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Wednesday, August 27, 2008

Rakesh Jhunjhunwala:-How he does it?

What makes Rakesh Jhunjhunwala different from other mere mortals who put their money in the stock market? Back in 1985, Jhunjhunwala, a green-behind-the-ears chartered accountant started out by investing a few thousand rupees in the market ? and he didn?t have a father or an uncle in the business. Today, he?s worth anywhere between Rs 1500 crore and Rs 5000 crore,depending on which estimate you believe. He shrugs off questions about his wealth with a terse,?what does it matter.?But this is all in a day?s work for the man who is often described as the Warren Buffett of the Indian stock market. Remember that Warren Buffett, who started investing in the ?50s is now worth around $60 billion and is the world?s second richest man.Buffett earned this vast wealth by picking well-managed companies that were slightly undervalued and then putting big bets on them.

Quite simply, Jhunjhunwala has followed a similar, diligent and methodical approach and built up a giant fortune over the last 24 years.Mid Day reckoned that he was the most influential man in the Indian stock markets.Companies want him to invest because the moment he picks up a stake,awareness increases.He has a Pied Piper effect.? Adds Jhunjhunwala,I like to identify good companies and stay with them.Get one thing straight.Jhunjhunwala isnt a stock market player in the mould of Harshad Mehta or Ketan Parekh, whose fortunes soared and then tumbled. Jhunjhunwala plays an entirely different game. Says an associate, They were market manipulators and tried to dominate the market. Rakesh invests in business that has the potential of going up.

In short, hes what is termed a value investor and will stay with a company for years.Typically, he is likely to spot a mid-sized company that he likes and then accumulate a sizeable stake in it ? also, he doesnt manage anyone elses money.Its all his own.About couple of years ago,for instance, he took a big stake in, and then joined the board of Praj Industries, a medium-sized engineering company. He has also, at different times, bought sizeable stakes in companies like Lupin Labs, Matrix, and Geometric Software.Its rumoured that when Jhunjhunwala takes a big stake in a company, it can be upto Rs 50 crore. Also, hes on the board of several favourite companies.

But Jhunjhunwala has always specialised in staying apart from the herd. Back in 2000 when tech frenzy was at its peak, he was playing an entirely different game. While everyone else was hoovering up tech stocks of any kind and watching as values shot through the roof, he was buying humble public sector stocks. He admits that it was a tough few months during which he had the occasional sleepless night. ?Other people were laughing at me and I had self-doubts. After all, we are all human.?In those days he was buying stocks like Shipping Corporation of India, Bharat Electronics and several others.I made a call on the public sector that has turned out to be good,? he says modestly.

He's one of the smartest investors in the Indian market. His understanding of the broader issues that affect the market is excellent.This encompasses everything from stockpicking to buying at the right price and selling at the right price to monitoring the stock and making use of every opportunity to create wealth. Usually, people are only good at a couple of these things but hes a blend of all these,says a large market participant.Then, theres his famed bullishness about India.Outside his office are two sculptures of a bull and a bear respectively.But Jhunjhunwala is usually viewed as an optimistic bull, who has unwaveringly put his money on the Indian economic story.?This country is going through a giant change,he says. In a country in which 30,000 people are being born every day it doesn?t pay to be bearish.As an investor,I am always optimistic.And, for Jhunjhunwala optimism has paid off in a spectacular way.

Rakesh Jhunjhunwala has always prided himself on being that rare creature on the stock market: a value investor. But what is a value investor and how is such a beast different from the other players on the market? Basically, value investing is a tough business that advocates buying stocks on the cheap. In other words, the trick is to hunt out under-priced stocks and then wait patiently for the market price to climb.Talk about value investing and the first names that spring to mind are world-famous marketmen like Warren Buffett who is probably the most admired investor in the world today. Or, there are other slightly less famous figures like Sir John Templeton, the founder of the eponymous mutual fund company (acquired by Franklin Resources in 1992) who was the first person to practise global value investing. But the man who is regarded as the founder of value investing, and who strongly influenced even Buffett, is Benjamin Graham.

Graham advocated the margin of safety concept. That means any stock you buy should be worth much more than its cost.He believed in investing in low-risk, high-return stocks and disagreed with the more widely-touted risk-return theory, which states that the higher the return, the higher the risk. So how does one find such stocks? By avoiding popular stocks as they are already fully priced and also by steering away from growth stocks, which, because they are usually popular, tend to perform poorly in bad markets.

In a way, investors like Buffett and Templeton have thrived by being contrarians. For instance, Buffett stayed clear of tech stocks during the boom. And in 1939 when World War II broke out,Templeton bought $100 worth of every one of the 104 stocks listed on the New York Stock Exchange that was then trading under $1 per share (37 of these companies were in bankruptcy). Three years later, he had a profit on 100 of the 104 stocks.How can you and I get into the value investing game? It's tough.You have to find neglected stars, the big favourites like Infosys, ITC are usually fully priced.So,the trick is to hunt out well-run, mid-sized companies that can grow steadily.If you do want to be a value investor, its necessary to pore over the balance sheets of relatively unknown companies. It will need lots of time, effort and market-savvy.Happy hunting.

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