If you’re looking to become a successful investor, then it makes sense to learn from someone who is already a successful investor. There are countless investors in India and only a handful of them can be considered great investors.
Of all the famous investors in India, Rakesh Jhunjunwala is one of the best investors.
He isn’t just one of the most successful investors in India, but he’s also the most respected, and sought-after by other investors and business moguls.
Let’s look at ten valuable lessons we can learn from Rakesh Jhunjhunwala on how to become a successful investor.
1. Investing should be a topic you feel strongly about
Jhunjhunwala suggests that people who want to develop a passion for learning about the stock market should research by reading and talking with others who are in the business of investing.
He believes that you will never develop a passion for learning if you rely on others for stock market tips or suggestions.
Rakesh Jhunjhunwala’s passion for the stock market started when he was a young boy. He used to ask his father, how the stock market works and was fascinated with how prices fluctuate every day.
As an adult, his passion for investing led him to make smart decisions and stay motivated despite his initial failures. He still enjoys attending Quarterly meetings and AGMs of companies that he invests in.
He asks questions of the management and gives them honest feedback. He does so, not because he has to, but out of a strong desire to see his investment bring in a profit.
2. Patience is a virtue
To be successful as an investor, you need to understand that investing is a long-term proposition. You need to be aware that it will take a decade or more to see the results of your investments.
Rakesh Jhunjhunwala, the so-called Big Bull of Dalal Street, is a long-term investor. He has immense patience with his stocks and is known to hold on to them for years.
He’s been investing in Titan Company Ltd, for over two decades now and has made over 1,000% returns on his initial investment in the stock.
He says he invests in a company’s business, not its stock, and he doesn’t sell shares even during Stock Market corrections.
He has seen so many cycles in the Stock Market that he doesn’t get worried by short-term drops.
It is very important to understand that a company’s fundamentals drive its stock price in the long term.
In most cases, the stock price reflects the growth potential of the company over the next five to seven years. If you are buying for a year or two, it is just pure speculation.
This does not mean that one should buy any stock and hold it for seven years. It needs to be coupled with due diligence and an understanding of the company’s growth potential and future business prospects.
3. Make the most of the opportunities you see
One of the most important lessons from Rakesh Jhunjhunwala is that an investor should be ready to grab an opportunity. The famous investor believes that opportunities are created through the ups and downs of the market.
His example is the 2008 global financial crisis, where he purchased stocks at a discount while they were undervalued in the market.
He also took advantage of the 2014 election stock rally by booking profits on his investments. In doing so, he says, investors must be aware of their risk tolerance levels and never be afraid to make losses.
This is because, according to him, one will never make money if they are afraid to lose it. Stock market success depends upon your character and temperament rather than on any other factors.
Stock marketing is a game of nerves. You should not get excited or depressed by the ups and downs in stock prices.
I would recommend you always have some spare cash on hand to take advantage of opportunities as they come up. Investing all of your money in the stock market is risky, as history has shown that flexible returns can be cyclical.
4. The more emotionally you invest in a stock, the more likely it is to lose value
All of us have heard the story of a friend who bought a stock, and that stock went up.
So, he or she decided to invest in another one, thinking “I’m so lucky with this investing thing. Let me do it again.”
Such emotional investing is one of the biggest mistakes you can make while investing. It comes from a lack of knowledge and an even greater lack of understanding as to why you bought in the first place.
Rakesh Jhunjhunwala believes that investors have to learn how to suppress their emotions and behave like machines to succeed. If you are a consistent investor, you need to have faith in the economic cycle and your investment philosophy.
If you are rigid in your investment philosophy, then you will make money in this business.
To be a great investor you need to go against your instincts and embrace some counterintuitive behaviors.
Instead of being fearful when others are greedy and greedy when others are fearful, we need to behave oppositely by buying low and selling high.
5. Invest in businesses with a competitive advantage
Rakesh Jhunjhunwala is known for his success in finding companies that have a competitive edge. He looks for companies with products or services whose success is hard to replicate.
Investing in such companies, he believes, gives investors a competitive edge of their own.
This investment philosophy seems to have served him well; having invested in stocks like Nazara Tech, Delta Corps, CRISIL, Jhunjhunwala has seen his wealth soar over the years.
Rakesh Jhunjhunwala believes that a company cannot increase its profits if it is not on the cutting edge of its industry.
This philosophy is closely related to the idea of a business moat. Rakesh Jhunjhunwala is famous for saying that he looks for businesses with wide moats when investing.
A company’s moat could be anything that gives it an edge over its competitors, be it scale benefits or brand value, or intellectual property patents.
So you should look for companies with some sort of advantage over their competitors.
6. Invest in a stock before it becomes popular
Rakesh Jhunjhunwala says he is not the kind of person who would like to be part of a crowd. It’s just his nature.
Probably it’s in his genes or something. He doesn’t know why he likes to stand alone and do things differently, but that’s just him.
If you look at his track record over these years, he has been right most of the time and wrong sometimes too, but his big wins have always come from buying unpopular stocks.
He says it is always better to buy into a company’s story when nobody is talking about it.
If you believe that the company has got great potential, no matter what its current performance, you should try to find out how it has performed over the last two to three years and what are its prospects.
If you find that they are good, then do not worry too much about what others think of this stock.
Of course, it is important to check whether the company is fundamentally strong or not because some stocks look cheap but they never become expensive because there is something fundamentally wrong with them.
So unless you find out if there is something fundamentally wrong with the company or its management, I don’t think you should worry too much about what others might think of this company.
So, the lesson is to avoid investing in a company when street vendors also start talking about it.
7. You can’t change the past, but you can learn from it
Rakesh Jhunjhunwala says investing has taught him a lot about life. He says that every mistake you make in life is a learning experience for you.
For example, he looked at stocks like Jet Airways, SpiceJet when they were trading at Rs 100 per share, or Reliance Power at Rs 500 per share and thought these were great companies but they turned out to be very bad investments.
He says that one thing he has learned from his mistakes is that some businesses are too competitive to be profitable, and if the promoters of such businesses are not committed enough, then it’s a recipe for disaster.
Rakesh Jhunjhunwala says that he has made many mistakes in his career but he would never say that he regrets any of them, because it has strengthened his resolve to work harder and identify better stocks for himself.
As an investor, I think everyone who invests should be thankful for their losses, as it teaches us how to win in the future.
Whenever you regret making a mistake, you can use it as a learning opportunity to become a better investor and a better person.
8. Search for small-cap businesses with proven abilities and solid demand for their products
As an investor, you may be best served by searching for small-cap businesses with proven abilities, solid demand for their products or services, and room to grow.
These businesses have the potential to multiply your investment many times.
Rakesh Jhunjhunwala says that he looks at the life cycle of a product. If he sees that consumption of a product is increasing in India and that product has a future demand, then he invests in those companies.
For example, he had seen product demand and invested in Delta Corp, based on a new gaming policy by the government that could boost the industry.
9. There is nothing right or wrong
Some investors think that the best stock pickers are also the most successful investors. However, if you look at Jhunjhunwala’s track record, he will tell you otherwise.
For example, in the late 90s, he had bought stocks like Bhushan Steel and Punj Lloyd. He was also optimistic about the IT sector and had invested heavily in stocks like NIIT and Mastek.
All these stocks were hammered in 2001-02 when the dot-com bubble burst.
The reason Rakesh has been successful despite being wrong so often is that he has been able to identify stocks with 10-50 times upside potential from their current price levels.
Scaling up his position in these stocks has helped him compound his returns.
For example, he made a fortune in Titan Industries by scaling up his position from Rs 14 per share to Rs 2,000 per share.
Similarly, his bets on Aurobindo Pharma and Lupin Ltd have also paid off big time.
You could be the smartest person in the world and still not be able to beat the market. Jhunjhunwala says the Market is above you. The market is rational.
You can never be smarter than the market. The market may act irrationally for a long time, but ultimately it will always act rationally.
Always respect the stock market. Even when you think you have it figured out, always assume it can do anything.
10. Following the stock picks of big investors is not a good idea
Rakesh Jhunjhunwala says you should follow the fundamentals and not rumors. You should look at financials, corporate governance, and management before investing in a stock.
It is wrong for you to follow what somebody else does because it may not be appropriate for you.
There is a very interesting phenomenon about the news media, especially when it comes to reporting investment ideas.
Most often the news stories of a big name buying into a specific stock break out after their exit or when they are nearing selling the stock.
The idea is that by the time the report hits the media, those who have been riding on the coattails of these investors have already made their money and are getting ready to bail.
This fact is even more true when mutual funds share their top ten holdings at the end of every quarter. These are great for additional research but do not suggest that these stocks should be bought just because one fund has shown an interest in them.
There is a difference between reading about an investment idea and acting upon it.
You cannot act upon what they read in the media until they conduct your research and due diligence on any new idea that comes out way.
Until then, you should trust your instincts and understand that there is no such thing as a free lunch in investing.
Life lesson – the most important one
Rakesh Jhunjhunwala always says he has no regrets in life. He only wishes he had better personal habits and exercised more.
Don’t forget to invest in your health. There are a few things you can’t buy, and one of them is your health.
You can have all the money in the world, but it’s useless if you’re not healthy enough to enjoy it.
Finally, I hope you’ve been able to glean some value from the lessons that I’ve shared.
Investing is one of many tools that can help you build wealth and achieve financial independence, albeit it requires a fair amount of financial literacy and discipline to master.
But if you have a long-term view in mind, you can set yourself up for success with careful planning and a steady routine.
Be consistent and stay invested!