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.
  • Language
  • App
  • Subscriptions
  • Specials
  • Sign-In
  • Register
GeStepAhead master your money Realasset
moneycontrol.com

Home » News » Markets » Market Edge

Nov 23, 2009, 11.35 AM | Source: CNBC-TV18

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.

Like this story, share it with millions of investors on M3

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.

Post Your Comments

Share Cancel

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.”

Ads by Google

Buy, Hold, Sell ? Hear it first on M3
Rakesh Jhunjhunwala on how to pick the right stock

See all

Get started using your favorite social network

or

Login using moneycontrol ID

Username
Password

Need help logging in? Reset password.

Don´t have an account? Sign Up

Get started using your favorite social network

or

Simply sign up using this short form

* mandatory

UserName*

Username should be atleast 4 character

Password*

Password should be 8 or more characters,
atleast 1 number, 1 symbol & 1 upper case letter

Alert

Your Password should contain
  • 8 or more characters
  • At least 1 number
  • At least 1 symbol
  • At least 1 upper case letter
Confirm Password*
Email
Already have an account? Login