Ramesh Damani & Utpal Sheth Remember Rakesh Jhunjhunwala

NDTV Profit

Veteran investor Ramesh Damani and #RareEnterprises' Utpal Sheth share fond memories of Rakesh Jhunjhunwala. #BQLive

Transcript

00:00 what Rameshji and geniuses like Rakeshji did with that idea is what is much more important.

00:09 So buying and selling are not acts of intellect. Rakeshji used to say they are acts of wisdom.

00:20 Investing is an act of wisdom. Putting it in that context, it's not that you buy at

00:27 one shot and forget about it. If Rameshji eventually bought 100 shares of United Spirits,

00:36 I am sure he did not buy all of it in the first round that he bought. It's a continuum

00:45 and therefore I am not as obsessed with that framework that I must buy at the lowest price.

00:57 It's not. I need not always buy at the lowest price. But as our conviction and belief in

01:06 the terminal value keeps increasing, you keep adding.

01:12 How easy is that? Because for a lot of people, if they have bought a stock at a particular

01:17 price or if they have seen a stock at a particular price, I am not associating value here, just

01:21 price. Then to buy the stock 20, 30, 40, 50% higher is a very difficult task. So how do

01:28 you bring that discipline to your purchases?

01:34 So I'll give you a real example. Nobody could do this better than Rakeshji. He bought his

01:42 first lot of Titan at 32 rupees. And then we kept on buying, we bought at 80 rupees,

01:58 then at 140 rupees, then at 240 rupees. We also bought at 900 rupees. He bought Titan

02:08 at 30x of his first purchase price also. So you're talking of 30, 50% higher. He bought

02:17 30x higher.

02:18 How? And how do you get the conviction to do that?

02:22 That's why he's a billionaire and we are not.

02:29 But the question is again, how? I, everybody out here would love to understand, how do

02:33 you get the gumption to be able to do that? What goes behind it?

02:39 It's very difficult. Just because Utpal says it doesn't mean it's easy.

02:43 Yeah, it is not.

02:44 It's very, very difficult to do it. So only the truly great investors are able to do it

02:48 out there. But I'll just come back to the margin of safety to explain that point to

02:51 your audience a bit more nearer. Is that you're getting United States for 200 crores that

02:57 they were selling you. So you could buy 10% of the company for essentially 20 crores,

03:01 10% of the company. Which means out of every 10 bottles of beer sold, one bottle was mine,

03:05 if I own 10% of the company. And for 20 crores at that time, you couldn't buy a flat in

03:09 South Bombay. Okay? That's how cheap it was. That's how great the margin of safety was

03:14 for me at that point. So I just want to illustrate the point to you that markets give these opportunities.

03:20 Why they give it, I don't ask. But time and again, at the end of every bear market,

03:26 at periodical times, people sell off stocks. These great bargains are available. And if

03:31 you keep your eyes and ears open, you'll be able to buy, as your mother said, "Rupee

03:36 ke cheep chavani mein." Okay? And that's how you ride your way to fame and fortune.

03:40 You need to get two or three right in your lifetime to actually build your fortune. The

03:45 second corollary to that, of course, Neeraj is, you have to back up the truck to buy,

03:50 which his boss, I think, did the best of everybody else. Bought, at the get-go, bought higher,

03:56 bought higher than that. Okay? So we learn from the master. But it's the thing you learn.

04:01 Over time, as you understand the businesses you're buying, and your moral clarity as to

04:05 why you're buying it, I think you're able to do that. It's very hard to do it if I ask

04:08 them tomorrow to do, buy something at 100 or 300, they'll probably be selling it and

04:13 not buying it. But to be able to understand that business and the numbers, takes a very

04:18 evolved investor. So I'm not saying it's the best thing for you to do at the get-go. But

04:23 perhaps as your evolution happens, you will do that.

04:26 You want to add to that? I'm just trying to understand. So, and then I have a follow up,

04:31 of course, to what the point Ramesh made, but just the point, right? 30x, right? 30x, log

04:34 bolenge, what's, I buy a stock, if it's gone, goes up 10x, nab nihaal ho gaye. You go out

04:41 and sell. And here you are doing the opposite, which is buying 100% higher, 200% higher,

04:46 30x higher. How do you do that? So before we come to how you do that, we must first

04:52 understand why you must do that. Okay, sure. Right? So everybody knows and talks about

04:58 the power of compounding. But when you plot that power of compounding, you will see that

05:04 that curve is a parabolic curve. Okay? So to be in the game, at the time that that parabolic

05:15 effect comes is so crucial. Right? So it is important to know whether or not the parabolic

05:24 effect is behind you or ahead of you. Right? And that comes from your perception of that

05:32 terminal value. So when Rakeshji would have bought at 32 rupees, he may have thought that

05:39 the terminal value is x in his mind. It was not a precise number. It was a directional

05:45 number. But as his conviction, as Rakeshji put it, as his conviction, as his insight

05:52 kept on increasing, that terminal value kept on moving higher, much faster than the pace

05:58 at which the price kept on moving higher. Right? So at all points of time, he knew that

06:03 the parabolic effect is ahead of me. In some sense, you are saying that at the start, you

06:08 may not necessarily know for sure, but you have a hypothesis. Then you move along with

06:12 the hypothesis, you test it at various points of time. If it does not get falsified, then

06:16 you are on the right track. That may even give you the conviction to even buy it. The

06:20 first point that we were making that you bought it at x, then you are buying at 2x, 3x also,

06:24 because your hypothesis is turning out to be true. Yes.

06:27 And one of the beauty of Rakeshji was that he had an iterative mind. Okay? So when he

06:35 would have a hypothesis, he would keep testing the hypothesis again and again and again and

06:40 again. Okay. It's not that he needed it to be proven every month. No. But in his mind,

06:50 he would test the hypothesis. And it's a continual process. It's not a one-time exercise. Okay.

07:01 You do not determine a mega trend once. Once. Okay. At once. Okay. Great. When you bet the

07:07 house, when you back up the truck and buy, maybe you do leverage as well and buy. Rakesh

07:13 was famous for using that as well. Right? And I think you've told me so many times,

07:17 I haven't had the chance to talk to you, but I'm sure you would echo the same thing. What

07:21 gives you the courage to say that on this bet or on this investment, I'm willing to

07:27 bet my house? I mean, how do you develop that courage within yourself? Can you talk maybe

07:32 about that before we talk about the mistakes? The tough ones for him. Sorry? The tough questions

07:38 are for him. So first we must define what do we mean by back up the truck and bet the

07:47 house. If when you are making a bet, if you put 50% of your portfolio in that one bet,

08:01 is that backing up the truck and betting the house? Or is 40% the threshold or is 20% the

08:07 threshold or 10%? Okay. I can tell you that for Rakesh at any given point of time, the

08:21 single largest bet that he took in his portfolio was never more than 10%. Okay. Right? It's

08:34 how you allow that bet to keep progressing. So when Titan crossed 25% of our portfolio,

08:43 I went to Rakesh and said, you know, we should lighten up because it's too concentrated.

08:51 And he said, "Don't teach me English. It's all statistics." He says, "Do you

09:01 see any problem in our hypothesis?" "No, na." "Toh chalne de." It went up to

09:07 33% of the portfolio was still comfortable. But I think when we talk about backing up

09:14 the truck and betting the house, we all interpret it as saying I'm putting 40-50% of my portfolio

09:21 in that stock. You're saying that's not right? No, I'm saying not many people do

09:28 that, Gaurav. And probably most successful people would not do that. Okay. 10% bet is

09:39 large enough at a point of time, the key word being the point of time. Over the continuum,

09:48 as your conviction rises, as your belief in the terminal value rises, as your hypothesis

09:55 is more battle tested, as the company's business model and its management team demonstrates

10:01 its resilience and adaptability, it is then that you keep allowing it. So one of, probably

10:11 the single largest check that we wrote at Rakesh, that Rakesh wrote, was in Star Health

10:17 Insurance. He invested 1500 crores in one company. But it was not even 10% of our portfolio

10:28 is what I'm trying to leave it to. We thought we were betting the truck. We were ready to

10:35 do a buyout of the company. But in partnership with somebody else. We were not betting. However,

10:49 at 30% below the price at which we bid, if it was still available, I had the mandate

10:56 from Rakesh to go ahead and bid for the full 100% of that company. So I'm trying to

11:05 give you the linkage between value. As Rameshji said, if you get the money in 8 annas, then

11:11 it's fine. Till then, you do 10% of the portfolio. But if you get the money in 4 annas, then

11:20 go up to 20%, go up to 30%. But it is over a continuum. It is not at a point of time.

11:28 It's my sense. And is your thought the same as well? I mean, one is what Rare does, Rakeshji

11:33 does. Is your thought the same as well? You do over 10%, not more than that, etc.

11:38 Yes, I would go by the same path. At a point of time, I would not go above 10%. For me

11:44 to go above 10%, I need to see my battle, my hypothesis battle tested. The business

11:52 model and the management team battle tested. I want to see resilience and adaptability.

11:58 Got it. Ramesh, same thing. I'm evolving as an investor. It's extraordinarily

12:05 difficult to buy, as you said, in a continuum, keep buying higher. You can buy 40 bucks,

12:10 you can buy 60, you can buy 100. To buy at 400 takes a leap that I have not made yet.

12:16 And in fact, on the contrary, I've sometimes been a seller of these stocks, perhaps too

12:20 early because I made 10 times the money, what's the big deal? Let's sell something. And sometimes

12:25 to my regret, but it's an evolution of an investor. I'm not there yet. Despite all the

12:30 many mistakes I've made and whatever, I wish, if I was my younger self, you asked me what

12:38 quality that you wish you had when you were younger than you are now. I wish I had more

12:42 courage and conviction. I think the difference between say a Rakesh Jhunjhunwala is the amount

12:49 of courage and conviction that he bought. You talk about mega trends. In 1989, he was

12:55 telling me that India's time has come, that India will be not the third world country,

13:00 but the third largest economy in the world, that the tax rate to 90% will go down to 30%,

13:06 that trading systems would evolve. He was very clear, very clear, even in the '89, '90s,

13:11 that this was the huge mega trend. And whenever the market fell, it's not that he felt the

13:16 market will always go up, but whenever it would fall, he would buy, he would remain

13:20 bullish on India. So the mega trend that he captured so well was bullish on India. And

13:25 did I capture it? No, I didn't capture it fully. We remained bullish, we remained invested,

13:29 but both his heart bled because he believed the opportunity was there in India.

13:34 Actually, Mian, can I ask you something? Ramesh had told this to me in an interview, that

13:40 in the heart of COVID, Rakesh, this is a public, this thing, so I can mention this, that Rakesh

13:46 Rajirak called and said that, you know, the bear market is over, bull market will start.

13:52 I'm sure that would have been discussed at your firm as well. Just trying to understand,

13:55 how do you guys think about good times at the time of deep despair? COVID was one such

14:02 time, right? So if you thought that, oh no, this is actually an opportunity, how do you

14:07 think about it? If you have some insight there? I don't know, I mean, if you do currently,

14:11 out of the blue, but I'm just asking you. Sure. So some of the best picks that Rakesh

14:18 had, were in the timeframe 2002-2003 and Rameshji will validate that. Those were the times that

14:26 both of them bought Bharat Electronics, Bharat Aur Movers, McDowell's, Titan, all those.

14:33 So what was that environment? That environment was an environment of despair, where everybody

14:42 gives up hope and valuations are strongly in your favor. So in 2002-2003, if I'm not

14:52 mistaken and Rameshji can correct me, that the index valuations were between 8 to 10

14:58 times trailing earnings. And when you are in that despair, the logical economic policy

15:12 consequence of that is to cut interest rates and flood the economy with liquidity. I think

15:21 Rakeshji could recognize that that sentiment of despair was the same. And when Nifty was

15:32 at 7000, Covid bottom was 7000, the valuations were not 8 to 10 times, but not very far from

15:42 there either. And that flood of liquidity and interest rates getting cut was bound to

15:54 happen. US had announced, the Federal Reserve had announced that they will do quantitative

16:05 easing, the next round of quantitative easing, which was massive. So, but only Rakeshji could

16:13 see that. I couldn't. I remember we had internal debates on it. But he was so steadfast

16:21 in his conviction. There was his finest call actually. He was

16:26 basically in the hospital bed when he made that call, which is even crazier to think

16:30 about it, dealing with pain and surgeries and what else, to be able to have that intellectual

16:37 clarity at that time. And he was very clear, not like he was a Vishy Vakshi. I think maybe

16:43 possibly Ramesh Teji. You know like that. It was a declarative statement. And he would

16:48 also if you were close enough to him, tell you the top five ideas he had at that time.

16:52 I look back, it was like a wish list. I wish I had bought all those five stocks. I mean

16:56 that kind of intellectual clarity I have never seen. I think it was his finest call.

17:01 Does that happen in your top calls as well that you are not Vishy Vakshi? You guys, when

17:05 you make your best call, do you kind of, it's a table thumping yes, that yes, this is it

17:11 or is it Vishy Vakshi? Just trying to understand again.

17:14 I wish it wasn't Vishy Vakshi. I am full of self-doubt. I question myself every single

17:20 time and unfortunately I realise on price appreciation to validate my calls. So, again

17:28 it's a work in progress. I wish I had nose of steel like Rakesh Bhai had. I don't. But

17:36 you know, still I run okay for myself.

17:39 Yeah, sure. Okay, so here's a question.

17:44 You know, apart from saying that we are Vishy Vakshi or not, I think the more important

17:51 thing is it has a lot to do with the personality also. Rakeshji was a personality who would

17:58 be unambiguous on table thumping in almost every belief of his. Does not mean that he

18:08 would be rigid or obstinate about it. He was always willing to revisit his beliefs, but

18:18 he was emphatic about those beliefs. Okay, okay. Probably other veterans would also have

18:29 the same, but you find that one common quality amongst all the greats, whether it is Radhakrishn

18:35 ji or Namesh Bhai or Rakeshji, I think they are very uncluttered in their mind. They have

18:47 clarity, but that clarity arises from simplicity. They don't complicate stuff. They think in

18:54 a very simple, straightforward way and with full belief and conviction because they have

19:01 three defense mechanisms. The defense mechanisms that they have, the first and foremost, is

19:09 the fact that they know that they are iterative in their mindset and that if facts change,

19:14 they will change their opinion. The second is they know that the trend that they are

19:23 chasing is so big, the wave that they are chasing is so big and so large and so long

19:31 that there will be many opportunities along the way.

19:34 [Music]

19:45 [BLANK_AUDIO]

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