Freinds,
This maybe a repeat post, but seems that this is a very specific post....
Rakesh Jhunjhunwala on how to pick the right stock
Published on Tue, Nov 17, 2009 at 15:25 Updated at Mon, Nov 23, 2009 at 11:35 Source : CNBC-TV18
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.” ( I think, I are doing the same here.....I have never talked of what the NP is, I have always talked of what a Co can become.....Least to say, I am not comparing myself with RJ, but can say I am on the right path after reading this...)
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.”
This maybe a repeat post, but seems that this is a very specific post....
Rakesh Jhunjhunwala on how to pick the right stock
Published on Tue, Nov 17, 2009 at 15:25 Updated at Mon, Nov 23, 2009 at 11:35 Source : CNBC-TV18
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.” ( I think, I are doing the same here.....I have never talked of what the NP is, I have always talked of what a Co can become.....Least to say, I am not comparing myself with RJ, but can say I am on the right path after reading this...)
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.”
Its always a real challenge to pick out the right stocks. 2010 more than anytime else would be a stock pickers markets. With the Sensex giving about 80% Returns in 2009, not all stocks will rise in 2010. So, how do we identify the winners for 2010. The Key lies in identifying what Mr Bajaj Wants?
Who is Mr Bajaj?
He is a young Indian Male in his early 30s employed in one of the Great Indian Back offices making about 12-15 lakhs a year. He is married with a kid.
So, now where would Mr Bajaj spend his hard earned salary?
It would firstly be on Roti, Kapda and Makaan.
Being a family man, he would like to own his own house. So, he would take a housing loan and get set with a EMI for the next 20 years. For this, the best plays would be reputed Housing Finance companies like HDFC.
Having a roof over his head, he would like wheels to move about in town. He would buy a car again on EMI. The Market leader in India is Maruti with about 51% Market share with car models in every segment of the market. From 2 lakhs to 10 lakhs. It has the widest Service Network to boot in India.
Now, what Kapda and Roti.Mr Bajaj would like to do his shopping in malls and hang out over the weekends in places which offer Movies and Bowling. Pantaloon is one the largest mall chains in India with Big Bazaar, Grand Centrals ad Bowling Alleys to boot. They get prime properties at low rentals for being the anchor tenant.
PVR Cinemas offers prime viewing experiences all across India. Given the multiplex ticket prices and the long queue for Movies, this segment cannot be ignored.
UTV Software offers an amazing package of content for Movies to TV Serials to kid programmes. Disney has a 15% stake in the company.
I would look at Indian Hotels and EIH Hotels simply because of the amazing properties they own.
ITC and Tata tea are premium FMCG brands which offer the upwardly mobile Indian just the right products he desires. Tata Tea also has the Mount Everest (Himalaya) premium packaged drinking water.
Coming to Health care. Mr Bajaj would like to access the Best Health care facilities in the country for himself and his family. 2 big pan India chains are Apollo and Fortis. Apollo used to be my favorite, but the aggressive intent and cash rich Shivinder/Malvinder Singh duo tip the scales in Fortis favor. Fortis would have 7000 beds by end of next year.
If the India story has to grow, the above Consumer driven themes cannot be ignored. One of the touted strengths of India is Domestic Consumption. The above companies are best suited to take advantage of the Domestic Consumption Story.
The Great Indian Middle Class is what will drive the surge forward. If we look at companies taking care of their needs, half the battle is won.
The other half of the Battle will be won in identifying companies which help India build the Infrastructure it needs to make the leap from a developing nation to a developed nation.
Who is Mr Bajaj?
He is a young Indian Male in his early 30s employed in one of the Great Indian Back offices making about 12-15 lakhs a year. He is married with a kid.
So, now where would Mr Bajaj spend his hard earned salary?
It would firstly be on Roti, Kapda and Makaan.
Being a family man, he would like to own his own house. So, he would take a housing loan and get set with a EMI for the next 20 years. For this, the best plays would be reputed Housing Finance companies like HDFC.
Having a roof over his head, he would like wheels to move about in town. He would buy a car again on EMI. The Market leader in India is Maruti with about 51% Market share with car models in every segment of the market. From 2 lakhs to 10 lakhs. It has the widest Service Network to boot in India.
Now, what Kapda and Roti.Mr Bajaj would like to do his shopping in malls and hang out over the weekends in places which offer Movies and Bowling. Pantaloon is one the largest mall chains in India with Big Bazaar, Grand Centrals ad Bowling Alleys to boot. They get prime properties at low rentals for being the anchor tenant.
PVR Cinemas offers prime viewing experiences all across India. Given the multiplex ticket prices and the long queue for Movies, this segment cannot be ignored.
UTV Software offers an amazing package of content for Movies to TV Serials to kid programmes. Disney has a 15% stake in the company.
I would look at Indian Hotels and EIH Hotels simply because of the amazing properties they own.
ITC and Tata tea are premium FMCG brands which offer the upwardly mobile Indian just the right products he desires. Tata Tea also has the Mount Everest (Himalaya) premium packaged drinking water.
Coming to Health care. Mr Bajaj would like to access the Best Health care facilities in the country for himself and his family. 2 big pan India chains are Apollo and Fortis. Apollo used to be my favorite, but the aggressive intent and cash rich Shivinder/Malvinder Singh duo tip the scales in Fortis favor. Fortis would have 7000 beds by end of next year.
If the India story has to grow, the above Consumer driven themes cannot be ignored. One of the touted strengths of India is Domestic Consumption. The above companies are best suited to take advantage of the Domestic Consumption Story.
The Great Indian Middle Class is what will drive the surge forward. If we look at companies taking care of their needs, half the battle is won.
The other half of the Battle will be won in identifying companies which help India build the Infrastructure it needs to make the leap from a developing nation to a developed nation.
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