Rakesh Jhunjhunwala on how to pick the right stock

 I have dedicated this blog to value investing. Recently I got to read this article on moneycontrol, and thought to share this with
my readers. This is wonderful write-up which talks about methodology of using value investing proposition in Indian stock
market:

 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,

Technorati Tags: Rakesh Jhunjhunwala,value investing tips

, 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.”

Rakesh Jhunjhunwala tips for investment | Rakesh Jhunjhunwala tips | Rakesh Jhunjhunwala 12 valuable tips for
investers – a2znews.net

July 23, 2010 – 7:53 am

Rakesh Jhunjhunwala tips for investment | Rakesh Jhunjhunwala tips | Rakesh Jhunjhunwala 12 valuable tips for investers
Rakesh Jhunjhunwala is not content with sharing his incredible investment techniques with the world (See Rakesh
Jhunjhunwala’s investment techniques). Rakesh Jhunjhunwala now lets us in on the all-time important investment secret of all
time – How to find multibagger stocks.

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, he is also happy to let us in on the most well guarded investment secret on how he 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 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 Buffet". "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 this great investment
legend 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 to convince the cynical masses. 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 multi-bagger.

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 Buffet have been advising
over the past several decades. Warren Buffet 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 his 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:

Another immensely practical tip from Rakesh Jhunjhunwala, India’s greatest investor, for us folk who keep obsessing about
currency fluctuation rates, inflation, fiscal deficit, political turmoil is: "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.

Here, one cannot resist referring to similar advice that Warren Buffet, the Emperor of Wall Street, gives. Warren Buffet points
out that Coca-Cola made an IPO in 1919 when it issued shares at $ 40 each. A year later, the share was quoting at $19. You
might think that’s a disaster because the share had lost 50% of its value in just one year. After that there was sugar rationing and
the farmers were rebellious. Years later, the Great Depression and World War II happened, there were thermonuclear weapons
and what not. He says you could always find a reason on why that was not the right to buy shares of Coca Cola. But if you had
gone ahead and bought that one share for $40 and reinvested the dividends, your investment in Coca-Cola would be worth $5
Million today.

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.

In this, Rakesh Jhunjhunwala echoes the wisdom of Warren Buffet, the Oracle of Obama, who in the depths of the great stock-
market depression of 2008 inspired investors by his clarion call "If you wait for robins, summer will be gone".
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. He 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. (See Benefits of a concentrated portfolio).

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. Some examples can be
BP which was touted as the best buy in the oil space but which owing to the oil spill in the Gulf of Mexico is today regarded as a
pariah. Other examples are RNRL which not only lost the battle in the Supreme Court with Reliance but then announced a
disastrous merger with RPower which short-changes RNRL’s investors. Aban Offshore is another example which lost its’ Oil Rig
Aban-Prince in the high seas and saw its market price plummet 25%. Yet another example is that of Satyam whose founder
Ramalingam Raju was felicitated as the "Most Promising Businessman" by Earnst & Young. He later confessed that all profits
shown in Satyam were bogus and that he and Maytas Infra had played a big fraud on the hapless investors.

So, while there are benefits to a concentrated portfolio, one must not be oblivious to its risks, cautions Rakesh Jhunjhunwala.

source:www.rmdhar.com

Rakesh Jhunjhunwala’s Latest Stock Portfolio and Holdings : September 2010

Filed under Finance no comments

Rakesh Jhunjhunwala is an Indian Chartered Accountant by qualification but an investor / trader by profession. In 2010, Forbes
rated him India’s 51st and the world’s #1062 richest man with wealth of $1.0 billion. He is a famous equity investor in India and
manages his own portfolio as a partner in his asset management firm, Rare Enterprises.

Please find below Rakesh Jhunjhunwala’s latest Updated Authentic Real Portfolio as on 1st September 2010:

Name of Company Invested in Name of Shares

AGRO TECH FOODS LIMITED Rekha Jhunjhunwala 849559

AGRO TECH FOODS LIMITED Rakesh Jhunjhunwala 1153700

APTECH LIMITED Rekha Jhunjhunwala 2000000

APTECH LIMITED Rakesh Jhunjhunwala 3152100

ALPHAGEO (INDIA) LIMITED Rakesh Jhujhunwala 125000

AUTOLINE INDUSTRIES LIMITED Rakesh Jhunjhunwala 520000

AUTOLINE INDUSTRIES LIMITED Rekha Jhunjhunwala 731233

Bilcare Ltd. Jhunjhunwala Rakesh Radheshyam 1735425

Bilcare Ltd. Jhunjhunwala Rekha Rakesh 267500

Crisil Ltd. Jhunjhunwala Rakesh Radheshyam 550000

GEOJIT BNP PARIBAS FINANCIAL

Rakesh Jhunjhunwala 18000000
SERVICES LIMITED

Geometric Ltd. Jhunjhunwala Rakesh Radheshyam 3955000

Geometric Ltd. Rekha Jhunjhunwala 850000

HINDUSTAN OIL EXPLORATION

Jhunjhunwala Rekha Rakesh 1887273
COMPANY LIMITED

HINDUSTAN OIL EXPLORATION

Jhunjhunwala Rakesh Radheshyam 4785143
COMPANY LIMITED

ION EXCHANGE (INDIA) LTD. Rakesh Jhunjhunwala 650,000

KAJARIA CERAMICS LIMITED Rakesh Jhunjhunwala 2502642

KARUR VYSYA BANK LIMITED Rakesh Jhunjhunwala Group 2041172

Lupin Ltd. Jhunjhunwala Rakesh Radheshyam 2183581

Lupin Ltd. Jhunjhunwala Rekha Rakesh 1065254

Mcnally Bharat Engineering

Jhunjhunwala Rekha Rakesh 480078
Company Ltd.

Pantaloon Retail (India) Ltd.-B-Dvr Jhunjhunwala Rekha Rakesh 210589

PRAJ INDUSTRIES LIMITED Rakesh Jhunjhunwala 11678624

Prime Focus Ltd. Jhunjhunwala Rakesh Radheshyam 250000

Prime Focus Ltd. Jhunjhunwala Rekha Rakesh 632500

PROVOGUE (INDIA) LIMITED Rakesh Jhunjhunwala 1900000

PUNJ LLOYD LIMITED Rakesh Jhunjhunwala 3790000

Rallis India Ltd. Jhunjhunwala Rakesh Radheshyam 602007

RISHI LASER LTD. Rakesh Jhunjhunwala 380,000

Srei Infrastructure Finance Ltd. Jhunjhunwala Rekha Rakesh 1250000

Titan Industries Ltd. Jhunjhunwala Rakesh Radheshyam 2828455

Titan Industries Ltd. Jhunjhunwala Rekha Rakesh 981694

V.I.P.Industries Ltd. Jhunjhunwala Rakesh Radheshyam 380000

Viceroy Hotels Ltd. Jhunjhunwala Rakesh Radheshyam 4250000

Viceroy Hotels Ltd. Jhunjhunwala Rekha Rakesh 500000

ZEN TECHNOLOGIES LTD. Rekha Jhunjhunwala 450,000

ZEN TECHNOLOGIES LTD. Rakesh Jhunjhunwala 450,000

Note :

Do not buy stocks blindling following him.As his stock investments are long time and he has deep pockets .so he can hold for
long time.His small cap stock picks are interesting.he has churned some portfolio too by selling infomedia, JB Chemicals,Mid
Day Multimedia.

His stock selection is more like small cap stocks list,so invest only if you believe in these stocks as stock prices can be very
volatile.

We are no way responsible for profit/loss incurred due to investing based on reading this message.