Happy Birthday Rocky : Rakesh Jhunjhunwala’s education as an investor revised

Rakesh Jhunjhunwala

Rakesh Jhunjhunwala, often referred to as the "Big Bull" of the Indian stock market, was a renowned and influential investor who has left an indelible mark on India's financial landscape. Born on July 5, 1960, in Mumbai, Jhunjhunwala's journey from a middle-class background to becoming one of the wealthiest individuals in India began at the tender age of 15.

Inspired by his father’s conversations with various people, Jhunjhunwala was drawn towards the world of stock markets. As an avid reader of the stock quotations in the newspapers, he developed expertise regarding the fluctuating stock market. Jhunjhunwala is widely respected for his astute investment strategies, sharp market insights, and remarkable track record of identifying lucrative investment opportunities.

With his extensive experience and financial acumen, Rakesh Jhunjhunwala continues to be a prominent figure in the Indian financial world, one who inspired both seasoned investors and aspiring traders alike.

On his 63rd birthday, it is worth revisiting these lessons from India’s Big Bull:

• Let curiosity drive your intellect: Jhunjhunwala began learning about the stock market at the tender age of 15. He started his unending process of education as an investor by linking news with the fluctuations happening in the stock market quotations.
• Scanning the horizon: The market veteran closely analysed annual reports released by companies to study their balance sheets and profit & loss accounts.
• Learning the ropes: Jhunjhunwala learnt that the companies with the highest quantum of profits, reserves and surplus, and highest net worth need not necessarily have the highest stock price. He believed the quote  ‘A balance sheet is like a bikini – what it reveals is alluring, what it hides is vital’ to be true for the stock market.
• Differentiating quality from quantity: The Chartered Accountancy graduate emphasised that it’s not the sheer quantum of profits but the quality of profits that matters as much.
• Differentiating ratios from rationale: When both the price-determining variables which are Earnings per share (EPS) and Price earnings ratio (PER) ratio gain, the stock prices explode.
• Look for quality drivers: Jhunjhunwala noted that the EPS was very specific to each company while the PER was dependent on various factors, both internal and external to the company. The quality of EPS is important and is dependent mainly on three factors: Accounting policies followed, Cash profile of the profits, and Return on capital employed. The internal conditions that determine PER included the reward record of the company, predictability of earnings, risk model, perceived growth opportunity, and the perceived integrity of the management.
• Look for value drivers: He observed that markets disproportionately reward companies that are leaders, innovators, and performers.
• Future lies in realism: Jhunjhunwala realised that understanding a business is important in predicting a company’s profit. His key success factors for predicting a company’s profit included the following assessments:
  • The addressable external opportunity available to the company. The scope of demand for the product or service of the company determines its addressable external opportunity. This simply means that the market demands affect the company’s growth.
  • The competitive ability of the company. This means the ability to deliver quality products/services at the lowest price to the widest customer base.
  • The effect of operating leverage on profits.