Rakesh Jhunjhunwala is the Mother Theresa of the investment world because not only is this Living Legend eager to share his investment techniques with us but also happy to let us in on the most well guarded investment secret on how Rakesh Jhunjhunwala made his billions . But,Rakesh Jhunjhunwala, the wise sage that he is, is a man of few words. Rakesh Jhunjhunwala is reticent. When Rakesh Jhunjhunwala speaks, it is because he has something to say and not because he has to say something! So we scoured through hundreds of transcripts to decode Rakesh Jhunjhunwala?s investment secrets. Now, we are proud to present our own version of Rakesh Jhunjhunwala?s tips on how to find multibaggers. Rakesh Jhunjhunwala?s Tip No. 1: Don't Look For Multi-baggers Rakesh Jhunjhunwala?s first investment mantra on how to find multibaggers is surprisingly different from what you would expect. Rakesh Jhunjhunwala says: "Don't look for multibaggers. Don't seek them at all. Let the multibaggers come to you!" What is Rakesh Jhunjhunwala saying? What Rakesh Jhunjhunwala is saying is: Don't go out into the investment world saying "I only want to invest in potential multibaggers". Instead, Rakesh Jhunjhunwala, the Investment Guru, says "Go back to the old-fashioned way of making investments designed by investment maestros Benjamin Graham, Peter Lynch and Warren Buffett". "If your homework is right and you have invested in fundamentally sound companies with good growth prospects, your investments will by themselves become multibaggers with the passage of time". Sounds simple but Rakesh Jhunjhunwala is not content with giving abstract or theoretical advice because Rakesh Jhunjhunwala already knows that his disciples are a bunch of doubting Thomas and even his words of undeniable gospel will be met with stoic skepticism. So, Rakesh Jhunjhunwala gives examples of what he means. Rakesh Jhunjhunwala gives the example of BEML which several years ago was quoting at a pittance because it was regarded as a slothful government enterprise. No investor in his right mind wanted the shares of BEML at that time. But while other investors saw a sluggish government corporation, Rakesh Jhunjhunwala saw efficient management, a great product line-up and effeicient cash-flows. The result: Rakesh Jhunjhunwala got a bountiful; he got his multibagger. One example is not enough. So, Rakesh Jhunjhunwala gives another example ? that of Bharat Electronics ? which also was regarded as a Babu-wala company by other investors who couldn't see what Rakesh Jhunjhunwala?s discerning eye could. Another humble company turned into a multibagger by sheer passage of time! Now you are convinced. But Rakesh Jhunjhunwala does not rest. He goes for the jugular. Now, Rakesh Jhunjhunwala gives a counter example. What would an investor "looking" for a multibagger have bought in the heady days of 2000? The naive investor would have looked around and seen "spectacular" companies like Himachal Futuristic, Global Tele, Pentasoft soaring on the stock exchange, making new highs every day. So, the foolish investor would have tanked up on these shares thinking that these shares were his best bet to net a multibagger. The result: You don't need the great Rakesh Jhunjhunwala to spell that out for you. So, now you know why Rakesh Jhunjhunwala says: "Don't look for multibaggers!" Yes, the point sinks in and you have understood but then you rub your eyes incredulously and ask
"But what do I look for in a share?" Rakesh Jhunjhunwala is not regarded as the greatest investor in India for nothing. He has a well-considered answer for that as well. And if you think about it, Rakesh Jhunjhuwala's answer is made up of pure common sense. Rakesh Jhunjhunwala?s Tip No. 2: Don't Look for Profits; Look For Sources Of Profits Rakesh Jhunjhunwala cautions that most investors obsess about the current sales and profits. They look at each quarter and focus obsessively on short-term profits. "That's missing the wood for the trees" says Rakesh Jhunjhunwala. Instead Rakesh Jhunjhunwala says "Look at the sources of Profits. What are the reasons that will give rise to Profits in the medium and long-term term". Rakesh Jhunjhunwala drives home the point. "Look at the factors and circumstances that will create an opportunity for business in the sector". Rakesh Jhunjhunwala gives the classic example of Infosys and Wipro. While the average Joe would have sat with his calculator analyzing Infosys's & Wipro's PE, ROE and nonsense like that, an astute investor in the 1990s would have realized that an internet revolution was coming in the next couple of years. He would have also realized that the off-shore business segment was booming and he would have tanked up on those shares. Rakesh Jhunjhunwala gives another spectacular example: That of Praj Industries, a company engaged in manufacture of bio-ethanol fuel. When Praj Industries started out, nobody realized the massive demand that would arise for alternate fuels like ethanol. An investor would could have foreseen that would have had his multibagger. Rakesh Jhunjhunwala?s Tip No. 3: Forget ?Large Cap, Small Cap' Nonsense ? Look For Scalability Of Operations: Rakesh Jhunjhunwala makes two very important points. First, the investing maestro expresses his contempt for the obsession that many analysts and investors have for the debate on whether large cap, mid cap or small cap stocks are better. "Forget all that and Look for Value" he thunders. "If there is value in Large Cap, buy it. If there is value in Small Cap, buy it. But don't obsess on irrelevant matters", says Rakesh Jhunjhunwala, the one with infinite wisdom. But Rakesh Jhunjhunwala makes his preference quite clear. He says that given a choice and all things remaining equal, a mid-cap or a small-cap is a preferred bet because the valuations will be low and they can scale it up quite quickly. Rakesh Jhunjhunwala?s Tip No. 4: Give it Time, Be Patient: Rakesh Jhunjhunwala reiterates what the maha investment gurus like Benjamin Graham and Warren Buffett have been advising over the past several decades. Warren Buffett was plain in his advice "Our favourite holding period is Forever". Rakesh Jhunjhunwala gives the same advice: "Give your investments time to mature. Be Patient for the World to discover your gems". Rakesh Jhunjhunwala cites the examples of Crisil, Titan and Pantaloon Retail which he has held on for several years now and has absolutely no intention of divesting them any time soon. When Rakesh Jhunjhunwala bought Lupin it was just another mid-cap pharma company starting out into the world of generic drugs. What Rakesh Jhunjhunwala saw was a good efficient management which knew its job, a debt-free status, a good product line up and a growing market. That's all. Rakesh Jhunjhunwala bought and played the waiting game. When the market matured, Rakesh Jhunjhunwala raked in his billions. Rakesh Jhunjhunwala also fondly talks about his investment in Karur Vysya Bank which he has held onto even after about 20 years since he bought them. He says that his paltry investment of Rs 2,000 is worth several crores today thanks to the patience and conviction that he showed. Rakesh Jhunjhunwala is never tired of emphasizing that first you must always remember that you are buying a business and not just a little thing that bounces 2% around every now and then. When you buy that business, it must be of a very high quality, one that is capable of growing over time. Having done your hard work, you must wait for the market to do its work and reward you, says Rakesh Jhunjhunwala. Rakesh Jhunjhunwala?s Tip No. 5: Don't get carried away by short-term aberrations: Rakesh Jhunjhunwala cannot stop criticizing investors who
are obsessed with short-term trends. Rakesh Jhunjhunwala emphasizes that he does not worry about quarterly results. If the results are bad in one quarter, he does not get perturbed. What Rakesh Jhunjhunwala is looking for is: Is there a trend? Are the quarterly results showing a trend and suggesting something or are they a mere aberration? Rakesh Jhunjhunwala also cautions that one should not get carried away by short-term trends. He cites the oft-repeated example of 1999 when investors bought truck loads of Himachal Futuristic, Global Tele, Pentasoft while he used to buy Shipping Corporation and Bharat Electronics because he saw long-term value in them. The Oracle of Mumbai says "Never get carried away by aberrations, recognize and respect them but do remember that the market corrects its aberration though it takes time." Rakesh Jhunjhunwala then adds that if the market behaves irrational and punishes a stock for short-term aberration, that's the time for you to jump in. Rakesh Jhunjhunwala cites the classic example of Titan Watches to buttress his theory. Rakesh Jhunjhunwala says that Titan suffered in a moment of crisis when it went into Europe and lost a lot of money. Rakesh Jhunjhunwala says he wasn't perturbed because he knew that what is most important for Titan is India's prosperity. Rakesh Jhunjhunwala envisaged the future and knew sub-consciously that Indians were going to buy far many watches and that the underlying business should be great. So, says Rakesh Jhunjhunwala, in a moment of crisis you can get great valuations and if you can envisage the future where the product could have great demand and great growth, you should use the opportunity to buy. Rakesh Jhunjhunwala?s Tip No. 6: Invest in a business that you can understand: If you look at it hard enough, you will realize that Rakesh Jhunjhunwala?s reluctance to buy Himachal Futuristic, Global Tele and Pentasoft even in their heydays and Rakesh Jhunjhunwala's preference to stick to Shipping Corporation, Bharat Electronics and the other tried and tested names reveals another great investment tip from the Prince of Dalal Street: Buy what you know. Do you understand the business enough to be able to know what will happen 10 or 20 years from today. With Shipping Corporation, you can because shipping of goods will continue to happen for our foreseeable future. But you can't tell that with technology companies which may have a great product today but which may become obsolete in 5 years. Rakesh Jhunjhunwala?s Tip No. 7: Don't worry about the macro stuff like fiscal deficit, inflation etc which are unknowable. Focus on what is knowable: Rakesh Jhunjhunwala, India's greatest investor, for us folk who keep obsessing about currency fluctuation rates, inflation, fiscal deficit, political turmoil says: "Don't worry about things that you neither know about nor can do anything about. It's not important. Instead focus your energies on what you can and should know well enough ? the business of the company you are investing in". Rakesh Jhunjhunwala?s Tip No. 8 : Don't Try To Time The Market: Rakesh Jhunjhunwala endorses the validity of investment advice that has been propounded time and again by the wizards of investment time and again. Never try to time the market because you can never find the bottom of the market. Instead if you are getting the stock cheap in terms of its intrinsic value and future prospects, buy it.Rakesh Jhunjhunwala echoes the words of the Oracle of Omaha when he says that you must get right is the business. If you get that right, everything else falls into place. Rakesh Jhunjhunwala?s Tip No. 9 : If it's cheap, buy it- Don't pass up something cheap today in the hope that it will get cheaper tomorrow: Rakesh Jhunjhunwala says: If you see the opportunity today, GRAB IT! Many wonderful opportunities are lost to procrastination and then you rue your missed opportunities. Rakesh Jhunjhunwala says that it is not only important to identify the opportunity but then to be decisive and to act on it. Rakesh Jhunjhunwala cautions against getting stuck in a trap where you are perpetually seeking extra information to validate your idea. Rakesh Jhunjhunwala?s Tip No. 10 : Don't buy stocks that have a fixed return: Rakesh Jhunjhunwala?s next tip seems to be a no-brainer but it is surprising how many investors overlook it. What is the point of buying shares in a company such as an electricity company where the return on investment cannot by law
exceed a certain amount, asks Rakesh Jhunjhunwala. But, Rakesh Jhunjhunwala, emphasizes that this logic does not mean that electricity and utility companies should not form part of your portfolio because they offer an excellent defense mechanism to the vagaries of the stock market with the undemanding demand for their product and their predictable cash flows. Rakesh Jhunjhunwala?s Tip No. 11: Ride your winners!! The one question on everybody's mind is "When do I sell my multibagger?" Rakesh Jhunjhunwala answers with aplomb "Never". One must be careful to understand what Rakesh Jhunjhunwala is saying here. What the Greatest Investor in India is saying is: "Don't sell for the sake of selling because you can never say that the 10-bagger today will not become a 20-bagger tomorrow". But, Rakesh Jhunjhunwala hastens to clarify that this does not mean that one will never sell a multibagger. Rakesh Jhunjhunwala gives two situations when even he may sell his beloved multibagger. The first is when he is short of funds and he needs capital to invest in a stock that will give even better returns than what the existing one will give. And second, when the stock market has become so irrational that the perception of earnings and the P/E is unsustainable. Rakesh Jhunjhunwala gives the example of what happend in 2000 when euphoric investors laid bets that Infosys' earnings would double every year for the next 10 years. Infosys' P/E at the then current earnings was 100-150 times. So, says Rakesh Jhunjhunwala, when the expectation of earnings peaks and the P/E is unsustainable, that is the time to sell. Rakesh Jhunjhunwala?s Tip No. 12: Concentrate, concentrate & concentrate!! There is a perpetual battle amongst investors on whether a diversified portfolio approach is better or a concentrated portfolio is better. Rakesh Jhunjhunwala is an unabashed proponent of the concentrated portfolio theory. But Rakesh Jhunjhunwala?s theory must be carefully understood before being implemented in practice as it can otherwise lead to disaster. Rakesh Jhunjhunwala emphasizes that one must venture into a concentrated portfolio only after one is sure that he has identified a share that will deliver superior returns to all the other chosen shares. The conviction must be extremely strong, says Rakesh Jhunjhunwala. Rakesh Jhunjhunwala is not one to take risks lightly so must also be wary of the risks of a concentrated portfolio. In the recent past, we have seen so many excellent companies lose large portions of their market cap almost overnight. So, while there are benefits to a concentrated portfolio, one must not be oblivious to its risks, cautions Rakesh Jhunjhunwala.
Rakesh Jhunjhunwala is arguably the most successful Indian stock market investor and trader of our times. Investors are generally interested to know about Rakesh Jhunjhunwala?s portfolio holdings, Stock Picks, Stock Selection Techniques etc with a view to invest in the same and profit from his legendary skills. How does Rakesh Jhunjhunwala decide Stock Picks and Stock Holding? What are Rakesh Jhunjhunwala?s portfolio holdings? What are Rakesh Jhunjhunwala?s investment techniques? How does Rakesh Jhunjhunwala find his multi-baggers? When we listen to Rakesh Jhunjhunwala's numerous investment seminars on TV we can figure out a few things related to Rakesh Jhunjhunwala?s thinking process and stock selection techniques. Some of things Rakesh Jhunjhunwala holdings emphasize on the stocks having power of compounding and asset allocation process; an investor's ability to stay for long enough time in fundamentally strong companies with excellent growth potential; and investor's ability to identify such companies and stay invested in them with conviction. Rakesh Jhunjhunwala says that one much keep aside enough money out of stock market, may be in debt instruments, for meeting expenses such as education, health care, marriage and other expenses. Only the money that is left after such allocation may be invested in stocks based on an investor's risk appetite, age and earning potential. Rakesh Jhunjhunwala says that only then can an investor can stay long with their companies and profit from compounding
growth. Rakesh Jhunjhunwala says you must have confidence and conviction in what you are doing. You must be comfortable with the idea that your investments are subject to the ups and downs of the market and you must not get sleepless night worrying about your investments. That means you should know about the companies you are choosing and have conviction about their long term growth potential. Rakesh Jhunjhunwala?s also emphasizes the fact that on must not be too rigid o get emotional about the companies they invest in. You must be open to accepting that you have made mistakes. Keep an open mind!
