Never ignore unpopular stocks, advises Jhunjhunwala

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Never ignore unpopular stocks, advises Jhunjhunwala

In an candid chat with financial expert Ramesh Damani, stock market veteran Rakesh Jhunjhunwala advises looking into stocks that are not very popular. "Never in my life have I not made an investment because the stock is not popular. In fact I like to make the investment when the stock is not popular."

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Life is a game and all you have to do is to know how to play it. No one has played the investing game better or bigger than Rakesh Jhunjhunwala, Partner, Rare Enterprises. He has parlayed a few thousand dollars into a few billion dollars. He lives his life king size.

In an candid chat with financial expert Ramesh Damani in a CNBC-TV18's special RD 360, stock market veteran Jhunjhunwala advises looking into stocks that are not very popular. "Never in my life have I not made an investment because the stock is not popular. In fact I like to make the investment when the stock is not popular."

Here is a verbatim transcript of his interview. Also watch the accompanying video.

Q: Your life in the stock market is over 25 years and there is the trading side of you and there is the investing side of you. There is the general philosophy. Let us start with the trading part of you because a lot of people know that you are a very active trader and you love trading markets always, right?

A: Like wives they are always right. With wives you can argue but with markets you can't.

Q: And you can never win

A: With wives you can never win but with markets you can, if you accept that market is always right. Because after all everybody has an opinion. RK Laxman made a caption that there is a difference of opinion which makes racing interesting. You say A horse will win while someone bets on B horse, so all have opinions about markets. And we place our stakes based on our opinions but finally markets determines.

Q: But markets do things in excesses? Markets get a lot of things wrong, so what explains the markets always right?

A: If you read the book 'George Soros' he earned a billion dollars against the pound. What he said was when the European Monetary Union was made, he realised that this will not last. In order to align the currency within a value, you have to have a common monetary and fiscal policy. He knew that the Germans do not believe in God but they believe in the Bundus Bank. So, the Bundus Bank would not agree to align the fiscal and monetary policy or Germany with the fiscal and monetary policy of intent.

So, he knew this was not going to last but he said you have to time it you have to wait for it.  Markets make excesses but those excesses come to an end. In 1991 we knew that money is coming irrelative from somewhere but do not know from where. The valuations are all humbug, they have to end. But while it was rising you have to participate and I participated. But the moment you know it is going to come to an end and the market would indicate- volumes would taper off.

Q: Understanding that is important?

A: Markets make excess. You have to judge how long will that excess last and when will it end.

Q: As Keynes says markets can remain irrational the longer than you can remain solvent?

A: Absolutely. So the question is 'markets are right, they are going to make excesses and in those excess lays opportunities'. We got to judge when those excesses are going to end and we will try and make money both ways. Going long, going short, going short, going long.

Q: Why not? I think I got to know you in the 1990s in the ring of the old Bombay Stock Exchange and 20 years since then there is one maxim that stands out about you is that you have said it in numerous parties, bars and in the ring. I would say it and translate it in English it says 'vadhere vadhare levanu vadhare vadhare beichavanu'- that means buy as the market is rising sell as the market is falling. What is the wisdom in that and how do you use it?

A: I do no think for a good trader we do not initiate more than 40% of trades which are white. Say I am bullish on XYZ stock I buy that stock - if it goes up it is an indication of the fact that I am right. We do what is called as pyramiding. I buy a stock at Rs 100, I buy more at Rs 105, I buy more at Rs 110 so what are markets, what it is trading? It is basically momentum, so you play momentum. If the market is rising 'vadhere vadhare' its momentum is upwards. You buy on the rise, if markets are going down, you sell on the fall. This I do not mind I do not indicate in long term trends, medium term and short term trends. This applies to short term trends, medium term trends and long term trends.

Q: So you should never average a losing trading position?

A: Well at our own cost. At least I never do it.

Q: That is a huge mistake, isn't it?

A: Unless and until we believe suppose I buy a stock at Rs 90 and I feel it is going to have a big upside and if the fall is 4-5% I might average.

Q: Temporary?

A: As a rule in trading I will never ever average.

Q: Are you then saying then that a good trader should have this highest position outstanding at the highest price?

A: Absolutely, why not, who knows what is the highest price.

Q: It is counter intuitive though, isn't it?

A: That is why out of one million traders only 90-100 make money.

Q: What would you look for?

A: I would look for broad direction, don't try to be an expert or predict every move, every hour, every day. Take a loss, know what to stake. I think I feel confident to trade anywhere in the world or what you need to have is a broad direction of the trend and very broad ideas. Don't try to be an expert in it, know what to stake and when to take a loss.