Ramesh Damani has known Rakesh Jhunjhunwala for over three decades now, as an investor extraordinaire and as a close friend. They have spent evenings drinking together at RJ’s favourite watering hole, Geoffrey’s in Mumbai, and have celebrated important moments in life and have vacationed together with families. In an interview given to Moneycontrol, Damani mourns the loss of a friend, and remembers his outstanding achievements and hard-to-emulate courage.
Also watch: Ramesh Damani looks back on the journey of Rakesh Jhunjhunwala
We know that both of you started off as brokers and those were different times. It was a very small, close knit community. How did you both come to meet each other and what was your first impression of him?
Let me just put it in perspective first. I think there are some dates that we will always remember, you know, October 31, 1984, if you're old enough, the day Ms. Gandhi passed away. 9/11, the day the Twin Towers went down. Then, all of us associated with the capital markets will remember August 14, 2022, because that’s the day one of the icons who held the markets together in India passed away.
My introduction to him was many years back in ’89-’90 when he used to be in the ring of the BSE, when there was the physical outcry system. A common friend of ours, RK Damani introduced us. Since then or since ’89 till 2022, we’ve kept in touch as friends, have travelled together, drank together and had fun together. It’s been an extraordinarily long journey, and an extraordinarily profitable and insightful one for me.
You had just come back from the US then. Was it all by accident?
Yes, I was lucky enough. It so happened that the first three or four people I met were all basically legends of the street. I met Chandrakant Sampat bhai, RK Damani and Rakesh Jhunjhunwala. What are the odds that the first three people you meet are the three legends of the market?
Slim, I’d say. But then you are a legend too.
It’s a reflected glory, but I’ll take it, thank you.
That requires some nuance. First, we need to understand this against the scale of his accomplishment. As is commonly known, he came into the stock market in 1987 with Rs 5,000 or $500. By the time he passed away, his worth was something like $4 billion or about Rs 28,000 crores. If you calculate the CAGR over the last 35 years, it comes to 54%! It is extraordinary. If you are a cricket fan, and everyone is one in India, then you know one of the most hallowed records is of Don Bradman’s 99.94 in test match. To an investor, Jhunjhunwala’s record is similar, of compounding 54% for more than three decades. That record too will stand the test of time.
He had evolved as an investor, no question about that. His big break, which moved him into the super league of investors, if you will, came in the 2003 bull market. By then he had been in the market for 15 years and had made some money in Madhu Dandavate’s (former Finance Minister with the VP Singh government) budget. Rakesh had made a bit of money in tech, though not as much as other people. Then, in 2003, to take the sports analogy further, instead of seeing a cricket ball coming at him, he saw a football coming at him. He realised the new bull market was coming and wrote the now famous article for The Economic Times, titled the Coming Bull Market in India. The index went from 4,000 to 12,000 or 20,000, I think, over the next five years, his three picks at that time–Titan, CRISIL and Lupin–all became almost 100 baggers over the time. That was a defining moment.
Also read: The many investing styles of the Big Bull
2003 was a defining year for the Indian stock markets too. Until that year, mean reversion worked. But after that year, anyone who bet on mean reversion repented. Is this what made a huge difference in RJ’s approach to capital markets overall or am I confusing Rakesh the trader with Rakesh the investor?
I have interacted with the other great investors from India, such as Vinod Sethi and RK Damani. The things they have in common are their passion for the stock market and their bullishness on India. If you consider what has happened between 1990 and 2020, we’ve lived through many crises–Kargil, global financial crisis, COVID… Through it all, they’ve always retained their bullishness. That’s the core philosophy that shapes their investment portfolio, bet on Indian businesses, bet on Indian promoters, and compounding will create wealth.
Prior to the nineties, Harshad Mehta and Ketan Parekh, the commonly held belief was that you manipulate the price of a stock; when it goes up, you cash out and give it to UTI or LIC to buy; you make your money and cash out. Very few early operators believed in the power of business to deliver returns. But Rakesh was different. He was one of the first people to impress upon us the importance of finding a great business, and the importance of long-term investing and believing in the promoters. The belief in the business came from belief in the India opportunity or from being bullish on India. That’s the extraordinary change they heralded. Around 1985, many of them, including Nimesh Shah, RK Damani, Rakesh Jhunjhunwala and Yogesh Shah, had one common belief, that the business is very important. And they got the timing right, because from ’87, the index has consistently headed higher. They were among the first in Dalal Street to see that a new era was dawning.
In a tribute, Rakesh was called the ultimate dreamer. He dreamt of an India that we are seeing unfolding now, from a third-world economy in 1984 to the third-largest economy in the world.
Okay. Could you describe Rakesh as a trader? In many interviews he has spoken about borrowing at 18-24% for the initial capital, and that comes from high confidence in being able to service that debt. So, obviously, a lot of his initial capital came from trading. Isn’t that right?
Yes and no. One of the first trades he did was in Tata Power, where he realised that the cost of borrowing was less than the dividend yield. So he borrowed money, bought the shares, got the dividend, repaid the interest and the stock went up. It was a brilliantly calculated trade, which was placed on the difference between the cost of borrowing and the dividend yield. In his early years, he used to trade in the Calcutta Stock Exchange or the Lyons Stock Exchange, which was fairly active then and had more relaxed margin requirements. So, while a lot of his initial years he spent trading in Calcutta, he’s obviously made 90% of his fortune through investing.
He himself said that the joy and the high trading gave him was hard to replace. He was like a kid in a candy store. He just loved the thrill of building a leveraged position, talking about it in the evening or being bullish about a position against someone else’s position.
As you correctly pointed out, his initial money was made in trading. It was only 2000-2003 that he converted to investing. He understood that, to truly make wealth, you need big blocks of publicly traded stock. So while the initial money was made through trading, serious money was made through investing.
There were two or three things. The first was his uncanny ability to predict when a bull market was about to begin. I’ve seen him predict the trend in the ’89 bull market, then the bear market in 2000, 2003 and 2008. When we bottomed out at COVID, he told us in a con call with his friends, that a new bull market is beginning and now it seems astute. How do you have the guts to say, in the middle of COVID, when people are scared of their lives, that a new bull market is here? We have all since seen how the market doubled in the next year or so.
So, to be a trader, you have to have an extraordinary ability to understand where the market is going. I think that was a God-given ability he had. The second thing, of course, is that these guys are beasts of the market. Rakesh was 24x7 in the market. He’d go for his morning walk and discuss markets, he’d come to the ring to discuss markets, he would have lunch and discuss markets, he’d go for a drink and discuss markets. Trading is an obsession. It cannot be done in an intellectual manner.
He often used to tell his friends over a drink, he rarely had coffee, or over a pan, that ever since he grew up, he had only one desire, that was to earn money, to earn money, to earn money. And earn money just for the sake of earning money. Not to buy things, but he liked the idea of the zeros in his bank balance. The third thing that distinguished him as a great trader was his ability to take losses. If your trade goes against you, you need to square up the trade and move on to the next one. A lot of traders cannot do that. They are so convinced about their point of view, and they believe that the market is wrong. But that belongs in the realm of investing, not in the realm of trading. And he's one of those rare, rare people, Mahalakshmi, who could do trading and investing. These are completely different sciences. I, for example, invest. I just get weak-kneed in the eye of trading. The idea of making losses doesn’t appeal to me. But he could take losses and move on, the very next day, to the next trade.
Also read: What is the one formula the Big Bull held sacred?
How did it affect him temperamentally? If his trading account was not looking good, could he still stay rational? Could he shrug it off and move on?
Like any other competitive person, he didn’t like to lose money, but he could handle it. In his early years, everyone accused him of being a reckless trader or a very speculative trader. But I don’t think he ever took a risk that he couldn’t bear the loss from. His word was his bond. Whatever the debit balance came from the broker, he will always honour the commitment the next day. So all those people who said that he was reckless or speculated too much were perhaps misinformed about the stock market. When a man understands the risk he is taking, it’s not a risk.
He knew that it’s like counting chips. Sometimes two chips are taken away, sometimes four chips are added. But, as long as you end the day with more chips than you started with, you are okay. I think he did that fairly successfully.
What were Rakesh’s stand out qualities, according to you?
I’ll tell you the negative one first because, as friends, we feel bad that he lived life on adrenaline, on pushing himself, on being high on life. As a result, I think he neglected his health. His friends, family and doctors, everyone told him that you need to take care of your health, but sometimes I think the trading and the success came at the cost of his health. He was so focused on making money and being the best and getting it right, but it came with a downside. As a friend, I feel bad that at 62, when you enter the fall of your life and look forward to seeing your children getting married and to retirement, we feel like he lost out on that part of life…
Another 30 years of great investment success too?
Yes that too but also seeing your grandchildren grow up. As a grandfather myself, I don’t know what other bigger joy there is in the world.
But I think the reason for his success was that he was so focussed on what he was doing.
There is also another great quality he had. In Wall Street, there is a saying. If you want a friend, get a dog, because everyone is looking out for themselves. But, in Dalal Street, the group of people I met – be it Rakesh Jhunjhunwala, RK Damani, Chandrakant Sampat, Nemish Bhai or Durgesh Bhai – they were all so open with their ideas. Rakesh wore his trading book on his sleeve. If you knew him, and asked him, Seth, kya lagta hai and he will give his opinion generously. His openness was extraordinary. Here's a man who runs a trading book, a prop book, an investment book, but open.
One day, I asked them, how are all of you so open when Wall Street is so secretive. Rakesh said, there is a river ahead of us, the river being symbolically Dalal Street. Then he said, if I take four buckets of water and you take two, there will still be enough left. How does it matter if you make money or I make money in the market, we both can make money here. That’s the kind of rarefied thinking that these guys brought to the street.
The generosity was extraordinary, sometimes holding a hand, sometimes almost doing a trade for you or sometimes when you came out with an idea, backing it saying, okay, you like the idea, then I will buy 50,000 shares of that, just to show you that I believe in you.
Well, there are two parts to it.
A lot of people assume that there is a coterie in the stock market, that they buy a bunch of shares, then their prices go up and then the group gets out together. It’s utter nonsense.
If you look at the portfolios of say the two contemporaries who are the top of the class, RK Damani and Rakesh Jhunjhunwala. They have completely different sets of stocks. RK Damani bets on known promoters, on MNCs. For example, he has stakes in VSD, Nestle, HDFC Bank and the like. Rakesh bets on Indian promoters. He didn't want to bet on MNC promoters and hardly holds any MNC stocks.
Of course, Rakesh read a lot and reflected a lot, but there is a way he used to describe his style. He said it in half humour and half seriousness, that ‘I invest first and investigate later’. For example, about one of his most famous investments, he would tell a story.
In 2003, his broker called him and said that he had 10 lakh shares of Titan that someone wanted to sell. ‘If you buy 10 lakh of them, the price is 40. If you buy 30 lakh, the price will be 38, and if you buy 50 lakhs, the price will be 36’. Rakesh understood that at Rs 40, the market cap was around Rs 300 crores. He thought, great brand name and theek hai, it’s probably worth more than that. So, he bought the first 10 lakh shares just on an instinct. Then, he started following the company. Over the next few years, he kept adding to his position and bought almost 5% of the company. So, he first invested, then investigated, then when he was convinced, he added to his position. There is this folklore that he bought Titan after studying it or after accessing some insider information, but that’s probably untrue. He bought it because his broker had a lot and he came to Rakesh before going to anyone else.
Was it a well-documented research effort before Rakesh invested? I actually don’t think so. Sometimes truth is stranger than fiction.
Also read: Dalal Street titan Jhunjhunwala calls time on earth
How hard is it? To buy the same stock, adding to that position at higher and higher prices?
Extraordinarily hard. I do that sometimes and generally I get mud on my face because, right at the moment you have the highest conviction, the stock tends to peak out and go down. What made him great was probably an ability to go higher up, keep his conviction at 300, 3000, 30,000 or 3 lakh. You can count on your fingers the number of people who can keep trading and investing apart, and he was probably one of them.
While Titan is the most storied stock in his portfolio, which stock truly demonstrates his genius to you?
Firstly, there are many paths to Mecca or Nirvana. We all had our great picks. RK Damani picked HDFC Bank, Nimesh Bhai picked ACC, I picked United Spirits. With him, what was important was the conviction with which he bought the stock. He didn’t buy 10,000 shares at $50 a share. He put money on the table, he bought 5% of a company. I don’t have the courage to do that. I’m probably a product of my middle-class upbringing, so I’m scared to lose money, but he always used to say with pride, ‘mein tho Dalal Street sadak chaap hoon. I don’t care. I came from nothing. I go with nothing’.
Once he was convinced about an idea, he didn’t care what I thought, what the fund manager thought, what a foreign investor thought. If he was bullish on the stock, he would hold that stock until proven wrong.
Also, people know about the things he got right. But, so that your readers get a 360 degree view, they need to know that he got some things wrong too. For example, he had a company called A2Z that didn't work out, he had a company called Bilcare that didn’t work out. But, if you look at the amount he lost in those, compared to the amount he made, you begin to understand what investing is about. He could take those losses and still compounded at 54% over 30 years. So, it’s not that great investors get everything right. They are humble enough to acknowledge that they made the mistakes, but they're smart enough to take their losses and move on.
When he got it wrong, like with A2Z or Bilcare, did it make him question his fundamental beliefs or did he draw lessons from these failed bets?
His attitude could be summarised in that Hindi move song, Mein har fikr ko dhuen mein udatha chala gaya. He didn’t care. Once he gave up on a promoter, he sold the company, he didn't care what price he was getting out at or how long he held it, or what the promoter thought about it. He didn’t care. He would get out of it. He always took bets that he could handle (even if there was a loss). So you know, market people might think that, oh, he missed a big bet in X, Y, Z company, and that didn't work out or he’s going to be lost, but he could handle the loss. The flowers in his portfolio far outweighed the weeds.
He would be momentarily disappointed of course, but he took it in his stride and he took it well.
Could you share a few personal memories that you have of him?
I will share a few that show how focussed he was, that he was a 24x7 market animal. First was when we were at Geoffrey’s (a pub in Mumbai), which was one of his favourite haunts. That evening, after sitting around and shooting the breeze, we were leaving and he sort of stumbled and fell. We immediately picked him up, put him on a chair and one of us went to get him a glass of water and another a towel. By the time they were back, he was already on the phone talking to his broker finding out the rate for gold or Dow at that time. He didn’t miss a beat. While all of us were worried if he was hurt, he was back doing business, not waiting even 20 minutes.
Then there is one I often tell my son. If I go to the dentist, I square off my position, thinking I might be hurt for two days, who knows what’s happening, but not Rakesh. He went through one crisis after another the last two to three years of his life, but he never stopped tracking the markets, whether from a hospital bed or a wheelchair or when he was in an inspection room.
Once, we took a trip to Hong Kong, many years back. We were out gambling till late night and wound up at 2:30 or something like that. Remember Hong Kong is now two and a half hours ahead of us. So when the market opened, I think at nine o’clock, it was 11 there and we were fast asleep after a hard night of partying. But when we went to meet him, he was already up after about two hours of sleep because Tata Motors was announcing its results that day. He was completely awake, completely wired, with no hangover unlike us.
A lot of people think that speculation is about being lucky, that it is about getting a good tip. They don't realise the extraordinary hard work and drive that people like him put into it.
Something like that.
Any other memories?
When he started this airline (Akasa Air), it seemed like an extraordinary bet to take at this stage of his life, when he was facing ill health. But, he typically handles the risk-reward. He told me that he could lose an X amount and that’s it, and therefore he’d ring-fence that amount. But he could make X-times returns. He said he liked the risk-reward ratio in it. He had this ability to size up these odds in so many things, it was never about whether he would make money or lose money. It was about the odds that he could lose money and, if he was right, what are the odds on how much he could make. I found that quite illuminating.
Why airlines? Many fortunes have been lost in airlines, and of course, there have been great successes too.
What people don't quite understand is that, over the last 10 years or so, the cost of owning a business like airlines has gone down because what you do is you buy the aircraft and get it leased back to you. So you earn some money from that, and there are no capital costs for running an airline. If you go back and study Indigo Airlines, it wasn't started on a lot of capital. It was started by financial engineers who understood the lease-and-buy-back model.
I’m not privy to any conversation, but my understanding is that a similar model has been used in Akasa. The market for leasing right now is very good. So you don’t really buy the aircraft. It’s a very capital intensive business. So you buy it and lease it back, and you pay the lease rental. In fact, you get some money when you lease it back as a differential. Therefore, you don't need a lot of money. Then, there will be low-cost airports, there will be more ala carte pricing.
Rakesh sees five to 10 years into the future. He isn’t looking at it from one or two quarters. So, by using his own mental model of risk-reward, it makes a lot of sense to me.
Truth be told, Southwest Airlines has outperformed Berkshire Hathaway over the last 30 years, if you check the compounding rate for both. Who’s to say this (Akasa Air) can’t be a Ryanair? Maybe things will change. He had foresight. He got together a great team of managers who helped him build that and a lot of the equity was given to them, so that their interests are aligned with the company’s. Then, he’s ring fenced himself with regard to the amount of money that he can lose. I would have been excited if he had asked me to put money in it. He didn’t. It’s a shrewd bet. If it works, it’ll be a permanent legacy in the air.
What aspects of his investing style have you tried to incorporate in your own strategy? Also, what are the one or two things you tried to incorporate but find it extremely hard to do?
Well, the last question is pretty easy. I can't be a trader, I realised that over a period of time. I am too middle class in my upbringing to risk that kind of loss. And I am not focused, I mean, it’s different strokes for different folks. I think he enjoyed being in the market 24x7. I enjoy smoking a cigar, I enjoy spending time with my grandchildren, I enjoy travelling, I cannot be focussed 24x7 on the market. It’s just not within me to do that. So I realised, very early on in life, that I am not going to be a trader. I accepted that. But one thing I wish I could do better was that, if I have a good idea, I could buy in a large quantity. Trouble is that’s easier said than done. The ability to distinguish a great idea from a so-so idea comes to the forefront in that. That (the ability to bet big) is still a work in progress. I think he used to be very disappointed in me, that I didn't put enough in my best idea. Perhaps that is the way it is.
We all pray to God not for money, but for opportunity, and I had the opportunity. We got mud to fashion something out of it. I made a bowl and Rakesh made a jar. That’s the difference between good and great, I guess.
We were part of a very close group. We used to call it a kitty group, which Rakesh established. First there were seven couples in it, now there are 11. Over the last 30 years, we celebrated birthdays and anniversaries, and took trips together. For a while, before COVID and bad health took over, we would try and meet once a month somewhere. Rakesh was always the most talkative. He would dominate every conversation, be the life to the party. When he celebrated his 50th birthday, he took us for a knockout party in Mauritius, including family and including children. I’ll always remember that trip. Before we wind down, I want to read a few lines from a poem that reflects my thoughts about him.
Your memory is a keepsake with which we'll never part/ God has you in his keeping,/ we will always have you in our heart. Rest in peace, my friend.
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