Wednesday, November 18, 2009

Rakesh Jhunjhunwala on how to pick the right stock.....

If you’re a proponent of value investing, which involves buying stocks that offer value when they’re cheap and holding on to them till they achieve their potential — Warren Buffet style — here are tips from India’s own Buffet, Rakesh Jhunjhunwala, that you may use.
— Jhunjhunwala’s advice to investors is not to look for companies that would give profits but understand factors that help in creating profits. “Don’t emphasise too much on analysis of profits,” he says. “Profits are created due to various stages of circumstances. I always look at how large is the opportunity for that business in the sector.”

He recalls how he bought Praj Industries, a bio-ethanol company that gave him large returns. “When I bought Praj, we thought there would be a humongous demand for ethanol. The opportunity was huge but it was not recognized.”
IT bellwether Infosys, he said, benefited because of the internet revolution. “Nobody knew about Infosys in 1993 but Infosys could become Infosys because the opportunity for the internet went through the roof.”
“When opportunities come, they can come through technology, marketing, brands, value protections, capital, etc. You need to be able to spot those.”
— “Then I look at scalability of a particular company that I choose in a sector,” Jhunjhunwala says. “A friend of mine asked me: should I invest in a small cap or largecap? I said we must invest in the smallcaps, which will be the largecaps. The biggest challenge of investing is that you should recognise whether organization has the ability to scale.”
Jhunjhunwala says he makes an investing decision by understanding how a company’s profits may grow in the next four-five years, and by that account, its price-to-earnings and valuation. “If I succeed in making the right call, then after four-five years, I do a proper re-examination of the business model and accordingly reallocate capital because the business model can undergo change. Intense competition could emerge in that sector,” he says. “This is when I examine the earlier opinion I had made when I first bought, whether those assumptions still were valid.”

— How should you spot a good company?

“You can have an idea by looking at companies’ capital raising. Are they distributing profits, are they using the surpluses in the right manner,” he says. “For me, quarters don’t matter. There can be always be an aberration in one quarter when the company has less profits. You should examine the reason for it and whether it can revert back on its growth.”
— Choices of asset classes is important too, says Jhunjhunwala. “If you bought gold in 1970 and sold it in 1980. you bought the Nikkei Index in 1980 and sold it in 1989 and then bought the
Nasdaq [till before the dotcom bust], you would have made 33% compounded returns in three decades,” he says. “Warren Buffet rode the entire wave of those different asset classes.”
— “Value investing is relevant in all circumstances. But thought processes and principles are dynamic and not static. Be open to change,” he says.
— Don’t get carried away short term market trends, he says. “In 1999, people used to buy Himachal Futuristic, Global Tele, Pentasoft, I used to buy Shipping Corporation and Bharat Electronics because I saw long-term value,” he adds. “Never get carried away by aberrations, recognize and respect them but do remember that the market corrects its aberration though it takes time.”

My Comments:

This is a nice latest interview from RJ where he says what needs to be looked at while selecting stocks.The bottomline here is how much one can visulize the growth and if someone gets correct in seeing that then he is with a MULTIBAGGER.

But the reality here is untill the growth comes , we have to remain cool.As he rightly answered to his friends question about where one needs to invest, Smallcap or Largecap? and he aptly answer that in smallcap because there is where the growth is.....and that is I have done here and through out my tenure in stock market.

Find the GEMS while finding the growth.It may happen that not all stories get successful and maybe 50% gets aborted but the rest can give multiple returns.Be ready to make mistake but mistake needs to be affordable.One should not get throwened out from the market with one mistake and shouldn't end in a position that one will tell himself that I will never play in stock market again......Stockmarket is the only market where one can make above average profit and if played with discipline then one is bound to succeed.


  1. Hi,Rajeev, Good one. Its like RJ's How to pick Multi-bagger like yours list of 'How to Pick Multi-bagger'. So simple and straight-forward. But mind you it needs open mind,aimful thinking and most of all patience to hold for long term.
    With Regards,

  2. Dear Rajeeev,
    Stock picking is a simple process complicated by all things called technicals. LOL

    I think if we are focussed, dedicated and do our research well and at the same time have a lil bit of luck on our side, we all can make good profits in stocks.

    After reading so many interviews and comments by great fundamental analysts like Warren Buffet, Rakesh Jhunjhunwala and Rajeev Desai,I have bought a few stocks for the long term and hope to see them perform very well.

    BTW SKP Research (can be seen on moneycontrol) came out with a BUY call on PSL Ltd yesterday.

    They envisage a huge supply demand gap once the US order for replacement of old pipelines begin and it wil take several years for that demand to be met at the current capacity of pipeline manufacturing.

    This is one stock that I have researched indepth (ofcourse with all your help )and stocked up. So waiting for it to give those nice multibagger returns over the next five to ten years.

  3. I was about to paste the link as comment here :-).
    Anyways, here is the video clip of the same

  4. Dear Rajeev Bhai
    what is this stock AlCargo Ltd....
    is it a buy ??

  5. Thanks a lot for helping out everyone.
    Your efforts are highly valued.

  6. Snadeep,
    AllCargo is looking excellent to me....

  7. Do you track Galaxy Entertainment or any views on it. Promoters hold 58% and Pantaloon Retail holds 31% and is one of the entity belonging to Promoter and Promoter Group.

    Currently results are nothing to cheer about, still reporting losses. Do you think Kishore Biyani can create the magic here too maybe in the next 3 to 5 years. Whats your view on its business and future growth.

    Fv is 10 and is a S group stock.

  8. Dear Sunil,
    I am trying my level best to reply and write at my blog.
    I am not an MBA nor a CA .I have very very limited knowledge of investment parametres.Thanks for taking note of that and writing it here as well.
    What I can say is , I have totally different way of looking things in stock market.

  9. Minar,
    I have already recomended to keep a watch on Galaxy Enter.
    With Kishore Biyani there anything can happen....