over the world. So, I realised that is going to mean there is less supply.
I had driven around the world a couple of times as you know, and I could see that demand was booming. I mean Asia was exploding. The difference in Asia in 1998 and in 1978 was very dramatic. So, I could see that demand was going up for 20 years, and supply going down and that had to mean that the bear market in commodities was going to come to an end. So, I started buying commodities for the first time in the last 15-20 years at that time. Lo and behold, I got it right. Sometimes I get it right.
Q: That works every time, the law of supply and demand. No dictator, no monetary authority has ever been able to change that?
A: They all try. Not just dictators, democracies try. I mean the Indian government, the American government. They all try to abolish the laws of supply and demand, think that they are smarter than anybody else. Periodically, governments put price controls on to food. Recently, the Filipinos put price controls on rice. Now if you were a farmer, you are not going to go into the field over 12 hours a day in the hot sun to raise rice if the government says you can only sell it for 2 pesos. You are just not going to do it.
Q: As Russia found out also?
A: As everybody finds it, every time they try it they always find out. No politician is going out there in the hot sun to work 12 hours a day to sell rice for 2 pesos, I promise you. Indians find out periodically. Your government’s always doing absurd things, so is mine. It just doesn’t work. You cannot repeal the laws of supply and demand.
Q: So the black market price is a good indicator of government policies?
A: Yes. You will need to find that there is a black market price with a very high premium or you’ll find that there is no supply at any price depending on how draconian the government is. If they execute you for selling something on the black market, there is usually nothing at any price. The government’s can sit there and yell all day long. Evil capitalists or evil speculators. Listen, you set the price too low, nobody is going to produce and you will have nothing.
Q: Whenever you hear the word new era or this time it is different, what are the lessons that you learn and are you seeing anywhere that people are talking?
A: Anybody who has read anything to do with financial history knows that every time there is a new era or that it is different this time, or that there is a new economy, those are signals. You hear a bell ring; you know that something is wrong. Some of the most dangerous words are, it is different this time, because it is not different this time. The laws of supply and demand, the laws of greed and fear, the laws of economics just don’t change.
Q: But markets can remain irrational for long periods of time?
A: Oh yes. It was Keynes who said that, “The market can stay irrational longer than you can stay solvent”. Well it certainly happened to me at times you know. I would sell something short. No way, it is too high, only to see it go higher and higher. I’ve learned the difficult way. Some of the things right now, right now everybody seems to be convinced that government bonds are going to go through the roof and that government bonds are a safe investment. Everybody seems to be convinced that there is deflation in the world. Long-term government bonds are yielding nothing.
Q: The perceived safety?
A: They perceive safety and they perceive – you don’t have to worry about inflation, deflation is here. So, you can buy long-term government bonds. In my view that is one of the next great bubbles, which is developing. I am not short bonds at the moment. I have them but I cover. That is a huge bubble. Apparently if you look at the market, most people don’t think inflation is coming – if government bond yields are any indication – nobody thinks that inflation would ever come back. So, I am afraid, I think that that is probably the next bubble developing.
Q: Let’s talk about something that you have been bullish on, the dustbin of history: Airline stocks?
A: Yes, I have been, they are not doing much good right now. I think I see that the supply demand – I mean nobody has been building airplanes. All the airlines have lost huge amounts of money over the past nine years now. It is a terrible place to be. Many of them went bankrupt. Normally, when I see a lot of companies in an industry going bankrupt, it is a good sign that we are near a bottom, which is what initially attracted me to the airlines this time around. So, I have been buying international airline stocks. Most of them are down from where I bought them, fortunately not down a whole lot.
I am still convinced because I don’t see anybody building a lot of planes. I don’t think we are all going to take boats to London again, or New York. I think we are probably going to continue to fly.
Q: It is almost an irreplaceable business?
A: It seems to me. We also know that throughout history many people who have managed airlines haven’t done a horrible job of managing airlines, which again means that if you don’t have enough seats eventually we’re probably all going to fly on planes and eventually they are going to make money. So, I am convinced this is one of the places that will come out of this, if we have to come out of this in a good way. I am much more optimistic about commodities than I am about any stocks right now. But that is one place where I bought some shares a year or so ago.
Q: One lesson you mentioned that you wanted to teach your daughter is that, economics and markets are two different things. Can you explain that?
A: Yes. Let’s look at China. The Chinese economy has boomed for quite some time. But between 2001 and 2005, the Chinese stock market went down every year for four years in a row, even though the economy was going through the roof. So, just because an economy is strong doesn’t mean you can have a good stock market, and just because an economy is weak – they don’t necessarily go together. In the long-term of course there is some correlation. But don’t think that good news means good stock market.
Q: Philosophy and history are important subjects to learn?
A: In my view, yes. Philosophy teaches you how to think. I was not very good when I was in university in philosophy. In fact I think that was probably one of my worst subjects. Later I realised what they were trying to do. They were trying to teach me after I had graduated but it certainly did teach me.
Q: Why is it important in investing?
A: It teaches you to be sceptical. It teaches you to think. Like if you hear something from somebody it makes you stop and think. Now, could that possibly be true? Merrill Lynch says it, Morgan Stanley says it then it must be true. I don’t know if it was the philosophy that I studied or what but I have learnt that when you hear all that kind of stuff, when everybody is thinking the same way, somebody is probably not thinking and so you better do your scepticism. That is one of the things that philosophy taught me, as I though I wasn’t very good at it when I was in University. History teaches you that the world is always changing. Pick any decade, 15 or 20 years later the world is dramatically different.
Q: There are lessons that you interrelate to the market with this, in terms of Asian or the American century?
A: Again, whatever you see now is not going to be true if somebody comes to you and says that this company is a great growth stock and in 15 years they are going to own the world. Rarely has that been the case. Remember the projections that were made about dotcom companies, only 10 years ago. Well if those projections had been true, the whole world would be one big dotcom. Dotcom has come a long way but it not one big dotcom world.
Q: One of the things you stress, in your own personal life and for your daughters, is savings. Tell me about it, tell me about the lessons, savings you did and how you teach your daughters?
A: My oldest daughter is six years old. When she was born, I got her a piggy bank and a globe, an atlas so that she can learn about the world, but she’s got five piggy banks now and I tell her that she has to earn her money and she has to save her money and if she wants to buy something like a Barbie doll, which she loves, she has got to go take her own money.
She always tries to get her daddy to buy it for her. I certainly buy her clothes and things like that. But things like Barbie Doll and she has got to get her own Barbie doll, and I see that she is learning the value of money because I see that she doesn’t want to take her money out of the bank and put it to buy something. So, I think she is learning the value of money and that is the main thing.
You must know this, many people just don’t seem to understand money or be able to handle money or control themselves with money. I know that is extremely important. If you have savings, and something goes wrong, you are in much better shape than the people who don’t have savings when something goes wrong and you can cope better.
Equally important, if you have some money saved up and an opportunity comes along, you can do something about it. If you have got Rs 10,000 and you see a great opportunity, you can see opportunity. But if you are Rs 10,000 in debt, and a great opportunity walks in the door, you sit there helpless.
Q: The one thing that stood out in your career and a lot of successful investors is passion, the importance of being 24 hours in the market. Talk to me about the importance, why is it important to have that in children?
A: I try to speak to my little girl. The thing that I have found, people who love what they do are normally successful people. It doesn’t matter what you love. If you want to be a gardener, and your parents say no you’ve got to be a lawyer, or a doctor or an accountant, you should really go be a gardener because that is what you are going to love.
People may laugh at you but you love it so much, you’ll never go to work. You wake up every day and you can hardly wait to have fun. You are going to be much more successful at it. Some day you are going to be the gardener at Buckingham Palace, some day you are going to be the gardener for Hyde Park, some day you are going to have a chain of gardening shops all over the world, and be listed on the Mumbai Stock Exchange or the New York Stock Exchange. And you will be extremely rich and really successful, and even if you are not terribly rich and successful you are going to be a lot better off than all those guys who are lawyers who hate being lawyers and are doing it because they have to make money because their parents said become a lawyer, or their wives said we need the money. No, pursue your own passion. And that is where you will be successful.
Q: The best advice that you said in the book that you could give anyone was learn Mandarin. Why?
A: If I am right in the 21st century then China is going to be the great country of the 21st century. The 19th century was the century of the UK. The 20th century was the century of the US. The 21st century is going to be the century of China.
My little girls were born in 2003 and in 2008. I think that the best skill that I can give people born in those years is to know Mandarin and to know Asia. We sold our place in New York and we moved to Asia because I want my little girls to know Asia and specifically I want them to know Mandarin. There are other countries in Asia; there are other countries in the world. But in my view, China is the one that is going to dominate this century and Mandarin is going to be the most important language.
Q: What would be the best piece of investment advice that you ever got?
A: Buy low and sell high. No, the real one is do your homework. Do not listen to what other people tell you.
Q: Attention to detail?
A: Be very attentive to detail. Cover all the bases; most people don’t cover the bases. If you read an annual report for a company on Wall Street, you would have done more than 98% of the people on Wall Street.
Q: Really?
A: Come on, you know that. How many people in India ever bother to read the annual report? They get hot tips if somebody says, they see it on TV or read it in the newspaper and very few of them read the annual report. None of them read the notes to the annual report. If you just do simple things like that, you’re way ahead of everybody else, but that does not mean you are going to be successful. I promise you. But if you’ve learnt to cover all the bases, if you cover attention to detail, and you are sceptical, chances are that you’ll be a successful investor.
Q: You also said stock traders should learn how to drive tractors? That is where the money is, the next decade?
A: What I said was, the last 30 years has been an era in the developed world where finance has been the centre. The ‘80s, ‘90s and this decade, people in Wall Street, the City of London, once you had all the money and the influence. We’ve had many periods like that in history but we have also had many periods in history when it is the people who produce real things, whether it is miners or farmers or whatever, where they have been the centre. In my view, we are in a historic shift now away from the financial centres to the people who produce real goods.
Farming has been one of the worst professions, the worst jobs for the past 30 years. I am telling you that in my view, farming is going to be one of the great professions in the next 30 years. All these people who were stockbrokers should turn in their degrees and go down and learn how to drive a tractor. They will be a lot better off. Atleast they will be working for rich farmers if nothing else and if they are smart they will become the rich farmer themselves.
Source: MoneyControl.com
India Is In Long Term Bull Run - Rakesh Jhunjhunwala On Stock Markets
The last three months have seen markets rebound wordwide. India has also joined the party. The election results have further fuelled the rally and raised expectations of reform and change in India. It has reaffirmed faith in India’s democracy and political system.
The rise in India has been accompanied by tremendous breadth and volumes. Going by technical factors, in the short term, we are most likely headed higher. I think the rally will also be driven by the rise in the risk appetite worldwide as is demonstrated by the weakness in the US dollar. In the medium term, what happens in the market will depend, in a large measure, upon the performance of the international markets and the extent to which the new Indian government meets expectations. In the long term, I’m of the firm opinion that the Indian bull market is very much alive and kicking. I think the triggers for the market going ahead can be broadly classified into domestic and international factors.
Domestically, the most important aspect is government policy, mainly the thrust on reforms. I will first discuss reforms which, to my mind, are most important for India and its economy and, by extension, our stock markets over the longer term. Top of my list is a comprehensive review of the subsidy regime in India. In my opinion, all subsidies should be relooked at with an open mind. One possible alternative could be to give cash compensation every month to a lady in each needy household.
This will put an end to the misuse of the subsidy regime and will allow for free pricing and competition in many sectors. Agriculture, too, I feel, requires special attention. We have to work towards a second green revolution as I feel there will be a surge in demand globally for agricultural products. Then, we need to frame policies which facilitate investment and economic activity. We need to do away with the hurdles in land acquisition for vital projects by having an effective legislation. It should be ensured that environmental policies do not become unnecessary impediments to projects. We must speedily review some of our archaic laws like the Indian Telegraph Act, 1884. Then, technology can be used to cut through the bureaucratic red tape.
In the short to medium term, the triggers for the market would be a change in FDI laws in insurance and banking, PSU disinvestment, labour law reforms and introduction of GST by April 1, 2010 as planned. Markets are also hoping for a review in the guidelines for foreign investment in stock markets. We need to allow any foreign entity, including individuals, to invest in our stock markets with a simple declaration certified by a qualified banker’s “know your client” rules.
International events, too, would influence the market. India’s relationships with its unstable neighbours, the stability of the international financial system and the value of the dollar, the pace and the quantum of economic recovery worldwide, especially in the developed world, would all be reflected in the gyrations of the Sensex and the Nifty. In the end, let me point out that in the last 6-7 years, Indian stock market has outperformed the markets across the world. I feel this will continue over the long term as India will remain one of the fastest-growing economies in the world. Also, India has one of the highest saving rates in the world coupled with a very well organised and regulated stock market.
Very little of this savings today comes into the stock markets. With the development of telecommunications, spread of television and growth in literacy, more of these savings will find their way into the equity markets. I think most analysts are vastly underestimating the effect of this mountain of savings entering the stock market over a longer term horizon.
Source: Article In BusinessToday By Rakesh Jhunjhunwala
Read More
Rakesh Jhunjhunwala On Future Of Indian Stock Markets
Rakesh Jhunjhunwala - Latest Portfolio Changes And His Strategy
Rakesh Jhunjhunwala Portfolio - Latest As In December 2008
The rise in India has been accompanied by tremendous breadth and volumes. Going by technical factors, in the short term, we are most likely headed higher. I think the rally will also be driven by the rise in the risk appetite worldwide as is demonstrated by the weakness in the US dollar. In the medium term, what happens in the market will depend, in a large measure, upon the performance of the international markets and the extent to which the new Indian government meets expectations. In the long term, I’m of the firm opinion that the Indian bull market is very much alive and kicking. I think the triggers for the market going ahead can be broadly classified into domestic and international factors.Domestically, the most important aspect is government policy, mainly the thrust on reforms. I will first discuss reforms which, to my mind, are most important for India and its economy and, by extension, our stock markets over the longer term. Top of my list is a comprehensive review of the subsidy regime in India. In my opinion, all subsidies should be relooked at with an open mind. One possible alternative could be to give cash compensation every month to a lady in each needy household.
This will put an end to the misuse of the subsidy regime and will allow for free pricing and competition in many sectors. Agriculture, too, I feel, requires special attention. We have to work towards a second green revolution as I feel there will be a surge in demand globally for agricultural products. Then, we need to frame policies which facilitate investment and economic activity. We need to do away with the hurdles in land acquisition for vital projects by having an effective legislation. It should be ensured that environmental policies do not become unnecessary impediments to projects. We must speedily review some of our archaic laws like the Indian Telegraph Act, 1884. Then, technology can be used to cut through the bureaucratic red tape.
In the short to medium term, the triggers for the market would be a change in FDI laws in insurance and banking, PSU disinvestment, labour law reforms and introduction of GST by April 1, 2010 as planned. Markets are also hoping for a review in the guidelines for foreign investment in stock markets. We need to allow any foreign entity, including individuals, to invest in our stock markets with a simple declaration certified by a qualified banker’s “know your client” rules.
International events, too, would influence the market. India’s relationships with its unstable neighbours, the stability of the international financial system and the value of the dollar, the pace and the quantum of economic recovery worldwide, especially in the developed world, would all be reflected in the gyrations of the Sensex and the Nifty. In the end, let me point out that in the last 6-7 years, Indian stock market has outperformed the markets across the world. I feel this will continue over the long term as India will remain one of the fastest-growing economies in the world. Also, India has one of the highest saving rates in the world coupled with a very well organised and regulated stock market.
Very little of this savings today comes into the stock markets. With the development of telecommunications, spread of television and growth in literacy, more of these savings will find their way into the equity markets. I think most analysts are vastly underestimating the effect of this mountain of savings entering the stock market over a longer term horizon.
Source: Article In BusinessToday By Rakesh Jhunjhunwala
Read More
Rakesh Jhunjhunwala On Future Of Indian Stock Markets
Rakesh Jhunjhunwala - Latest Portfolio Changes And His Strategy
Rakesh Jhunjhunwala Portfolio - Latest As In December 2008
Stock Markets (SENSEX) Could Go To 10000-12000 Levels Back - Marc Faber Opines
Marc Faber, Editor and Publisher of The Gloom, Boom & Doom Report, said he saw a correction of 25-30% in equities and that he expected the Sensex to retest 10000-12000 levels. Markets will correct as it becomes evident that the economic recovery is not as rapid as expected.
The US Federal Reserve will throw more money into the system as the economy deteriorates and so it would not be very favourable to be long on the US dollar, Faber added.
On commodities, Faber said that prices would continue to go up in the next couple of years, regardless of the global scenario as the supply of commodities could not be increased.
Commodity prices will find support due to excessive quantitative easing by the US and the global commodity prices will rise if economies improve.
Q: What is your own belief because as you said the camps have been split between what this looks like where the market might go? What do you believe for the Indian story?
A: It is not a question of what I believe. I was fortunate to essentially accumulate equities in December and then again in March and also play the rise in commodity prices as well as the rise in bond prices. At the moment I have to say when I look at the risk reward when the market was very oversold in March of this year, when the S&P was at 666 and the India at less than 8,000 then I compare it to today’s level. I am kind of neutral at the present time. I am leaning towards the view that we will get a correction now but most likely not new lows and then another move into July but the gravy is out of the markets at the present time. I don’t see a lot of opportunities right now where I would say the risk is very small and the opportunity is huge.
Q: So you are saying the next time there is a dip for whatever reason in global equity markets, it is a dip that should be bought into because whenever that dip happens, people will once again start talking about the fact that the bear market rally is over and we are now going back to retest the old lows of October or March? Would that be the right view or would it be the right view to buy into that dip whenever it comes?
A: I am not sure that it is the correct view but my sense is that the markets will correct now and they will correct for a variety of reasons partly because it will become obvious that the global economic recovery is not very strong or not taking place at all. Added to that, we have rising bond yields and renewed dollar weakness, we still have plenty of problems economically and financially. The markets should go down now and in this correction and as the economies kind of deteriorate once again, I am convinced that the US Fed will once again throw money at the system and there will be even larger deficits, more money printing and so the global economy may not recover much but asset markets due to the excess liquidity created by the Fed may hold.
Q: There has been a lot of talk even since crude bounced back close USD 60 per bbl that maybe crude is going back above USD 75-80 per bbl once again and it put a durable bottom in place around USD 35 per bbl. Do you agree with that?
A: There are some commodity bulls and they think that the oil price will continue to go up and there are some bears who believes that the commodity’s bull market that we had essentially since March when the CRB (Commodity Research Bureau) touched around 200 is just a bear market rally and that commodity price will collapse once again.
I am leaning towards the view that regardless of the global economy. If the global economy strengthens or is very strong the demand for commodities will go up and lift commodity prices and the weaker the global economy is, the more money Mr. Bernanke will print and this will lift commodity prices because the supply of commodities cannot be increased at the same rate as Mr. Bernanke’s money printing presses issue new bank notes. So, in general I would lean towards the view that oil prices and other commodity prices will move high over the next couple of years.
Q: There is a view here in conjunction with yours that markets may not go back to test the lows they saw earlier and perhaps they set a higher base for themselves. Would you agree with that when you say you are looking for a dip, how meaningful do you think that dip might be from current levels?
A: A lot of equities have gone up by more than 100% and so we could easily see in individual equities corrections of 25-30% or even more. But in general in the case of India we went from less than 8,000 to 14,000. I wouldn’t be surprised to see something like 10,000-12,000 in a correction but maybe it won’t happen. All I am saying is the risk reward today of buying equities is obviously not as favourable as it was in March when the markets were very depressed, very oversold and when sentiment was incredibly negative. Now sentiment has surprisingly turned very optimistic and most people think ‘the worst is behind us, let us pile into equities’.
The US Federal Reserve will throw more money into the system as the economy deteriorates and so it would not be very favourable to be long on the US dollar, Faber added.
On commodities, Faber said that prices would continue to go up in the next couple of years, regardless of the global scenario as the supply of commodities could not be increased.Commodity prices will find support due to excessive quantitative easing by the US and the global commodity prices will rise if economies improve.
Q: What is your own belief because as you said the camps have been split between what this looks like where the market might go? What do you believe for the Indian story?
A: It is not a question of what I believe. I was fortunate to essentially accumulate equities in December and then again in March and also play the rise in commodity prices as well as the rise in bond prices. At the moment I have to say when I look at the risk reward when the market was very oversold in March of this year, when the S&P was at 666 and the India at less than 8,000 then I compare it to today’s level. I am kind of neutral at the present time. I am leaning towards the view that we will get a correction now but most likely not new lows and then another move into July but the gravy is out of the markets at the present time. I don’t see a lot of opportunities right now where I would say the risk is very small and the opportunity is huge.
Q: So you are saying the next time there is a dip for whatever reason in global equity markets, it is a dip that should be bought into because whenever that dip happens, people will once again start talking about the fact that the bear market rally is over and we are now going back to retest the old lows of October or March? Would that be the right view or would it be the right view to buy into that dip whenever it comes?
A: I am not sure that it is the correct view but my sense is that the markets will correct now and they will correct for a variety of reasons partly because it will become obvious that the global economic recovery is not very strong or not taking place at all. Added to that, we have rising bond yields and renewed dollar weakness, we still have plenty of problems economically and financially. The markets should go down now and in this correction and as the economies kind of deteriorate once again, I am convinced that the US Fed will once again throw money at the system and there will be even larger deficits, more money printing and so the global economy may not recover much but asset markets due to the excess liquidity created by the Fed may hold.
Q: There has been a lot of talk even since crude bounced back close USD 60 per bbl that maybe crude is going back above USD 75-80 per bbl once again and it put a durable bottom in place around USD 35 per bbl. Do you agree with that?
A: There are some commodity bulls and they think that the oil price will continue to go up and there are some bears who believes that the commodity’s bull market that we had essentially since March when the CRB (Commodity Research Bureau) touched around 200 is just a bear market rally and that commodity price will collapse once again.
I am leaning towards the view that regardless of the global economy. If the global economy strengthens or is very strong the demand for commodities will go up and lift commodity prices and the weaker the global economy is, the more money Mr. Bernanke will print and this will lift commodity prices because the supply of commodities cannot be increased at the same rate as Mr. Bernanke’s money printing presses issue new bank notes. So, in general I would lean towards the view that oil prices and other commodity prices will move high over the next couple of years.
Q: There is a view here in conjunction with yours that markets may not go back to test the lows they saw earlier and perhaps they set a higher base for themselves. Would you agree with that when you say you are looking for a dip, how meaningful do you think that dip might be from current levels?
A: A lot of equities have gone up by more than 100% and so we could easily see in individual equities corrections of 25-30% or even more. But in general in the case of India we went from less than 8,000 to 14,000. I wouldn’t be surprised to see something like 10,000-12,000 in a correction but maybe it won’t happen. All I am saying is the risk reward today of buying equities is obviously not as favourable as it was in March when the markets were very depressed, very oversold and when sentiment was incredibly negative. Now sentiment has surprisingly turned very optimistic and most people think ‘the worst is behind us, let us pile into equities’.
Post Election - Stock Markets To Zoom On Monday - Rakesh Jhunjhunwala
Stock markets would zoom on Monday morning i.e. on 18th May after declaration of election results and UPA winning the same in order to put a stable government for next 5 years.
In an exclusive discussion on CNBC-TV18, leading investor and trader Rakesh Jhunjhunwala of Rare Enterprises said that the election results signalled the coming to end of divisive politics.
The victory is very important for what will happen ahead given the economic circumstances prevailing in the world, he said, adding that he sees the country going back to 8-10% growth on the back of a stable government.
I expect a lot of capital inflow into to India, the ace investor said, adding that the government was likely to be aggressive with reforms. The market would prefer to see a pro-reforms finance minister.
Source: Moneycontrol
Checkout: Rakesh Jhunjhunwala - Latest Portfolio Changes And His Strategy
In an exclusive discussion on CNBC-TV18, leading investor and trader Rakesh Jhunjhunwala of Rare Enterprises said that the election results signalled the coming to end of divisive politics.
The victory is very important for what will happen ahead given the economic circumstances prevailing in the world, he said, adding that he sees the country going back to 8-10% growth on the back of a stable government.
I expect a lot of capital inflow into to India, the ace investor said, adding that the government was likely to be aggressive with reforms. The market would prefer to see a pro-reforms finance minister.
Source: Moneycontrol
Checkout: Rakesh Jhunjhunwala - Latest Portfolio Changes And His Strategy
Warren Buffet - Investment Management Strategy From Legend In Current Downturn
Interview of legendary investor Warren Buffett. Article published on Valueresearchonline from Dhirendra Kumar, editor of site. This intrview outlines Buffett's thought process and his stron beliefs on long term investment strategy.
A couple of days ago, I watched a short interview with the legendary investor Warren Buffett on an investment news channel. The interview was conducted shortly after the annual general meeting (AGM) of Buffett’s company Berkshire Hathaway. Buffet said many interesting things—as he always does—but the really educational part of the interview was the contrast between the world that Buffett inhabits and the world that his interviewer seemed to come from.
It was like listening to members of two different species talk. If a fly (which lives for perhaps a few hours) and a tortoise (who can survive for a hundred years or more) had a conversation, it would probably sound like Buffett and that interviewer.
At one point, the interviewer asked Buffett to comment on how his companies would cope with the downturn. Buffett replied that things were certainly down at the moment but he expected them to be OK in three to five years. I could see that the mere mention of a time scale like three to five years had derailed the interviewer’s thought process. Coming as she did from a world where three to five hours or at most three to five days is the standard unit of time, the idea of an investor talking in years seemed to have thrown a spanner in her works.
Checkout: Warren Buffet - Top Secrets of His Success In Value Investing
Next, she pulled out the day’s newspaper and drew the old man’s attention to a news item that US unemployment was up to 700,000. She wanted to know what he thought of the news. Buffett said that he was sure that five years from now, the employment situation would be much better than it was today. Again, this epic timescale put an end to that line of questioning.
However, this Methuselah of investing had reserved his best shot for the last. When the interviewer asked him about whether the economy was getting any better, Buffett upped the ante sharply. He said that the Dow Jones index had started the twentieth century at 66 points and ended it at 11,000 points. During these hundred years, there had been two world wars, a great depression, an oil shock and countless recessions. But in the end they had all worked out so he wasn’t really worried about the future.
Also Read:
Warren Buffett's Priceless Words
Charlie Munger..the Right Hand Of Warren Buffet..
There is simply no meeting point between an investor who is comfortable with such long time periods and the modern investing ‘process’. As you can see from the stock markets, there is no one around who actually takes the long view. Curiously, the normal investment-industry types frequently express scepticism about what Buffett stands for. Some time ago, I read a newspaper article which quoted some investment managers on Buffett. Many of them suggested that Buffett's approach to investing was unrealistic—real investors need to be more 'flexible'. They seemed to suggest that Buffett is a hermit living in a cave whose teachings are too impractical for the real world. Except that Buffett lives in the same real world and his real world investors have made returns of some 5,000 times.
Far from being impractical, Buffett’s success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades.
A couple of days ago, I watched a short interview with the legendary investor Warren Buffett on an investment news channel. The interview was conducted shortly after the annual general meeting (AGM) of Buffett’s company Berkshire Hathaway. Buffet said many interesting things—as he always does—but the really educational part of the interview was the contrast between the world that Buffett inhabits and the world that his interviewer seemed to come from.
It was like listening to members of two different species talk. If a fly (which lives for perhaps a few hours) and a tortoise (who can survive for a hundred years or more) had a conversation, it would probably sound like Buffett and that interviewer.At one point, the interviewer asked Buffett to comment on how his companies would cope with the downturn. Buffett replied that things were certainly down at the moment but he expected them to be OK in three to five years. I could see that the mere mention of a time scale like three to five years had derailed the interviewer’s thought process. Coming as she did from a world where three to five hours or at most three to five days is the standard unit of time, the idea of an investor talking in years seemed to have thrown a spanner in her works.
Checkout: Warren Buffet - Top Secrets of His Success In Value Investing
Next, she pulled out the day’s newspaper and drew the old man’s attention to a news item that US unemployment was up to 700,000. She wanted to know what he thought of the news. Buffett said that he was sure that five years from now, the employment situation would be much better than it was today. Again, this epic timescale put an end to that line of questioning.
However, this Methuselah of investing had reserved his best shot for the last. When the interviewer asked him about whether the economy was getting any better, Buffett upped the ante sharply. He said that the Dow Jones index had started the twentieth century at 66 points and ended it at 11,000 points. During these hundred years, there had been two world wars, a great depression, an oil shock and countless recessions. But in the end they had all worked out so he wasn’t really worried about the future.
Also Read:
Warren Buffett's Priceless Words
Charlie Munger..the Right Hand Of Warren Buffet..
There is simply no meeting point between an investor who is comfortable with such long time periods and the modern investing ‘process’. As you can see from the stock markets, there is no one around who actually takes the long view. Curiously, the normal investment-industry types frequently express scepticism about what Buffett stands for. Some time ago, I read a newspaper article which quoted some investment managers on Buffett. Many of them suggested that Buffett's approach to investing was unrealistic—real investors need to be more 'flexible'. They seemed to suggest that Buffett is a hermit living in a cave whose teachings are too impractical for the real world. Except that Buffett lives in the same real world and his real world investors have made returns of some 5,000 times.
Far from being impractical, Buffett’s success suggests—or even proves—that the only practical way of making money is to do a handful of straightforward things and keep doing them for decades.
Rakesh Jhunjhunwala - Latest Portfolio Changes And His Strategy
Over the past five quarters between January 2008 and March 2009, 48-year-old Rakesh Jhunjhunwala’s portfolio of publicly traded stocks, of firms in which he owns at least a 1% stake, has underperformed the benchmark index. His portfolio has dropped at least 60% in value, according to data from exchanges, while the Bombay Stock Exchange’s (BSE’s) benchmark equity index Sensex dropped around 52% over the same period.
The Sensex has climbed back about 45% since, while Jhunjhunwala’s concentrated portfolio, which has largely been kept undisturbed, gained only about 15% over the same period.
Jhunjhunwala, the founder of proprietary trading firm Rare Enterprises—named using the first two letters of his and his wife Rekha’s names—twice declined to speak for this story. Most of his portfolio picks are held under this firm, by himself and in the name of his wife.
The most visible, albeit minor, changes made by Jhunjhunwala to his portfolio indicate a trend towards defensive sectors. He purchased an additional 0.65 million shares in software firm Geometric Ltd, where he now owns a 7.27% stake, and 0.3 million shares of Agro Tech Foods Ltd, in which he held a 7.8% stake at the end of December. He also purchased 0.17 million shares of Karur Vysya Bank Ltd and 0.13 million shares of drug maker Lupin Ltd.
On the other hand, he has cut his exposure to Hindustan Oil Exploration Co. Ltd, selling 1.4 million shares during the quarter ended March. Jhunjhunwala also sold about one million shares of Hyderabad-based Nagarjuna Construction Co. Ltd. He reduced the ownership in Pantaloon Retail (India) Ltd by 0.43 million shares and in Titan Industries Ltd by 0.12 million shares. Apart from large investments in a concentrated portfolio and smaller investments in a larger portfolio of listed firms, Jhunjhunwala owns sizeable chunks of equity in several closely held entities through his private equity and venture capital- style investments.
According to data published at the end of December, he owned at least a 1% stake in 31 firms, valued at about Rs1,466 crore.
click The Image To Enlarge
And at the end of March, he owned at least 1% in 27 companies traded on BSE that declared their latest shareholding details. Some of his portfolio stocks, including the pharmaceutical services provider Bilcare Ltd, pharma firm Zenotech Laboratories Ltd, publisher Infomedia 18 Ltd and water treatment firm Ion Exchange India Ltd, are yet to update shareholding details.
Jhunjhunwala’s holdings in at least a dozen non-listed entities include the 16% stake in Diwan Rahul Nanda’s Tops Security Ltd, New Delhi-based A2Z Maintenance and Engineering Services Pvt. Ltd, Dharti Dredging and Infrastructure Ltd, Inventurus Knowledge Solutions Pvt. Ltd, Maneesh Pharmaceuticals Ltd, Nandan Biometrix Ltd and Concord Biotech Ltd, among others.
To be sure, Jhunjhunwala’s portfolio consists mainly of mid-cap stocks while the Sensex is composed of large caps.
And, despite the beating his portfolio has taken during the downturn, people who have worked with this whisky and cigar aficionado vouch for the soundness of his overall strategy.
“He has tonnes of patience and the temperament that makes him a rare stock market investor,” says Alok Agarwal, a Mumbai-based funds adviser who owns at least 2% in Aptech Ltd, a venture he started to provide computer education. At the end of March, the Jhujhunwalas held a 31.7% controlling stake in Aptech, valued at around Rs123 crore.
It is this so-called temperament that, starting with Rs5,000 in 1985 when the Sensex was trading at 150—on Friday it closed at 11,876.43—has allowed him to achieve almost cult status with investors in a country where only 3% of the 1.2 billion population invests in equity markets.
His investment strategy, followed closely by many individual investors, involves maintaining a steady portfolio of stocks with a long-term view while committing smaller amounts to the high-beta activity of equity trading such as day trading that tends to be highly volatile.
Source:livemint
The Sensex has climbed back about 45% since, while Jhunjhunwala’s concentrated portfolio, which has largely been kept undisturbed, gained only about 15% over the same period.
Jhunjhunwala, the founder of proprietary trading firm Rare Enterprises—named using the first two letters of his and his wife Rekha’s names—twice declined to speak for this story. Most of his portfolio picks are held under this firm, by himself and in the name of his wife.
The most visible, albeit minor, changes made by Jhunjhunwala to his portfolio indicate a trend towards defensive sectors. He purchased an additional 0.65 million shares in software firm Geometric Ltd, where he now owns a 7.27% stake, and 0.3 million shares of Agro Tech Foods Ltd, in which he held a 7.8% stake at the end of December. He also purchased 0.17 million shares of Karur Vysya Bank Ltd and 0.13 million shares of drug maker Lupin Ltd.
On the other hand, he has cut his exposure to Hindustan Oil Exploration Co. Ltd, selling 1.4 million shares during the quarter ended March. Jhunjhunwala also sold about one million shares of Hyderabad-based Nagarjuna Construction Co. Ltd. He reduced the ownership in Pantaloon Retail (India) Ltd by 0.43 million shares and in Titan Industries Ltd by 0.12 million shares. Apart from large investments in a concentrated portfolio and smaller investments in a larger portfolio of listed firms, Jhunjhunwala owns sizeable chunks of equity in several closely held entities through his private equity and venture capital- style investments.
According to data published at the end of December, he owned at least a 1% stake in 31 firms, valued at about Rs1,466 crore.
click The Image To EnlargeAnd at the end of March, he owned at least 1% in 27 companies traded on BSE that declared their latest shareholding details. Some of his portfolio stocks, including the pharmaceutical services provider Bilcare Ltd, pharma firm Zenotech Laboratories Ltd, publisher Infomedia 18 Ltd and water treatment firm Ion Exchange India Ltd, are yet to update shareholding details.
Jhunjhunwala’s holdings in at least a dozen non-listed entities include the 16% stake in Diwan Rahul Nanda’s Tops Security Ltd, New Delhi-based A2Z Maintenance and Engineering Services Pvt. Ltd, Dharti Dredging and Infrastructure Ltd, Inventurus Knowledge Solutions Pvt. Ltd, Maneesh Pharmaceuticals Ltd, Nandan Biometrix Ltd and Concord Biotech Ltd, among others.
To be sure, Jhunjhunwala’s portfolio consists mainly of mid-cap stocks while the Sensex is composed of large caps.
And, despite the beating his portfolio has taken during the downturn, people who have worked with this whisky and cigar aficionado vouch for the soundness of his overall strategy.
“He has tonnes of patience and the temperament that makes him a rare stock market investor,” says Alok Agarwal, a Mumbai-based funds adviser who owns at least 2% in Aptech Ltd, a venture he started to provide computer education. At the end of March, the Jhujhunwalas held a 31.7% controlling stake in Aptech, valued at around Rs123 crore.
It is this so-called temperament that, starting with Rs5,000 in 1985 when the Sensex was trading at 150—on Friday it closed at 11,876.43—has allowed him to achieve almost cult status with investors in a country where only 3% of the 1.2 billion population invests in equity markets.
His investment strategy, followed closely by many individual investors, involves maintaining a steady portfolio of stocks with a long-term view while committing smaller amounts to the high-beta activity of equity trading such as day trading that tends to be highly volatile.
Source:livemint
Rakesh Jhunjhunwala Portfolio - Latest As In December 2008
Rakesh Jhunjhunwala have been buying stocks and making big money. His portfolio holdings are latest based on BSE / NSE data. Remember that his holding period is 5-10 years on an average and he has invested his money to buy stocks of Small and Mid caps only, so anyone who is buying stocks (good small cap & Mid caps) and holds it for 5-10 years, has better probability to create such huge amount of wealth.
Trading stocks / stock trades are best to be avoided for retail investor. Online stock trading and buying stocks online have made it very easy for retail investors to trade stocks at fingertips very frequently. Learn how to buy stocks Rakesh Jhunjhunwala way. Buy stocks wisely!!! Investing in stock should be a long term affair & do not indulge in frequent stock trades.
This list would be updated whenever I would find a change or new information. Bookmark this page so you could visit this list later on for updates. You may subscribe to E-Mail updates to receive IndianStocksNews updates.
Trading stocks / stock trades are best to be avoided for retail investor. Online stock trading and buying stocks online have made it very easy for retail investors to trade stocks at fingertips very frequently. Learn how to buy stocks Rakesh Jhunjhunwala way. Buy stocks wisely!!! Investing in stock should be a long term affair & do not indulge in frequent stock trades.
This list would be updated whenever I would find a change or new information. Bookmark this page so you could visit this list later on for updates. You may subscribe to E-Mail updates to receive IndianStocksNews updates.
Rakesh Jhunjhunwala's View- Investors Should Avoid Markets After Elections
April 16 (Bloomberg) -- Rakesh Jhunjhunwala, ranked a billionaire by Forbes magazine last year for his holdings of Indian stocks, says investors should avoid the markets after nationwide elections until a new government is formed.
The Bombay Stock Exchange Sensitive Index plunged 11 percent on May 17, 2004, the most in more than a decade, as investors feared a government formed by Sonia Gandhi’s Congress Party and communist allies would slow the pace of reforms.
“My advice is to stay away from the markets between May 16 and May 30 as there will be volatility in the markets post elections,” Jhunjhunwala, 48, said in an interview in his Mumbai office yesterday.
Checkout:
Effects Of General Elections On Indian Stock Market
Rakesh Jhunjhunwala Portfolio - Latest One
The markets more than tripled since 2004, before dropping 52 percent last year after a global credit crisis wiped out more than $30 trillion from the value of equities. India’s benchmark index, also known as the Sensex, fell 0.2 percent to 11,261.70 as of 10:19 a.m. in Mumbai, the first drop in nine days.
“The pace, breadth and volume of the market suggest this could be more than a bear market rally,” said Jhunjhunwala, who has pictures of investors including Warren Buffett on the walls of his Mumbai office.
Buffett of India
Forbes named Jhunjhunwala the Buffett of India after he turned a $100 investment into $1 billion over two decades. He predicted Indian stocks would fall two months before the Sensex peaked in January 2008, and the benchmark measure has gained 17 percent since his Dec. 11 prediction of a bull run. The MSCI Asia Pacific Index rose 1 percent during that time.
The Sensex has crossed its 200-day moving average and if it remains above that level over the next 10 to 15 days, the rally may be sustained, he said. Still, he doesn’t see the markets forming new lows. The moving average is a technical tool used by some analysts to predict the direction of the market.
Investments by Indian insurance companies will be the biggest drivers of the equity market, Jhunjhunwala said. Insurers could invest about $50 billion a year in the next two- three years, he said.
Read: 2010 Stock Market - How Would Stocks Perform?
“The scope for disappointment is not much,” Jhunjhunwala said. “There are no positive expectations from the election results. Markets may not tank this time round even if the result is something that the market may not like.”
The Bombay Stock Exchange Sensitive Index plunged 11 percent on May 17, 2004, the most in more than a decade, as investors feared a government formed by Sonia Gandhi’s Congress Party and communist allies would slow the pace of reforms.
“My advice is to stay away from the markets between May 16 and May 30 as there will be volatility in the markets post elections,” Jhunjhunwala, 48, said in an interview in his Mumbai office yesterday.
Checkout:
Effects Of General Elections On Indian Stock Market
Rakesh Jhunjhunwala Portfolio - Latest One
The markets more than tripled since 2004, before dropping 52 percent last year after a global credit crisis wiped out more than $30 trillion from the value of equities. India’s benchmark index, also known as the Sensex, fell 0.2 percent to 11,261.70 as of 10:19 a.m. in Mumbai, the first drop in nine days.
“The pace, breadth and volume of the market suggest this could be more than a bear market rally,” said Jhunjhunwala, who has pictures of investors including Warren Buffett on the walls of his Mumbai office.
Buffett of India
Forbes named Jhunjhunwala the Buffett of India after he turned a $100 investment into $1 billion over two decades. He predicted Indian stocks would fall two months before the Sensex peaked in January 2008, and the benchmark measure has gained 17 percent since his Dec. 11 prediction of a bull run. The MSCI Asia Pacific Index rose 1 percent during that time.
The Sensex has crossed its 200-day moving average and if it remains above that level over the next 10 to 15 days, the rally may be sustained, he said. Still, he doesn’t see the markets forming new lows. The moving average is a technical tool used by some analysts to predict the direction of the market.
Investments by Indian insurance companies will be the biggest drivers of the equity market, Jhunjhunwala said. Insurers could invest about $50 billion a year in the next two- three years, he said.
Read: 2010 Stock Market - How Would Stocks Perform?
“The scope for disappointment is not much,” Jhunjhunwala said. “There are no positive expectations from the election results. Markets may not tank this time round even if the result is something that the market may not like.”
2010 Stock Market - How Would Stocks Perform?
Ramesh Damani, Member, BSE, asks market experts about their outlook for the year 2010. Here is a verbatim transcript of the exclusive interview of Madhu Kela, Nilesh Shah, Narayan Ramachandran, Jehangir Aziz and Abhay Laijawala with Ramesh Damani on CNBC-TV18. I am publishing selective part of this interview which could be helpful to you while buying stocks for year 2010.
Damani:2008-09 were watershed years, wasted a lot of investors wealth- what is the outlook for 2010?
Kela: I think we have already been 12-15 months in this vicious bear run. I do not rule out the possibility of lot of events unfolding which are not pleasant, which are not fundamentally good and the news flow which might continue to be bad. However I think the speed of the fall and the confidence of the bear in this market when I look, suggests to me that maybe market has discounted a significant portion of the bad news and as we look at, every bad news which comes in might be an opportunity to buy. However this is not a hunky dory market and I am not suggesting that we are in a bull market, that you are in 2003 and buy a stock and go to sleep and you will make 500%. This is 2008.
This is going to be a tough market to make money and one will have to do much more vigorous work, you have to be very alert and markets will have lot of volatility. So opportunities are going to be there in 2009-10 to make a lot of money.
Damani: Would you sense the bottom we made globally in Dow or Sensex is the bottom going to hold now?
Kela: I am quite confident that the bottom is been made in India at least, I think what we saw in last October, again as fund managers would like to have our back covered, so I must say - if we don't have a catastrophe government which is being formed and the policy reversal in India, some one was telling me that Prakash karat becoming the Finance Minister of India, so that scenarios are different obviously but barring that we may have seen the worst.
Damani: I assume that bears are supremely confident at this point but couple of bears told me one thing- there is a movie called ‘Children of Lesser God’- Are we children of the Bull market because all that we have seen is buying, for 25 years you bought on tips you made money whether it was any asset class real estate, equities- do you think we just don’t know what a period of prolonged economic contraction, credit defaults, de-leveraging looks like and so are we using the models that are not relevant anymore?
Kela: I wouldn’t say that we have not seen the bear market, I have seen stock collapse from Rs 100 to Rs 2 and I have lived through that. So unless and until you are making a case that the whole world is going to collapse and we are going to live in a prolonged period of contraction, possibility of which does exists to an extent of 5-10% in my own opinion but unless and until we are talking of that kind of period, we are not anywhere near the old stories because if you meet a bear in this market he will make a case for long-term story is bullshit. All long-term investing is gone and that it’s a matter of past and has become a history but I don’t think it becomes an history just by few people saying that. These models have held fro 150 years and I have no doubt that this period my last for couple of years but I also have no doubt that the fundamental way of investing in the stock market is ever going to change.
Damani: So buy with a margin of safety, buy value?
Kela: Absolutely, again what is the market telling us from October- people are still debating and discussing. I know at least 50 large companies which are up between 50-100% after the fall and the debate is still on, whether we have touched the bottom or not.
Damani: In a bear market indexes go up 30-40% and Mr Kela said stocks can double- which camp do you belong to?
Shah: I think we are at a time where we can shape history or maybe future. If all of us go and vote sensibly? - will the market have different index, the answer is maybe. This is an era where lot of events ares going to happen and they are going to shape how the markets are going to behave. So as Madhu Kela mentioned Mr X as a FM, no matter what the fundamentals are your index will be in completely different direction. Mr Y, as a FM no matter what the fundamentals are hope will triumph over fear and your index will be in completely different direction.
Yesterday at an award function, I was standing with my fund manager who is far taller than me and they asked a question where will the market go? So my answer was from where I can see it can only go up. And from where he can see it can only go down – so that is the kind of range. In reality it is how we behave that will determine where the index is.
Damani: That’s your job to tell me how the markets going to behave. 2010. Are we going to be higher at March 31 or lower than this point?
Shah: Being an optimist and a fund manager I have no option but to say yes.
Damani: About you?
Ramachandran: I am going to caveat it with the famous cliché that forecasting is difficult particularly if it’s about the future. I think there is a reasonable chance that March 9 was a global low. I don’t think we are galloping off to new highs, but it seems very plausible that sort of sets the floor for both Anglo-Saxon markets but also for India.
India didn’t make a material new low in March. If it makes a slightly lower level than it got to in October. The reason I say this is that it was only four months ago. We were all anticipating not only skeletons in the closet, but different types of skeletons in the closet. So, we started with the sub-prime crises, the leverage credit crises, then went on to leverage private equity crises and so on. It just went bigger and bigger eventually encompassing something like a mark-to-market on almost a USD 100 trillion of total securities.
We are now out of that discussion and we are starting to discuss whether the different types of action will be sufficient to solve the problem, which to me suggest that we are past the half-way point. Now, we maybe going two steps back even from that midway point, but I think we are finally begin getting on to other side. In a financial market sense, it typically tends to need this. To me, it strikes me as a possibility that March 9 was the global low.
The consequence for a year from now, I do not think we gallop to new high. So, I do not think we can get back to it later, but I do not think equity market is the asset class of choice on a forward one year view even though it may have a positive return.
Damani: You have a view on 2010 - Sensex or Nifty?
Aziz: Probably much more comfortable talking about what might happen in the second half of this year than Q1 2010. My sense is that there is enough in the economy in terms of the policies undertaken in early part of this year and last December onwards to get us through a pretty decent economic turnaround in the second half of the year.
Laijawala: Currently, we have a Sensex target of 11,500 for next year. But I completely concur with Jehangir and say that I guess this target could pretty much change depending on the contours and the shape that the next government takes. Most importantly, how the next Finance Minister tackles the very difficult Budget. He will have to look at the arithmetic because there are some very significant challenges perhaps similar to what we saw in the mid-‘90s and 2001-2002. One of the biggest concerns that we have is of crowding out of the private sector and the trajectory that rates will take. So, markets will take direction from these events.
Damani: It has been almost an extraordinary bull market and bear market. I would like for each of the panelist to state one lesson that each of them has learnt in this which they apply not only to 2010 but for the rest of their lives one lesson whether learnt in the bull market or bear market or one great takeaway that you had from those five-years?
Shah: Never ask the barber whether you require a haircut or not. That’s the biggest lesson I have learnt. Don’t fall in love with the promoter. Never ask the promoter what is his estimation of the value of the company.
Ramachandran: There are unfortunately way too many lessons learnt in this episode of first down in 2000-01 and then all that transpired after that. I think the biggest lesson is that you stick with your conviction and you take the pain.
Kela: One clear lesson is what Shah said which is at least of us as fund managers have experienced – never fall in love with anything – forget a stock or a promoter except your wife. You have to really pay very a heavy price for being emotional in these markets. Second thing is that this is really a full time profession. One cannot take your eyes off the ball and think that I had done this and I had picked this stock. Three months is history in this market. If you take the eye off the ball and if you believe in your past that this is what I did in the past hence I should continue to be superstar, I think you’re history.
Aziz: Every asset bubble ends up in a recession. Every recession sows a seed for the next asset bubble. You just have to decide when to enter and where the asset bubble will be.
Laijawala: The key lesson is that the biggest problem with liquidity is that it is never there when you most need it.
Damani: There has been big debate going on of decoupling. Are we actually more coupled to global markets rather than decoupled as you were suggesting in India that the country was an island under the sun?
Ramchandran: India is decoupled. It is a question of semantics. Asia is decoupled, India and China have decoupled. It has not decoupled in a financial market sense on the way down clearly. Yes, we went down 60% in dollar terms when perhaps some of the Western markets went down 40-50%. So, clearly on a 15-month view starting in early part of last year we were not financially decoupled.
A second observation is we are growing miserably at I think 4%. Most people probably here think 5% but regardless we are still growing at 4% or 5% which in the old days would be the upper band of the rate of growth. This at a time in which Western economies, particularly the US economy on QoQ basis was growing negative 6%. So, you tell me if we are decoupled?
The last observation I will make is that on a five-year forward view do you think it is possible that a combination of Western markets, or let me just use the S&P as a proxy, is up 20% and India is up 100%. I submit to you the case that it is. So, I find a cyclical P&L recession country like India which typifies emerging markets are fundamentally decoupled from a supremely bust balance sheet system of the Anglo-Saxon world.
Damani: You watch global markets and you happen to be in India but you could probably sit anywhere in the world and manage money that you wanted to. If you were say 30 years old again and you have a choice of managing money anywhere in the world, where would you like to go and manage money?
Kela: Ideally speaking, I would like to manage money on a global canvas which is across different categories of investment and different countries because one thing which is very clear is that investments have no colour. If I had to buy a material company, I would love to buy it in Russia. If I have to buy a domestic driven demand company, I would have loved to buy it in India and may be some other sector in the US. So, I would rather than being predominantly from the place, one would like to have an environment where one is free to invest in any asset class which one wants to and in any country where it comes from.
Damani: Is there any particular region of the world? Any particular area that you think that over the next five years will give superior returns?
Kela: I think India, China, and Brazil definitely. I am too sure about Russia. May be my knowledge is pretty limited but I am confident about India, China, and Brazil.
Ramchandran: I am paradoxically doing the opposite having lived and spent most of my investing career outside of India, mostly by fluke. I returned to India at about the right time and I would not be anywhere else at this moment for pretty much the same reasons that Madhu just elaborated. We haven’t talked about this earlier, but I am not too sure about Russia either.
Damani: Is there a risk in that currency depreciation though?
Aziz: On currency depreciation, there will be event driven volatility. But if you go beyond the events, my sense is that the rupee is probably going to find support even if the USD 20 billion doesn’t come.
Damani: The range for the rupee?
Ramachandran: I have a wider range; I think 50-55 on the higher side and 47 on the lower side. I think it actually sells off first before the world famous USD 20 billion comes in but eventually it will rally and on a three year view I think it’s fantastic, it doesn’t matter whether you convert at 50-52 or 55. Buying the Indian stock market in dollar terms on a three year view is going to be fantastic return for both currency reasons and stock market reasons.
Damani: Let’s now move to gold- given what we have done with paper money, we have just produced endless supply of it with stocks, bonds they all become worthless overnight almost- do you think we will all central bankers move into gold- what is your call on gold?
Laijawala: That is an interesting question and the answer to that question will probably depend on how the world economy pans out and how we see the balance of power between China and the rest of the developing world. So it could honestly take any shape. It is very difficult to give a proper direction on that but yes, there will be a very strong bias towards gold and one the key reasons for that is going to be probably the increasing assertiveness of China.
Damani: Your opinion Madhu?
Kela: Essentially it’s a hedge in your portfolio but I don’t think it’s a 25-50% portion of your portfolio but maybe 5-10% and that essentially covers you towards whatever global risk is there. The only point I would like to add here is that it’s very much possible that in a bad economic environment, gold may set into a next bubble. Such a small amount of gold is produced annually in the world that even this ETFs on monthly basis by 128 tonnes, where gold prices go up by 15% in a month and there is so much fluctuation. So if it is anything of that kind which happens, it’s always wise to have portion of your portfolio allotted to gold.
Read More on Gold
Damani: Are commodity stocks ready to be invested, have they fallen enough- are you bullish on commodity resource based stocks?
Kela: Maybe the agricultural side of commodity stock might offer interesting opportunity from a medium to long-term perspective. Like coffee, tea, sugar because they have really fallen, and one can see that on a 2-3 year timeframe there could be opportunity not only in India but globally as well.
As I said you would like to look at the direction of the dollar before having a decisive view and I don’t think this commodity bear runs can get over in 6-9 months. When you look at cost of production and some of the prices which these commodities are trading at, for instance copper is trading at USD 4,200 per tonne, so I don’t think we have seen the bottom, in as early days as we are talking about. So maybe you will have trading bounces in these stocks so from a particular point they will become a buy but at a particular point they will become sell.
Damani: So commodity stocks are not a buy?
Kela: No, they are a buy. They have done phenomenally well; I am saying you will have to pay from point A to point B rather than paying for a cyclical downturn or a cyclical upturn.
Damani: Would you buy commodity stocks with a one year view?
Shah: I won’t be buying any stock with one year view. So commodity stocks don’t figure out over there. Again commodities per se are also going to see lot of events.
Damani: Your prediction for one year for oil? Oil is at USD 50 per barrel, you expect it to be higher or lower one year down the road?
Laijawala: USD 48 per barrel that is the Deutsche Bank outlook.
Aziz: In the USD 60 per barrel.
Kela: Between USD 40 to USD 60 per barrel.
Ramachandran: I would say in and around USD 40 per barrel.
Shah: I think on the higher side, about USD 50 per barrel plus.
Damani: If I could rephrase the question – what would be your five year view on oil?
Kela: Oil will be going much higher for a five year view
Damani: Does higher means back to USD 140 per barrel?
Kela: Don’t know.
Laijawala: I think one of the key reasons for oil at the levels we saw last year was the significant flow of funds that went into the commodities. It is very difficult to expect the same sort of deluge of funds into different commodities
Aziz: We need serious reflation of the world economy for all commodities and you can see things happen here there but for serious reflation, I am not so sure we will be in a situation where inflation 5 years from now is going to be really strong.
Ramchandran: Higher but nowhere near USD 140 per barrel.
Shah: Much higher than USD 50 per barrel.
Damani: You made a brilliant call on real estate the last time we were on a panel together. Let us talk urban, non-urban outlook over one-year?
Kela: One-year outlook looks challenging clearly. Again, a lot of this may have been priced into real estate stocks, some of which a fellow may be really tracking at 0.3-0.4 times real book value. First, it may be great time to pick stock from a longer-term perspective. I don’t know what is going to happen in 2009-10. Second, I think there will change in the players. A lot of the players who have gone overly risked in the last boom, they may not see the next boom as vigorously as they saw. There will be new leaders. Third, don’t forget real estate sector is a very large sector. So, in any bull run it cannot be ignored in that sense. If you really believe in the India story, then may be stock specific it is good time to buy real estate.
Ramchandran: The question has to be very carefully phrased. Real estate as a broad economic sector is in the morass for two-years or probably longer. But secondary market real estate is already reflecting that in pretty serious terms. It is possible that on a three-year view now is not a bad time to enter. So, you have to be very careful how you structure your investment, but straight buying of stocks or buying of selected stocks in the real estate is a good idea.
Aziz: I am the wrong person to ask this question, but my guess is that depends entirely on a firm to firm basis. What kind of debt restructuring etc different firms are doing? The macro economic trend is that the business cost in India has to ratchet down to a reality of 4-5% growth from what it has been used to i.e. 9% growth rate. Real estate rental prices and real interest rates coming down are the two key things that haven’t come down as yet. We have seen commodity prices, input prices go down. Wages are very sticky and you don’t really want wages to go down.
If the anecdotal evidence or the news reports of 20-30% declines are true and are pervasive, then we are going in that direction but both of them need to come down for the new reality of a 4-5% economy.
Kela: Seeing the various ads by various paper companies, they suggest that both sales are happening and the prices are not down not 20-30%. They might be down as high as 50% from their peak prices.
Read: Real Estate Sector Still In Downtrend
Laijawala: We still need to see more weakness before we get more positive on the sector.
Checkout: Stock Market in 2009 - Stocks to Buy
Source: MoneyControl
Damani:2008-09 were watershed years, wasted a lot of investors wealth- what is the outlook for 2010?Kela: I think we have already been 12-15 months in this vicious bear run. I do not rule out the possibility of lot of events unfolding which are not pleasant, which are not fundamentally good and the news flow which might continue to be bad. However I think the speed of the fall and the confidence of the bear in this market when I look, suggests to me that maybe market has discounted a significant portion of the bad news and as we look at, every bad news which comes in might be an opportunity to buy. However this is not a hunky dory market and I am not suggesting that we are in a bull market, that you are in 2003 and buy a stock and go to sleep and you will make 500%. This is 2008.
This is going to be a tough market to make money and one will have to do much more vigorous work, you have to be very alert and markets will have lot of volatility. So opportunities are going to be there in 2009-10 to make a lot of money.
Damani: Would you sense the bottom we made globally in Dow or Sensex is the bottom going to hold now?
Kela: I am quite confident that the bottom is been made in India at least, I think what we saw in last October, again as fund managers would like to have our back covered, so I must say - if we don't have a catastrophe government which is being formed and the policy reversal in India, some one was telling me that Prakash karat becoming the Finance Minister of India, so that scenarios are different obviously but barring that we may have seen the worst.
Damani: I assume that bears are supremely confident at this point but couple of bears told me one thing- there is a movie called ‘Children of Lesser God’- Are we children of the Bull market because all that we have seen is buying, for 25 years you bought on tips you made money whether it was any asset class real estate, equities- do you think we just don’t know what a period of prolonged economic contraction, credit defaults, de-leveraging looks like and so are we using the models that are not relevant anymore?
Kela: I wouldn’t say that we have not seen the bear market, I have seen stock collapse from Rs 100 to Rs 2 and I have lived through that. So unless and until you are making a case that the whole world is going to collapse and we are going to live in a prolonged period of contraction, possibility of which does exists to an extent of 5-10% in my own opinion but unless and until we are talking of that kind of period, we are not anywhere near the old stories because if you meet a bear in this market he will make a case for long-term story is bullshit. All long-term investing is gone and that it’s a matter of past and has become a history but I don’t think it becomes an history just by few people saying that. These models have held fro 150 years and I have no doubt that this period my last for couple of years but I also have no doubt that the fundamental way of investing in the stock market is ever going to change.
Damani: So buy with a margin of safety, buy value?
Kela: Absolutely, again what is the market telling us from October- people are still debating and discussing. I know at least 50 large companies which are up between 50-100% after the fall and the debate is still on, whether we have touched the bottom or not.
Damani: In a bear market indexes go up 30-40% and Mr Kela said stocks can double- which camp do you belong to?
Shah: I think we are at a time where we can shape history or maybe future. If all of us go and vote sensibly? - will the market have different index, the answer is maybe. This is an era where lot of events ares going to happen and they are going to shape how the markets are going to behave. So as Madhu Kela mentioned Mr X as a FM, no matter what the fundamentals are your index will be in completely different direction. Mr Y, as a FM no matter what the fundamentals are hope will triumph over fear and your index will be in completely different direction.
Yesterday at an award function, I was standing with my fund manager who is far taller than me and they asked a question where will the market go? So my answer was from where I can see it can only go up. And from where he can see it can only go down – so that is the kind of range. In reality it is how we behave that will determine where the index is.
Damani: That’s your job to tell me how the markets going to behave. 2010. Are we going to be higher at March 31 or lower than this point?
Shah: Being an optimist and a fund manager I have no option but to say yes.
Damani: About you?
Ramachandran: I am going to caveat it with the famous cliché that forecasting is difficult particularly if it’s about the future. I think there is a reasonable chance that March 9 was a global low. I don’t think we are galloping off to new highs, but it seems very plausible that sort of sets the floor for both Anglo-Saxon markets but also for India.
India didn’t make a material new low in March. If it makes a slightly lower level than it got to in October. The reason I say this is that it was only four months ago. We were all anticipating not only skeletons in the closet, but different types of skeletons in the closet. So, we started with the sub-prime crises, the leverage credit crises, then went on to leverage private equity crises and so on. It just went bigger and bigger eventually encompassing something like a mark-to-market on almost a USD 100 trillion of total securities.
We are now out of that discussion and we are starting to discuss whether the different types of action will be sufficient to solve the problem, which to me suggest that we are past the half-way point. Now, we maybe going two steps back even from that midway point, but I think we are finally begin getting on to other side. In a financial market sense, it typically tends to need this. To me, it strikes me as a possibility that March 9 was the global low.
The consequence for a year from now, I do not think we gallop to new high. So, I do not think we can get back to it later, but I do not think equity market is the asset class of choice on a forward one year view even though it may have a positive return.
Damani: You have a view on 2010 - Sensex or Nifty?
Aziz: Probably much more comfortable talking about what might happen in the second half of this year than Q1 2010. My sense is that there is enough in the economy in terms of the policies undertaken in early part of this year and last December onwards to get us through a pretty decent economic turnaround in the second half of the year.
Laijawala: Currently, we have a Sensex target of 11,500 for next year. But I completely concur with Jehangir and say that I guess this target could pretty much change depending on the contours and the shape that the next government takes. Most importantly, how the next Finance Minister tackles the very difficult Budget. He will have to look at the arithmetic because there are some very significant challenges perhaps similar to what we saw in the mid-‘90s and 2001-2002. One of the biggest concerns that we have is of crowding out of the private sector and the trajectory that rates will take. So, markets will take direction from these events.
Damani: It has been almost an extraordinary bull market and bear market. I would like for each of the panelist to state one lesson that each of them has learnt in this which they apply not only to 2010 but for the rest of their lives one lesson whether learnt in the bull market or bear market or one great takeaway that you had from those five-years?Shah: Never ask the barber whether you require a haircut or not. That’s the biggest lesson I have learnt. Don’t fall in love with the promoter. Never ask the promoter what is his estimation of the value of the company.
Ramachandran: There are unfortunately way too many lessons learnt in this episode of first down in 2000-01 and then all that transpired after that. I think the biggest lesson is that you stick with your conviction and you take the pain.
Kela: One clear lesson is what Shah said which is at least of us as fund managers have experienced – never fall in love with anything – forget a stock or a promoter except your wife. You have to really pay very a heavy price for being emotional in these markets. Second thing is that this is really a full time profession. One cannot take your eyes off the ball and think that I had done this and I had picked this stock. Three months is history in this market. If you take the eye off the ball and if you believe in your past that this is what I did in the past hence I should continue to be superstar, I think you’re history.
Aziz: Every asset bubble ends up in a recession. Every recession sows a seed for the next asset bubble. You just have to decide when to enter and where the asset bubble will be.
Laijawala: The key lesson is that the biggest problem with liquidity is that it is never there when you most need it.
Damani: There has been big debate going on of decoupling. Are we actually more coupled to global markets rather than decoupled as you were suggesting in India that the country was an island under the sun?
Ramchandran: India is decoupled. It is a question of semantics. Asia is decoupled, India and China have decoupled. It has not decoupled in a financial market sense on the way down clearly. Yes, we went down 60% in dollar terms when perhaps some of the Western markets went down 40-50%. So, clearly on a 15-month view starting in early part of last year we were not financially decoupled.
A second observation is we are growing miserably at I think 4%. Most people probably here think 5% but regardless we are still growing at 4% or 5% which in the old days would be the upper band of the rate of growth. This at a time in which Western economies, particularly the US economy on QoQ basis was growing negative 6%. So, you tell me if we are decoupled?
The last observation I will make is that on a five-year forward view do you think it is possible that a combination of Western markets, or let me just use the S&P as a proxy, is up 20% and India is up 100%. I submit to you the case that it is. So, I find a cyclical P&L recession country like India which typifies emerging markets are fundamentally decoupled from a supremely bust balance sheet system of the Anglo-Saxon world.
Damani: You watch global markets and you happen to be in India but you could probably sit anywhere in the world and manage money that you wanted to. If you were say 30 years old again and you have a choice of managing money anywhere in the world, where would you like to go and manage money?
Kela: Ideally speaking, I would like to manage money on a global canvas which is across different categories of investment and different countries because one thing which is very clear is that investments have no colour. If I had to buy a material company, I would love to buy it in Russia. If I have to buy a domestic driven demand company, I would have loved to buy it in India and may be some other sector in the US. So, I would rather than being predominantly from the place, one would like to have an environment where one is free to invest in any asset class which one wants to and in any country where it comes from.
Damani: Is there any particular region of the world? Any particular area that you think that over the next five years will give superior returns?
Kela: I think India, China, and Brazil definitely. I am too sure about Russia. May be my knowledge is pretty limited but I am confident about India, China, and Brazil.
Ramchandran: I am paradoxically doing the opposite having lived and spent most of my investing career outside of India, mostly by fluke. I returned to India at about the right time and I would not be anywhere else at this moment for pretty much the same reasons that Madhu just elaborated. We haven’t talked about this earlier, but I am not too sure about Russia either.
Damani: Is there a risk in that currency depreciation though?
Aziz: On currency depreciation, there will be event driven volatility. But if you go beyond the events, my sense is that the rupee is probably going to find support even if the USD 20 billion doesn’t come.
Damani: The range for the rupee?Ramachandran: I have a wider range; I think 50-55 on the higher side and 47 on the lower side. I think it actually sells off first before the world famous USD 20 billion comes in but eventually it will rally and on a three year view I think it’s fantastic, it doesn’t matter whether you convert at 50-52 or 55. Buying the Indian stock market in dollar terms on a three year view is going to be fantastic return for both currency reasons and stock market reasons.
Damani: Let’s now move to gold- given what we have done with paper money, we have just produced endless supply of it with stocks, bonds they all become worthless overnight almost- do you think we will all central bankers move into gold- what is your call on gold?Laijawala: That is an interesting question and the answer to that question will probably depend on how the world economy pans out and how we see the balance of power between China and the rest of the developing world. So it could honestly take any shape. It is very difficult to give a proper direction on that but yes, there will be a very strong bias towards gold and one the key reasons for that is going to be probably the increasing assertiveness of China.
Damani: Your opinion Madhu?
Kela: Essentially it’s a hedge in your portfolio but I don’t think it’s a 25-50% portion of your portfolio but maybe 5-10% and that essentially covers you towards whatever global risk is there. The only point I would like to add here is that it’s very much possible that in a bad economic environment, gold may set into a next bubble. Such a small amount of gold is produced annually in the world that even this ETFs on monthly basis by 128 tonnes, where gold prices go up by 15% in a month and there is so much fluctuation. So if it is anything of that kind which happens, it’s always wise to have portion of your portfolio allotted to gold.
Read More on Gold
Damani: Are commodity stocks ready to be invested, have they fallen enough- are you bullish on commodity resource based stocks?Kela: Maybe the agricultural side of commodity stock might offer interesting opportunity from a medium to long-term perspective. Like coffee, tea, sugar because they have really fallen, and one can see that on a 2-3 year timeframe there could be opportunity not only in India but globally as well.
As I said you would like to look at the direction of the dollar before having a decisive view and I don’t think this commodity bear runs can get over in 6-9 months. When you look at cost of production and some of the prices which these commodities are trading at, for instance copper is trading at USD 4,200 per tonne, so I don’t think we have seen the bottom, in as early days as we are talking about. So maybe you will have trading bounces in these stocks so from a particular point they will become a buy but at a particular point they will become sell.
Damani: So commodity stocks are not a buy?
Kela: No, they are a buy. They have done phenomenally well; I am saying you will have to pay from point A to point B rather than paying for a cyclical downturn or a cyclical upturn.
Damani: Would you buy commodity stocks with a one year view?
Shah: I won’t be buying any stock with one year view. So commodity stocks don’t figure out over there. Again commodities per se are also going to see lot of events.
Damani: Your prediction for one year for oil? Oil is at USD 50 per barrel, you expect it to be higher or lower one year down the road?Laijawala: USD 48 per barrel that is the Deutsche Bank outlook.
Aziz: In the USD 60 per barrel.
Kela: Between USD 40 to USD 60 per barrel.
Ramachandran: I would say in and around USD 40 per barrel.
Shah: I think on the higher side, about USD 50 per barrel plus.
Damani: If I could rephrase the question – what would be your five year view on oil?
Kela: Oil will be going much higher for a five year view
Damani: Does higher means back to USD 140 per barrel?
Kela: Don’t know.
Laijawala: I think one of the key reasons for oil at the levels we saw last year was the significant flow of funds that went into the commodities. It is very difficult to expect the same sort of deluge of funds into different commodities
Aziz: We need serious reflation of the world economy for all commodities and you can see things happen here there but for serious reflation, I am not so sure we will be in a situation where inflation 5 years from now is going to be really strong.
Ramchandran: Higher but nowhere near USD 140 per barrel.
Shah: Much higher than USD 50 per barrel.
Damani: You made a brilliant call on real estate the last time we were on a panel together. Let us talk urban, non-urban outlook over one-year?Kela: One-year outlook looks challenging clearly. Again, a lot of this may have been priced into real estate stocks, some of which a fellow may be really tracking at 0.3-0.4 times real book value. First, it may be great time to pick stock from a longer-term perspective. I don’t know what is going to happen in 2009-10. Second, I think there will change in the players. A lot of the players who have gone overly risked in the last boom, they may not see the next boom as vigorously as they saw. There will be new leaders. Third, don’t forget real estate sector is a very large sector. So, in any bull run it cannot be ignored in that sense. If you really believe in the India story, then may be stock specific it is good time to buy real estate.
Ramchandran: The question has to be very carefully phrased. Real estate as a broad economic sector is in the morass for two-years or probably longer. But secondary market real estate is already reflecting that in pretty serious terms. It is possible that on a three-year view now is not a bad time to enter. So, you have to be very careful how you structure your investment, but straight buying of stocks or buying of selected stocks in the real estate is a good idea.
Aziz: I am the wrong person to ask this question, but my guess is that depends entirely on a firm to firm basis. What kind of debt restructuring etc different firms are doing? The macro economic trend is that the business cost in India has to ratchet down to a reality of 4-5% growth from what it has been used to i.e. 9% growth rate. Real estate rental prices and real interest rates coming down are the two key things that haven’t come down as yet. We have seen commodity prices, input prices go down. Wages are very sticky and you don’t really want wages to go down.
If the anecdotal evidence or the news reports of 20-30% declines are true and are pervasive, then we are going in that direction but both of them need to come down for the new reality of a 4-5% economy.
Kela: Seeing the various ads by various paper companies, they suggest that both sales are happening and the prices are not down not 20-30%. They might be down as high as 50% from their peak prices.
Read: Real Estate Sector Still In Downtrend
Laijawala: We still need to see more weakness before we get more positive on the sector.
Checkout: Stock Market in 2009 - Stocks to Buy
Source: MoneyControl
Warren Buffet - Top Secrets of His Success In Value Investing
With an estimated net worth of $62 billion, the world’s richest person and the greatest investor of all time, Warren Buffett ‘s timeless philosophy of value investing has proven relevant and profitable in all types of markets and financial environments.
Following his simple strategies, he has converted the holding company Berkshire Hathaway into a powerhouse today.
However, despite being simple, he believes in doing things patiently and differently because that’s the only way to stand tall in a crowd.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently,” he says.
You believe him or not, but some of the top secrets of the stupendous success he has achieved as an investor are here:
Simple living and high thinking
Very few people are aware that one of the top secrets of Warren Buffett’s stupendous success is simple living and high thinking.
In fact, anyone with modest means can claim to be leading a simple life. But give one money and one would start behaving like a king.
That, however, is not the case with Buffett who still leads a very simple life considering his status. Like, he lives in a house he bought ages back and dresses up in normal clothes.
“I just naturally want to do things that make sense. In my personal life too, I don't care what other rich people are doing. I don’t want a 405 foot boat just because someone else has a 400 foot boat,” he says.
No unrealistic expectation
You believe him or not, but some of the top secrets of the stupendous success he has achieved as an investor are here:
Unlike many investors around us, Warren Buffett never has had any unrealistic expectation from the market.
No wonder, he says that earning more than 12 per cent in stock is pure dumb luck.
“During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3 per cent when compounded annually .... For investors to merely match that 5.3 per cent market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099!”
Thus, “if your adviser talks to you about double-digit returns from equities, explain this math to him,” he says.
Also Read:
Rakesh Jhunjhunwala - Investment Principles Insights
Warren Buffett's Priceless Words
Want to earn like Warren Buffett? 24 tips
Not timing the market
One thing that Warren Buffett doesn’t do is try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares.
A majority of investors, however, do just the opposite, something that financial planners are always warning them to avoid.
Not diversifying too much
Buffett also likes to keep his investment portfolio limited and simple, and believes in adopting simple investing strategies.
“I want to be able to explain my mistakes. This means I do only the things I completely understand,” he says.
According to his philosophy, keeping one’s attention limited to selected stocks and investment avenues, and not diversifying too much also helps.
“Over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes,” he says.
Not investing money where it has been earned
Buffett does not believe in reinvesting earnings in the same business. Because no one can guarantee you the same return again.
May be you may loose your money in that process. So it is always better to look for new avenues where one can optimize returns.
“There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so,” he says.
Having no herd mentality
It is very easy to follow others and very difficult to carve one’s own way out. But it is only the second strategy which often makes one successful.
This philosophy holds true for the stock market as well.
“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,” Buffett says.
Following his simple strategies, he has converted the holding company Berkshire Hathaway into a powerhouse today.
However, despite being simple, he believes in doing things patiently and differently because that’s the only way to stand tall in a crowd.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently,” he says.
You believe him or not, but some of the top secrets of the stupendous success he has achieved as an investor are here:
Simple living and high thinkingVery few people are aware that one of the top secrets of Warren Buffett’s stupendous success is simple living and high thinking.
In fact, anyone with modest means can claim to be leading a simple life. But give one money and one would start behaving like a king.
That, however, is not the case with Buffett who still leads a very simple life considering his status. Like, he lives in a house he bought ages back and dresses up in normal clothes.
“I just naturally want to do things that make sense. In my personal life too, I don't care what other rich people are doing. I don’t want a 405 foot boat just because someone else has a 400 foot boat,” he says.
No unrealistic expectationYou believe him or not, but some of the top secrets of the stupendous success he has achieved as an investor are here:
Unlike many investors around us, Warren Buffett never has had any unrealistic expectation from the market.
No wonder, he says that earning more than 12 per cent in stock is pure dumb luck.
“During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3 per cent when compounded annually .... For investors to merely match that 5.3 per cent market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099!”
Thus, “if your adviser talks to you about double-digit returns from equities, explain this math to him,” he says.
Also Read:
Rakesh Jhunjhunwala - Investment Principles Insights
Warren Buffett's Priceless Words
Want to earn like Warren Buffett? 24 tips
Not timing the market
One thing that Warren Buffett doesn’t do is try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares.
A majority of investors, however, do just the opposite, something that financial planners are always warning them to avoid.
Not diversifying too much
Buffett also likes to keep his investment portfolio limited and simple, and believes in adopting simple investing strategies.
“I want to be able to explain my mistakes. This means I do only the things I completely understand,” he says.
According to his philosophy, keeping one’s attention limited to selected stocks and investment avenues, and not diversifying too much also helps.
“Over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes,” he says.
Not investing money where it has been earned
Buffett does not believe in reinvesting earnings in the same business. Because no one can guarantee you the same return again.
May be you may loose your money in that process. So it is always better to look for new avenues where one can optimize returns.
“There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so,” he says.
Having no herd mentality
It is very easy to follow others and very difficult to carve one’s own way out. But it is only the second strategy which often makes one successful.
This philosophy holds true for the stock market as well.
“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,” Buffett says.
Biyani's' Sixth Sense Saves The Day For Pantaloon Retail
This isn’t a company that needs rubber bands and paper clips to fake a grin. At a time when Indian retailers are trying desperately to make cash registers ring, Pantaloon Retail is perhaps the only one still raking it in. Its numbers for the quarter till December-end tell the story.
It is the only Indian retailer that has managed to grow sales by 25%. Its operating margin crossed the 10%-mark, up 1.4% year-on-year, while manpower and operating costs fell 1.33% and 1.78%, respectively, despite Pantaloon adding 18 large format stores. EBIDTA or core earnings rose 62%. And, despite the worldwide gloomy consumer sentiment, Kishore Biyani, promoter and CEO of Pantaloon’s parent Future Group, is planning to add six times more retail space next year.
Rivals Shoppers Stop and Vishal Retail, meanwhile, grew sales by only 3.3% and 17.8%, respectively, in the same period. Operating margin fell 1.4% at Vishal Retail and 4.4% at Shoppers Stop. Both reported a double-digit decline in their same-store sales, a key metric used in retail industry analysis that compares sales of stores that have been open for a year or more. This analysis is important because although new stores are good, a saturation point — where future sales growth is determined by same-store sales growth — eventually comes off.
Checkout: Pantaloon Retail - Buy Stocks Of Leading & Only Growing Retailer
So, what makes Pantaloon Retail click? Company officials credit it to Biyani’s native caution and his ability to keep an ear to the ground. In January 2008, when much of India Inc was on a roll, KB’s Monday Musing, a weekly e-mail communication sent to all employees, Kishore Biyani called for an initiative, Garv Se Kaho Hum Kanjoos Hain (Say proudly we are stingy).
In Big Bazaar, the group’s largest value retail company, employees along with Biyani, took an oath to be stingy and take an axe to costs. The message was part of a flurry of initiatives by Pantaloon Retail to make sure it was completely prepared to face a challenging business environment.
As the numbers show, the initiatives seem to have paid off. “Thank god for what we call Kishore Biyani’s sixth sense. Early on, he had an inkling of things to come and we kicked in the restructuring and reorganisational process quickly. We have revised production norms and are redeploying existing people in new stores,” said Sanjay Jog, head of human resources at Pantaloon Retail.
“Being closer to the ground realities, we were able to spot the trend early on and started cost-cutting measures much earlier than others. We had outsourced our IT and other varied functions and optimised costs everywhere in the system.” The fast moves ensured that operations and teams got streamlined within six months of Biyani’s mail. But cutting your own costs is one thing. Making the cost-conscious consumer spend his money in your store is another. Discretionary spends are currently low and both middle-income shoppers and affluent consumers are seeking more value for their buck.
To overcome this problem, retailers tend to step up pre-festive discounts and price cuts. Through massive marketing promotions and in-store festivals, Pantaloon, too, lured customers who had turned fence-sitters and postponed purchase decisions. The Future Group Shopping Festival, End of Season Sale at Pantaloons, Happiness Sale at Central, Blindfold Sale at EZone, Sabse Sasta 3 Din at Big Bazaar and the Exchange Mela were all attempts by Biyani to keep in-store excitement alive during a lean period.
“The organisation has been designed in a manner to adapt to changes faster. So, a Pantaloon customer moved to Big Bazaar, or an EZone customer buying Samsung could now buy Koryo at Electronics Bazaar. By being present across the consumption basket — fashion, food, electronics, mobiles, furniture, and home products — Pantaloon kept overall sales growth far more stable. Even if customer decided to spend less on furniture or mobiles, spends on apparel or food continued to grow,” says Biyani.
The bottomline got an extra boost because the company’s cost of renting stores is far lower than those of new players because it locked in property earlier, he adds. Fashion, too, contributes a higher share to Pantaloon’s overall sales, compared to other retailers. Fashion and apparel contribute 32% of sales. That has come in handy for the company because this category has the highest gross margins of around 40%, compared to categories such as household products or fresh food, which give less than 20%. Most other retailers got dragged down because they focussed on these two less remunerative categories.
Modern retailers across all segments of the industry are closing or relocating unviable stores to stem losses and tackle operational costs. Retailers such as Reliance Fresh, More, India Bulls, Spencers and Subhiksha, which concentrated on replacing neighbourhood kirana stores, are among the worst hit. Many of them are renegotiating rentals with developers.
These, in turn, have begun paring rates by between 25% and 50% to survive a challenging business environment. But with its instinct for street-smart and savvy planning, Pantaloon Retail appears very much immune to this misery. At least, for now.
Source: EconomicTimes.com
It is the only Indian retailer that has managed to grow sales by 25%. Its operating margin crossed the 10%-mark, up 1.4% year-on-year, while manpower and operating costs fell 1.33% and 1.78%, respectively, despite Pantaloon adding 18 large format stores. EBIDTA or core earnings rose 62%. And, despite the worldwide gloomy consumer sentiment, Kishore Biyani, promoter and CEO of Pantaloon’s parent Future Group, is planning to add six times more retail space next year.Rivals Shoppers Stop and Vishal Retail, meanwhile, grew sales by only 3.3% and 17.8%, respectively, in the same period. Operating margin fell 1.4% at Vishal Retail and 4.4% at Shoppers Stop. Both reported a double-digit decline in their same-store sales, a key metric used in retail industry analysis that compares sales of stores that have been open for a year or more. This analysis is important because although new stores are good, a saturation point — where future sales growth is determined by same-store sales growth — eventually comes off.
Checkout: Pantaloon Retail - Buy Stocks Of Leading & Only Growing Retailer
So, what makes Pantaloon Retail click? Company officials credit it to Biyani’s native caution and his ability to keep an ear to the ground. In January 2008, when much of India Inc was on a roll, KB’s Monday Musing, a weekly e-mail communication sent to all employees, Kishore Biyani called for an initiative, Garv Se Kaho Hum Kanjoos Hain (Say proudly we are stingy).
In Big Bazaar, the group’s largest value retail company, employees along with Biyani, took an oath to be stingy and take an axe to costs. The message was part of a flurry of initiatives by Pantaloon Retail to make sure it was completely prepared to face a challenging business environment.
As the numbers show, the initiatives seem to have paid off. “Thank god for what we call Kishore Biyani’s sixth sense. Early on, he had an inkling of things to come and we kicked in the restructuring and reorganisational process quickly. We have revised production norms and are redeploying existing people in new stores,” said Sanjay Jog, head of human resources at Pantaloon Retail.
“Being closer to the ground realities, we were able to spot the trend early on and started cost-cutting measures much earlier than others. We had outsourced our IT and other varied functions and optimised costs everywhere in the system.” The fast moves ensured that operations and teams got streamlined within six months of Biyani’s mail. But cutting your own costs is one thing. Making the cost-conscious consumer spend his money in your store is another. Discretionary spends are currently low and both middle-income shoppers and affluent consumers are seeking more value for their buck.
To overcome this problem, retailers tend to step up pre-festive discounts and price cuts. Through massive marketing promotions and in-store festivals, Pantaloon, too, lured customers who had turned fence-sitters and postponed purchase decisions. The Future Group Shopping Festival, End of Season Sale at Pantaloons, Happiness Sale at Central, Blindfold Sale at EZone, Sabse Sasta 3 Din at Big Bazaar and the Exchange Mela were all attempts by Biyani to keep in-store excitement alive during a lean period.
“The organisation has been designed in a manner to adapt to changes faster. So, a Pantaloon customer moved to Big Bazaar, or an EZone customer buying Samsung could now buy Koryo at Electronics Bazaar. By being present across the consumption basket — fashion, food, electronics, mobiles, furniture, and home products — Pantaloon kept overall sales growth far more stable. Even if customer decided to spend less on furniture or mobiles, spends on apparel or food continued to grow,” says Biyani.
The bottomline got an extra boost because the company’s cost of renting stores is far lower than those of new players because it locked in property earlier, he adds. Fashion, too, contributes a higher share to Pantaloon’s overall sales, compared to other retailers. Fashion and apparel contribute 32% of sales. That has come in handy for the company because this category has the highest gross margins of around 40%, compared to categories such as household products or fresh food, which give less than 20%. Most other retailers got dragged down because they focussed on these two less remunerative categories.
Modern retailers across all segments of the industry are closing or relocating unviable stores to stem losses and tackle operational costs. Retailers such as Reliance Fresh, More, India Bulls, Spencers and Subhiksha, which concentrated on replacing neighbourhood kirana stores, are among the worst hit. Many of them are renegotiating rentals with developers.
These, in turn, have begun paring rates by between 25% and 50% to survive a challenging business environment. But with its instinct for street-smart and savvy planning, Pantaloon Retail appears very much immune to this misery. At least, for now.
Source: EconomicTimes.com
Value Stock Investing - How To Buy Top Stocks - Buy Stocks After Analysis
The stock markets have plunged to new lows. Many investors are looking at alternative investments. Experts advise that it is time to buy stocks with Intrinsic value, better termed as Value stocks. Stocks of some big companies are available at throw-away prices. Let's try understanding how to buy stocks and the strategy known as "Value Investing".
What Does Value Investing Mean?
The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.
Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.
The underlying premise is the belief that the market overreacts to rumours, news and events. It is believed that the resultant stock price movement is not in sync with the company's long-term fundamentals. So, value investors can pick these beaten and overlooked stocks and profit when its price reaches its true value.
Checkout:
Value Stocks To Buy In 2009
Good value stocks in Indian stock market
What is intrinsic value?
The actual value of a security , as opposed to its market price or book value can be called its intrinsic value. The intrinsic value takes into account other factors like growth potential, brand image and so on. Some value investors rely on fundamental analysis that takes into account both qualitative and quantitative (ratios, financial statement analysis etc) aspects of the business.
Benjamin Graham and Warren Buffett's thoughts on value investing
High profile proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions.
However, the future distributions and the appropriate discount rate can only be assumptions. Warren Buffett has taken the value investing concept even further as his thinking has evolved to where for the last 25 years or so his focus has been on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.
Why should value investors be cautious?
Ever considered the possibility of ending up with stocks that never go up irrespective of numerous up and down cycles? Value investing is picking up stocks contrary to what the other investors are currently interested in. If your computation of intrinsic value of a stock is wrong, you could end up with worthless stocks that won't budge.
Value investors must play safe and be conservative, rather than reckless. Before you pump in your money, do a through research of the company and its business reports. Do not bet on small, unknown firms. Known companies with a good track record are safer to stick to. Do not pay more than its worth. Buy when the price is right. Believe in your research and analysis and do not sway to rumours.
Read: Top 10 most valuable companies listed in BT 500
Further, value investors must know their threshold for risk. People with lower risk appetite must simply keep away from the stock markets in these unfavorable conditions. Do not venture into sectors and businesses you aren't familiar with.
Read Value Investing on wikipedia
What Does Value Investing Mean?
The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.
Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.
The underlying premise is the belief that the market overreacts to rumours, news and events. It is believed that the resultant stock price movement is not in sync with the company's long-term fundamentals. So, value investors can pick these beaten and overlooked stocks and profit when its price reaches its true value.
Checkout:
Value Stocks To Buy In 2009
Good value stocks in Indian stock market
What is intrinsic value?
The actual value of a security , as opposed to its market price or book value can be called its intrinsic value. The intrinsic value takes into account other factors like growth potential, brand image and so on. Some value investors rely on fundamental analysis that takes into account both qualitative and quantitative (ratios, financial statement analysis etc) aspects of the business.
Benjamin Graham and Warren Buffett's thoughts on value investingHigh profile proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions.
However, the future distributions and the appropriate discount rate can only be assumptions. Warren Buffett has taken the value investing concept even further as his thinking has evolved to where for the last 25 years or so his focus has been on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.
Why should value investors be cautious?
Ever considered the possibility of ending up with stocks that never go up irrespective of numerous up and down cycles? Value investing is picking up stocks contrary to what the other investors are currently interested in. If your computation of intrinsic value of a stock is wrong, you could end up with worthless stocks that won't budge.
Value investors must play safe and be conservative, rather than reckless. Before you pump in your money, do a through research of the company and its business reports. Do not bet on small, unknown firms. Known companies with a good track record are safer to stick to. Do not pay more than its worth. Buy when the price is right. Believe in your research and analysis and do not sway to rumours.
Read: Top 10 most valuable companies listed in BT 500
Further, value investors must know their threshold for risk. People with lower risk appetite must simply keep away from the stock markets in these unfavorable conditions. Do not venture into sectors and businesses you aren't familiar with.
Read Value Investing on wikipedia
How to buy multi bagger stocks? Rakesh Jhunjhunwala & Others Guidelines To You
For any investor, buying stocks which can be multibaggers are the most attractive option. Raamdeo Agrawal, Director, Motilal Oswal Financial Services owned over 10 multibagger stocks, while Sanjoy Bhattacharyya, Partner, Fortuna Capital owned over 100 baggers. And we all know about the success story of Rakesh Jhunjhunwala, legendary investor in Indian stock market.
But how does one identify a multibagger? Valuation, a company's fundamentals, a business that promises growth over time, management's integrity, rational allocation of capital etc decide if a stock is of the multibagger variety.
Explains Raamdeo Agrawal, "If you want a multi bagger, it has to be bought literally free of cost...the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years." There is also another plot to this story--the market. Agrawal says a multibagger gets irrational quote from the market in three steps. It goes from being undervalued to fairly valued to being irrationally valued.
Rakesh Jhunjhunwala, Partner, Rare Enterprises, advice is that one needs to check what opportunity the business has, who are the entrepreneurs, how much capital is needed, is the business scalable, and what is the company’s valuation.
Here is a verbatim transcript of the exclusive interview with Raamdeo Agrawal and Rakesh Jhunjhunwala on CNBC-TV18. Also see the accompanying video.
Q: You had more than 10 multi-bagger stocks, what are the characteristics? How does one find 10 multi-bagger stocks? How does one start the process of thinking that the stock is going to be a 10 bagger?
Agrawal: You don’t pay anything to have multi-baggers. If you want a multi-bagger literally you have to buy free of cost, your purchase price decides your rate of return. That is a simple method.
Jhunjhunwala: That doesn’t mean that if Infosys has Rs 30 crore market capitalization, then at Rs 90 crore I should not buy it. We don’t buy it just because it has doubled. You have to see value when you buy.
Agrawal: The first fundamental thing is that you have got to buy extremely cheap and it is non-negotiable. If you want a multi bagger, it has to be bought literally free of cost. Like I could have bought Bharti Telecom around Rs 4,000-5,000 kind of valuation, today it commands a valuation of Rs 1,50,000 crore in just five years. So, when you buy these kind of things at those prices literally, the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years. That is a non-negotiable kind of a trade for finding a multi bagger. Now, the market must become irrational about that stock. So, from under valuation it goes to a fair valuation and from fair valuation it goes to irrational valuation.
Q: You are too modest to say this but I know you have had 700 baggers. Where have you looked for your 100 baggers, give us intellectual hypothesis?
Bhattacharyya: Between being smart and being lucky, I know it will hurt your ego like hell because all you guys are IIM-A always ought to be lucky not smart. It seems that there are two things, which are very important. Agrawal spoke the need to buy cheap, so valuation is very much in your favour.
But two other things you must buy a business, which is of very high quality. What do I mean by high quality business is that a business which is capable of growing over time. I think in the modern lingua franca it is called scalable. I hate words like that. But I think that is what they teach you here, so scalable and the scalability doesn’t require linear inputs of capital.
In a really high quality business, which is disproportionate and where you don’t need to have equal amounts of money to finance incremental growth, that is a wonderful business. The cigarette business, the biscuit business are also highly predictable. What destroys most people is their inability to foresee change. Most of us are not as smart as we think and change can be very rapid and very destructive. So, you have got to be able to figure out change.
Unless you are Rakesh Jhunjhunwala, you are usually a minority holder.
Then, it is very important to understand, what is the agenda and the interest of the majority holder or management usually. If it’s a private equity firm which has the majority stake in the company, what is their agenda? What do they want and how well do they allocate capital? You can never have a multi-bagger if capital is irrationally allocated by the people who run the company. If they have this wild ambition that I am going to spend and earn lots of money, but I will spend even more in terms of capital expenditure and financing growth, you will have very high reported profit but zero cash flow or negative cash flow. You can never get a multi-bagger out of that situation. But you have obviously got to search for a management which has competence and then make sure that you sort of super-impose a huge dose of integrity on that and rational capital allocation. The minute that is missing you will be at risk. Your 10 baggers could reduce back to being a 2 baggers because you could wipe out 80% of your gains.
Q: Are Titan, Praj, Nagarjuna some of the great multi-baggers?
Jhunjhunwala: Titan was a retailer, it was a brand company, it always had a great business. That was a reality. So, it was a great business. In a moment of crisis and when they went into Europe, they lost money. That was a crisis primarily. To my mind what is most important for Titan is India’s prosperity. I envisaged the future and I thought Indians are going to buy far many watches, so that is how he said that the business should be great. So, in a moment of crisis you get great valuations and you envisage the future where the product could have great demand and great growth and that business doesn’t need money.
In MBA language, price is equal to EPS multiplies by P/E, so circumstance should arise where the P/E should grow and the EPS should grow. Suppose I buy a stock, which earns Rs 5. At 5 P/E and I pay Rs 25, if the earnings becomes Rs 15 and the P/E becomes Rs 20, that Rs 25 goes to Rs 300. So, the basic methodology is that can this EPS grow year-upon-year and will the P/E expand. P/E expansion is function of so many items. It is a function of size. So, many of my companies I don’t sell because I feel that P/E will expand, as their size increases and liquidity increases.
Q: Your favourite multi-bagger in your career?
Agrawal: Vysya Bank that was a very first one, second one was Hero Honda, and third one was Bharti.
Q: What has been your multi-bagger historically?
Jhunjhunwala: For me anything that gives me money is my favourite one. There is no emotion. But I think as I judge myself some of the finest investment decisions which I have taken in my life is the decision to invest in Titan, decision to invest in Crisil, decision to invest and retain my holding of Karur Vysya Bank. Now, it is14-15 years since I have bought them. But I think some investment of Rs 2,000 is worth sum I don’t know how many crores today.
Bhattacharyya: The important thing is to identifying the opportunity and then as Jhunjhunwala said is acting on it, being decisive, not getting stuck in a trap where you are perpetually seeking extra information. If you are looking to identify great opportunities, one other thing that all of you will do well is to make friends or associates with people who are called in the language of Dalal Street smart money. You have three of the smartest guys sitting here. But to say this if you have guys, who are really smart serious, thinking investors, one of the ways you will find 100 baggers is by talking to them frequently. I am not joking.
Jhunjhunwala: One important trade of any 10 bagger is there should not be any institutional ownership, it should be under research, nobody should know about it. Today also I was asking Mr. Bhattacharyya that have you researched Titan. Even if the stock have gone up 30 times, Mr. Bhattacharyya has not researched it, which is very good for Titan. I have not researched Bharti, which is very good for Bharti. The stock has appreciated so much but the amount of interest remains in the stock remains at low level. So, it should not be one of the popular not by rule but generally it is not a popular stocks and there should be deep scepticism.
Bhattacharyya: In fact one of the good test to follow is go and tell it to someone else who has experience and has been around in the market for a long time. He will laugh at you. The fact that he is laughing at you should be like a tremendous source of encouragement.
Jhunjhunwala: There are no rules. If two agree, it doesn’t mean that you don’t buy.
Agrawal: What Mr. Bhattacharyya said is a truest thing, when I like something very deeply and when he disagrees ‑ because he is my friend, I go and test with him – and when he disagrees that is going to be a multi bagger.
Q: When you look at buying stake in a company, what is the most important factor or criteria that you look at?
Jhunjhunwala: I cannot say whether the leg or head is more important or the brain is more important or the heart is more important. There are equally important factors, and any successful business is a combination of factors.
When I look at any investment or any business, I look at three-four factors. First, the external opportunity which is demand. For instance in Praj maybe because of the need of alternative fuels the demand for ethanol plants went through the roof. So, I look at the opportunity the business has.
Then I look at the entrepreneurs, I look at the capital needed, and I want to judge scalability. We could make money in Pantaloon because Kishore Biyani could scale the business. Then, it is important what you buy, it is important at what price you buy. So, I look at the valuation. I have no analysis paralysis. I judge very fast.
Q: Which are the sectors that one should invest in say for a period of one year given the current market level and fluctuations?
Bhattacharyya: My answer is not going to be a happy answer. First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.
You are buying a business with specific players, a cast. You are buying the people who run that business; you are buying the assets and liabilities of that business, you are buying the balance sheet of the company. Within the same sector, different people have different opportunities.
So, if I were to say that the pharmaceutical sector is a great opportunity, there are different pharmaceutical companies. Say if you were buying Sun Pharma as opposed to buying Lupin, you are buying it at completely different valuations. Some sectors that are hot right now, I mean the whole world knows they are hot right now. So, the prices at which you are buying that sector reflect the hope and the enthusiasm that people have for that now.
But I don’t think that I understand anything other than what is called bottom-up. That means god lies in the details. There are specific opportunities or companies that I can tend to buy.
Agrawal: I would approach the financial sector, the large banks, which have large bond portfolios like SBI has Rs 2-2.5 lakh crore worth of bond portfolio, mark-to-market. When the yield drops you know what happens to bond prices and that goes directly to the P&L. In any case, you are buying that stock at 1-1.2 times book, insurance free thrown with the SBI stock. So, I would like to buy that for maybe 25-40% case for the next one year.
Secondly, I would say telecom. I think god communicates wirelessly. I think the telecom penetration in India is just about 25%. We are headed for 75% if not 100% in the next 5-6 years. We are going to see more than 10-15% compounded quarterly growth for the next 20-25 quarters in this country. Hence, we have a great opportunity in buying Bharti Telecom.
Q: Is there any sector you like?
Jhunjhunwala: I think that India-centric sectors will do well whether it is banking, retailing, infrastructure, all sectors that are related to India – SBI, Bharti, and Hero Honda.
Q: You were talking about recognising value in a stock. If you look at the power sector in India, there are some stocks like Tata Power and NTPC have significantly high ground assets, or whether some new companies like KSK Energy who have captive coal reserves. How do you compare these and what are the parameters that you use to identify value?
Jhunjhunwala: The first multi-bagger of my life was Tata Power. But after having earned a lot of money in Tata Power, I have promised myself I am not going to buy any power companies because after all it is a fixed return rate of return and the rate of return is 13-14%. It is a capital intensive industry. So god bless NTPC and KSK Energy. But that is not where my interest is, because I can’t think of any industry in the world where the rate of return as fixed, if it is going to give you multiple returns.
Bhattacharyya: In fact, I would like to endorse what Jhunjhunwala said. But I think of your question and I suspect it may be that how do you distinguish between companies that are asset plays, which don’t have at this stage earnings that you can identify with and see and therefore put a multiple to them as opposed to companies that have a stream of earnings.
Jhunjhunwala: But market will value them if within a comprehensible period those assets can return a stream of earnings. If I have a company whose office is worth Rs 5,000 crore, what can I do? I will wait for earnings for one, two, or five years. Nobody is going to buy that company because their office is there. Don’t forget all these coal reserves. You know what is the average value for oil reserves ‑ about USD 10-15 or maybe USD 20. You first have to say in what time period KSK Energy will get the coal reserves. If it gets it 15 years later and you bring it to present value, you come to 3% of the current market price. Then, you have value in the current coal prices. Are these prices going to last? So, therefore they may appear cheap.
Q: In the present market scenario both from an investors’ perspective and a speculators’ perspective, where would you put your money – in real estate, in fixed income, equities, or gold?
Agrawal: To tell you the truth, I don’t know any other trade. I know only stocks. So, I don’t have any other option but to buy stock.
Jhunjhunwala: We never allocate capital. We have money means it is for equities.
Agrawal: Just equities, not even cash and equities, only equities. So, when I wanted to play real estate, I bought hotel shares. I am not going to buy 100 acres here and there. I said let’s go and buy earning real estate, i.e. hotel shares.
Jhunjhunwala: I have allocated some part of my trading portfolio to debt – to buy bonds. Long-dated bonds with good yields are very good.
Q: How do you decide when to sell a multi-bagger?
Jhunjhunwala: I will sell a stock only in two circumstances: when I have limited capital and when I get an opportunity that is better than what I have now. So, if comparatively I need capital, I will sell it.
Secondly, when the perception of earnings peaks and the P/E is unsustainable. I think that is a time to sell. The earning may not peak but the expectations of hope like in 2000 everybody said Infosys’ earnings will double every year for the next 10 years. That was the expectation in the market and its P/E was at the current earnings, it was 100-150 times. So, when the expectation of earnings peaks and the P/E is unsustainable, I think that is a time to sell.
Agrawal: There are two types of stocks. One you buy forever and one you buy for a trade.
Jhunjhunwala: I strongly contest this. There is no stock forever in the world.
Agrawal: I contest that. There are clearly two types of stock. One you buy for selling and one you buy forever.
Source: Moneycontrol.com
But how does one identify a multibagger? Valuation, a company's fundamentals, a business that promises growth over time, management's integrity, rational allocation of capital etc decide if a stock is of the multibagger variety.
Explains Raamdeo Agrawal, "If you want a multi bagger, it has to be bought literally free of cost...the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years." There is also another plot to this story--the market. Agrawal says a multibagger gets irrational quote from the market in three steps. It goes from being undervalued to fairly valued to being irrationally valued.
Rakesh Jhunjhunwala, Partner, Rare Enterprises, advice is that one needs to check what opportunity the business has, who are the entrepreneurs, how much capital is needed, is the business scalable, and what is the company’s valuation.
Here is a verbatim transcript of the exclusive interview with Raamdeo Agrawal and Rakesh Jhunjhunwala on CNBC-TV18. Also see the accompanying video.
Q: You had more than 10 multi-bagger stocks, what are the characteristics? How does one find 10 multi-bagger stocks? How does one start the process of thinking that the stock is going to be a 10 bagger?
Agrawal: You don’t pay anything to have multi-baggers. If you want a multi-bagger literally you have to buy free of cost, your purchase price decides your rate of return. That is a simple method.
Jhunjhunwala: That doesn’t mean that if Infosys has Rs 30 crore market capitalization, then at Rs 90 crore I should not buy it. We don’t buy it just because it has doubled. You have to see value when you buy.
Agrawal: The first fundamental thing is that you have got to buy extremely cheap and it is non-negotiable. If you want a multi bagger, it has to be bought literally free of cost. Like I could have bought Bharti Telecom around Rs 4,000-5,000 kind of valuation, today it commands a valuation of Rs 1,50,000 crore in just five years. So, when you buy these kind of things at those prices literally, the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years. That is a non-negotiable kind of a trade for finding a multi bagger. Now, the market must become irrational about that stock. So, from under valuation it goes to a fair valuation and from fair valuation it goes to irrational valuation.
Q: You are too modest to say this but I know you have had 700 baggers. Where have you looked for your 100 baggers, give us intellectual hypothesis?
Bhattacharyya: Between being smart and being lucky, I know it will hurt your ego like hell because all you guys are IIM-A always ought to be lucky not smart. It seems that there are two things, which are very important. Agrawal spoke the need to buy cheap, so valuation is very much in your favour.
But two other things you must buy a business, which is of very high quality. What do I mean by high quality business is that a business which is capable of growing over time. I think in the modern lingua franca it is called scalable. I hate words like that. But I think that is what they teach you here, so scalable and the scalability doesn’t require linear inputs of capital.
In a really high quality business, which is disproportionate and where you don’t need to have equal amounts of money to finance incremental growth, that is a wonderful business. The cigarette business, the biscuit business are also highly predictable. What destroys most people is their inability to foresee change. Most of us are not as smart as we think and change can be very rapid and very destructive. So, you have got to be able to figure out change.
Unless you are Rakesh Jhunjhunwala, you are usually a minority holder.
Then, it is very important to understand, what is the agenda and the interest of the majority holder or management usually. If it’s a private equity firm which has the majority stake in the company, what is their agenda? What do they want and how well do they allocate capital? You can never have a multi-bagger if capital is irrationally allocated by the people who run the company. If they have this wild ambition that I am going to spend and earn lots of money, but I will spend even more in terms of capital expenditure and financing growth, you will have very high reported profit but zero cash flow or negative cash flow. You can never get a multi-bagger out of that situation. But you have obviously got to search for a management which has competence and then make sure that you sort of super-impose a huge dose of integrity on that and rational capital allocation. The minute that is missing you will be at risk. Your 10 baggers could reduce back to being a 2 baggers because you could wipe out 80% of your gains.
Q: Are Titan, Praj, Nagarjuna some of the great multi-baggers?
Jhunjhunwala: Titan was a retailer, it was a brand company, it always had a great business. That was a reality. So, it was a great business. In a moment of crisis and when they went into Europe, they lost money. That was a crisis primarily. To my mind what is most important for Titan is India’s prosperity. I envisaged the future and I thought Indians are going to buy far many watches, so that is how he said that the business should be great. So, in a moment of crisis you get great valuations and you envisage the future where the product could have great demand and great growth and that business doesn’t need money.
In MBA language, price is equal to EPS multiplies by P/E, so circumstance should arise where the P/E should grow and the EPS should grow. Suppose I buy a stock, which earns Rs 5. At 5 P/E and I pay Rs 25, if the earnings becomes Rs 15 and the P/E becomes Rs 20, that Rs 25 goes to Rs 300. So, the basic methodology is that can this EPS grow year-upon-year and will the P/E expand. P/E expansion is function of so many items. It is a function of size. So, many of my companies I don’t sell because I feel that P/E will expand, as their size increases and liquidity increases.
Q: Your favourite multi-bagger in your career?
Agrawal: Vysya Bank that was a very first one, second one was Hero Honda, and third one was Bharti.
Q: What has been your multi-bagger historically?
Jhunjhunwala: For me anything that gives me money is my favourite one. There is no emotion. But I think as I judge myself some of the finest investment decisions which I have taken in my life is the decision to invest in Titan, decision to invest in Crisil, decision to invest and retain my holding of Karur Vysya Bank. Now, it is14-15 years since I have bought them. But I think some investment of Rs 2,000 is worth sum I don’t know how many crores today.
Bhattacharyya: The important thing is to identifying the opportunity and then as Jhunjhunwala said is acting on it, being decisive, not getting stuck in a trap where you are perpetually seeking extra information. If you are looking to identify great opportunities, one other thing that all of you will do well is to make friends or associates with people who are called in the language of Dalal Street smart money. You have three of the smartest guys sitting here. But to say this if you have guys, who are really smart serious, thinking investors, one of the ways you will find 100 baggers is by talking to them frequently. I am not joking.
Jhunjhunwala: One important trade of any 10 bagger is there should not be any institutional ownership, it should be under research, nobody should know about it. Today also I was asking Mr. Bhattacharyya that have you researched Titan. Even if the stock have gone up 30 times, Mr. Bhattacharyya has not researched it, which is very good for Titan. I have not researched Bharti, which is very good for Bharti. The stock has appreciated so much but the amount of interest remains in the stock remains at low level. So, it should not be one of the popular not by rule but generally it is not a popular stocks and there should be deep scepticism.
Bhattacharyya: In fact one of the good test to follow is go and tell it to someone else who has experience and has been around in the market for a long time. He will laugh at you. The fact that he is laughing at you should be like a tremendous source of encouragement.
Jhunjhunwala: There are no rules. If two agree, it doesn’t mean that you don’t buy.
Agrawal: What Mr. Bhattacharyya said is a truest thing, when I like something very deeply and when he disagrees ‑ because he is my friend, I go and test with him – and when he disagrees that is going to be a multi bagger.
Q: When you look at buying stake in a company, what is the most important factor or criteria that you look at?
Jhunjhunwala: I cannot say whether the leg or head is more important or the brain is more important or the heart is more important. There are equally important factors, and any successful business is a combination of factors.
When I look at any investment or any business, I look at three-four factors. First, the external opportunity which is demand. For instance in Praj maybe because of the need of alternative fuels the demand for ethanol plants went through the roof. So, I look at the opportunity the business has.
Then I look at the entrepreneurs, I look at the capital needed, and I want to judge scalability. We could make money in Pantaloon because Kishore Biyani could scale the business. Then, it is important what you buy, it is important at what price you buy. So, I look at the valuation. I have no analysis paralysis. I judge very fast.
Q: Which are the sectors that one should invest in say for a period of one year given the current market level and fluctuations?
Bhattacharyya: My answer is not going to be a happy answer. First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.
You are buying a business with specific players, a cast. You are buying the people who run that business; you are buying the assets and liabilities of that business, you are buying the balance sheet of the company. Within the same sector, different people have different opportunities.
So, if I were to say that the pharmaceutical sector is a great opportunity, there are different pharmaceutical companies. Say if you were buying Sun Pharma as opposed to buying Lupin, you are buying it at completely different valuations. Some sectors that are hot right now, I mean the whole world knows they are hot right now. So, the prices at which you are buying that sector reflect the hope and the enthusiasm that people have for that now.
But I don’t think that I understand anything other than what is called bottom-up. That means god lies in the details. There are specific opportunities or companies that I can tend to buy.
Agrawal: I would approach the financial sector, the large banks, which have large bond portfolios like SBI has Rs 2-2.5 lakh crore worth of bond portfolio, mark-to-market. When the yield drops you know what happens to bond prices and that goes directly to the P&L. In any case, you are buying that stock at 1-1.2 times book, insurance free thrown with the SBI stock. So, I would like to buy that for maybe 25-40% case for the next one year.
Secondly, I would say telecom. I think god communicates wirelessly. I think the telecom penetration in India is just about 25%. We are headed for 75% if not 100% in the next 5-6 years. We are going to see more than 10-15% compounded quarterly growth for the next 20-25 quarters in this country. Hence, we have a great opportunity in buying Bharti Telecom.
Q: Is there any sector you like?
Jhunjhunwala: I think that India-centric sectors will do well whether it is banking, retailing, infrastructure, all sectors that are related to India – SBI, Bharti, and Hero Honda.
Q: You were talking about recognising value in a stock. If you look at the power sector in India, there are some stocks like Tata Power and NTPC have significantly high ground assets, or whether some new companies like KSK Energy who have captive coal reserves. How do you compare these and what are the parameters that you use to identify value?
Jhunjhunwala: The first multi-bagger of my life was Tata Power. But after having earned a lot of money in Tata Power, I have promised myself I am not going to buy any power companies because after all it is a fixed return rate of return and the rate of return is 13-14%. It is a capital intensive industry. So god bless NTPC and KSK Energy. But that is not where my interest is, because I can’t think of any industry in the world where the rate of return as fixed, if it is going to give you multiple returns.
Bhattacharyya: In fact, I would like to endorse what Jhunjhunwala said. But I think of your question and I suspect it may be that how do you distinguish between companies that are asset plays, which don’t have at this stage earnings that you can identify with and see and therefore put a multiple to them as opposed to companies that have a stream of earnings.
Jhunjhunwala: But market will value them if within a comprehensible period those assets can return a stream of earnings. If I have a company whose office is worth Rs 5,000 crore, what can I do? I will wait for earnings for one, two, or five years. Nobody is going to buy that company because their office is there. Don’t forget all these coal reserves. You know what is the average value for oil reserves ‑ about USD 10-15 or maybe USD 20. You first have to say in what time period KSK Energy will get the coal reserves. If it gets it 15 years later and you bring it to present value, you come to 3% of the current market price. Then, you have value in the current coal prices. Are these prices going to last? So, therefore they may appear cheap.
Q: In the present market scenario both from an investors’ perspective and a speculators’ perspective, where would you put your money – in real estate, in fixed income, equities, or gold?
Agrawal: To tell you the truth, I don’t know any other trade. I know only stocks. So, I don’t have any other option but to buy stock.
Jhunjhunwala: We never allocate capital. We have money means it is for equities.
Agrawal: Just equities, not even cash and equities, only equities. So, when I wanted to play real estate, I bought hotel shares. I am not going to buy 100 acres here and there. I said let’s go and buy earning real estate, i.e. hotel shares.
Jhunjhunwala: I have allocated some part of my trading portfolio to debt – to buy bonds. Long-dated bonds with good yields are very good.
Q: How do you decide when to sell a multi-bagger?
Jhunjhunwala: I will sell a stock only in two circumstances: when I have limited capital and when I get an opportunity that is better than what I have now. So, if comparatively I need capital, I will sell it.
Secondly, when the perception of earnings peaks and the P/E is unsustainable. I think that is a time to sell. The earning may not peak but the expectations of hope like in 2000 everybody said Infosys’ earnings will double every year for the next 10 years. That was the expectation in the market and its P/E was at the current earnings, it was 100-150 times. So, when the expectation of earnings peaks and the P/E is unsustainable, I think that is a time to sell.
Agrawal: There are two types of stocks. One you buy forever and one you buy for a trade.
Jhunjhunwala: I strongly contest this. There is no stock forever in the world.
Agrawal: I contest that. There are clearly two types of stock. One you buy for selling and one you buy forever.
Source: Moneycontrol.com
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