Rakesh Jhunjhunwala: Key learnings from the legendary investor

Rakesh Jhunjhunwala

Indian Market
by 5paisa Research Team Last Updated: 2022-08-14T21:46:30+05:30


A week ago, when the maiden flight of Akasa Air, the airline backed by Rakesh Jhunjhunwala took off Jhunjhunwala spoke about his new venture to the media.

During his last interview, his poor health caught the attention of viewers. Though he was ill, in a wheelchair, barely able to speak, and took numerous breaks to catch his breath, his wit and attitude remained the same. 

In spite of his illness, he addressed the viewers and promoted his airline. Doing what he loved the most, scaling his business. His interview was a testament to his will and his love for his business. As they say, business is in the blood of a Marwari and you can take that away!

Rakesh Jhunjhunwala definitely was a man with a spirit. He has left behind a legacy like no other. He was not the Warren Buffet of India, but Rakesh Jhunjhunwala of India. 

His investing journey started very early on when he was around 12 - 13 years old. His father also had an interest in the markets, and as a young child, he would barge into his father's and friends' stock market discussions.

It wasn't long before he knew that he had a profound love for the stock market. After completing CA course, he told his father he wanted to move to Mumbai and become a full-time investor. Even though his father supported him, he refused to lend him any money for investing. 

His investing journey began when meet a few clients of his brother, who was also a chartered accountant. He convinced a few of his clients to lend him money for investing in the market, he promised them a return of 18%. Two of his clients agreed and gave him 12 lakh rupees, in just a year his investment was worth 30 lakh rupees. 

It was the beginning of Jhunjhunwala’s glittering four-decade-long career, throughout which he made 5X, 10X, and even 100X returns on his investments.

Jhujhunwala’s investing strategy was a reflection of his personality! I am sure you must have read how he created a net worth of billions with his intelligent stock picking, and we aren’t gonna discuss that, we will discuss his investment approach, his personal characteristics, and the beliefs that made him the ace investor.


1. “If you want to understand markets, you have to understand women” :

Jhunjhunwala believed markets are like just like women, always commanding, always mysterious, always volatile, and always exciting”. 

“You cannot have a good relationship with a women by beating her or by bullying her, the only way you can have a good relationship with her is by accepting her, by following her, by respecting her, and the stock market is just the same”

He believed that in order to learn the markets, you have to respect it and treat it well.

The process of learning the markets is a journey and not a destination, you have to keep learning”: 

He says in all these years he has learned a lot from the markets, but there is a lot that he is yet to learn. He candidly gave an analogy of his mother’s daal, he mentioned that even after multiple lessons from his mother his cook never made the same daal as his mother’s and he would have to keep learning it and that is a process in itself. 

2. “Tips are hazardous to health”:

A lot of times, we come across articles, and news stating the shares that ace investors have invested in and we blindly copy their investments. 

Jhunjhunwala believed that investing in tips is really harmful as we live in an ever-changing world and the dynamics of a business keep on changing. 

He elaborated on it and said “ We live in an ever-changing world, where the business dynamics keep on changing, if I invest in a stock, I understand the business and will keep on reviewing it, also, if anything changes in the company, I will sell it off, but if someone has invested in the stock because of me, they won’t know the dynamics and would not understand it and would keep on holding it. At that time, I won’t call him and tell him to sell, right?

Staying true to his image of being brutally honest, he advised investors to invest to seek professional advice while investing.

“When I fall sick, I take a crocin, but my wife and my mother, consult doctors for help. Because my medicine and my health need professional advice, similarly investing is also not an easy task, because it involves money and if someone can manage your money for 1.5% - 2%, why would you want to risk your money by investing it yourself.

3. “Bhao or Bazaar Bhagwan chee, Baki sab dalaal che” :

The core of his investing strategy was being humble and recognizing the fact that markets are above all. 

If something goes wrong, you have to be humble enough to accept that you have made a mistake and that markets are not wrong”

Apart from this his investing strategy is simple, broadly there quite a few things that RJ used to consider while investing in companies

“Character of the promoters”: According to RJ, the most important aspect of a good company is the promoter’s credibility. It is the most critical factor while selecting a good stock and it is very difficult to assess the intent of the management towards the company.

The demand of a product/Opportunity size for a product: Jhunjhunwala believed its important to look at the addressable market size of the product. Citing an example, he mentioned that if you are investing in Colgate, then you have to look at the growth of per capita income of people in the country as the consumption of toothpaste would increase with it, therefore you have to look at the demand of a product and its growth prospects.

Competitive Advantage: The next important criterion for him was the competitive advantage or the edge that a company has over its peers. He believed that some companies have a marketing advantage or a brand advantage and its important that investors pick companies that have an edge over its peers

“It’s not about what you buy, it's about at what price you buy”: RJ sticks buy his rule of buying companies at the right valuation, he said “ I have bought junk companies at Rs.2 and sold them for Rs. 8, so its not about the company you are buying rather the valuation”

He gave an example of his investment in United spirits, he said when he bought shares of United Spirits at Rs. 40, a lot of people told him not to invest in it as it was promoted by Vijay Mallya,but after his investment, the share price rose dramatically.

Therefore, the price at which you buy should be substantially lesser than its intrinsic value.
            
These were some of the teachings of Jhunjhunwala. His investing strategy was an extension of his personality. It was brave of him to enter the Airline industry just after the pandemic, which had left most airlines in the country bleeding. Similarly, his bullishness on PSU stocks reflected his contrarian personality. The legendary investor has left us, but his teachings would be forever treasured. 

 

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