Sadhana Series: Mr. Ramesh Damani (Part I)

07/07/2021

Hello Dear Reader,

In our last newsletter, we talked about starting a series of newsletters called the Sadhana Series.

Today we will begin this series by taking a look at the investment journey of Mr. Ramesh Damani. As we will not be able to summarize everything in one newsletter, we will release it in three parts. Part I will be free for all. Part II & Part III will be readable to only premium subscribers. You can use the button below to signup for our annual subscription using a 20% OFF Coupon Code.

I have taken references from the book Masterclass with Super Investors¹ & publicly available information. The link to the book is in the footnote. I recommend everyone buy this book and read it.

Mr. Ramesh Damani is an MBA from California State University. He worked as a systems analyst in the United States before becoming a broker with the Bombay Stock Exchange. He is today one of the most successful investors in our country and also the Chairman of Avenue Supermart Ltd.

Mr. Ramesh Damani’s father was involved in the stock markets from as early as 1960s’, a time when markets were very small and there was not much money to be made. His father was a voracious reader and that is a habit that he passed on to Mr. Ramesh Damani.

Mr. Ramesh Damani was in the United States working as a systems analyst, when his father, to attract him to equities made a bet with him. He sent him USD 10000 (in the early 1980s), with the condition to invest the entire corpus in equities. The bet was that if he made money from his investments, he could keep the entire money and if he lost money, he didn’t need to pay back his father. Taking into account inflation, that amount would be $ ~27,895.85 today or Rs. ~20,83,038.91 .

As good an investor as Mr. Ramesh Damani has become today, he lost the entire corpus back then. What he learnt from his experience was looking at the rear view mirror rather than the windshield can be deadly at times. He also learnt a lot about the role of inflation in markets, how commodity cycles play out and how timely exits are important.

It was in the early 1990s that Mr. Ramesh Damani took his first crack at investing in Indian Equties. What is not surprising to note here is, his early investments were only in companies which were in his circle of competence.

On Infosys

He was from the programming background and realized that a firm in the United States would charge 10x for what the work Infosys was proposing to do in India. An added advantage for him was that in the early 90s’, not a lot of people knew much about ITeS. He exited Infosys at a profit of 500x in 2000.

On CMC

IBM had moved out of India due to the rule that MNCs would have to dilute their stake to be listed. This had created a need for CMC, a company which was setup only to manage all the computers in the country. A company which was managing Indian Railways computerization & BSE trading platform among other major computer networks was available to him then for only 30 crores market cap. This company went up 40x in one year for Mr. Damani.

It was these two investments that in a way in my opinion have led him to understand the importance of having a circle of competence.

When a good investor has a great idea, s/he needs to back up the truck and buy as much as possible. Great ideas are very rare and once an investor has one, s/he should not shy away from betting big. Smart investors do not just sit on an appreciating stock but average up as they know the inherent deep value of the company.

Photo Credit: Blog, Finology²

From his early investing style, I have derived the following learning

I believe each of us, through experience or study, has built up some knowledge on certain areas over the course of our lifetime. Some areas are understood well by most of us, while some require further study. If we were to use this knowledge to profit from equities, and develop little understanding of accounting and finance, we would not need to have an IQ of 180 to find our own CMC or Infosys.

We may or may not be able to become as great investors as Mr. Ramesh Damani. But we can define what we do know and stick to that over the course of our investment journeys and do reasonably well. If all this is taxing for us, we can still double our money every ~5 years doing next to nothing by developing a mindset. A very important fact to note here is that our circle of competence is not fixed and can be expanded by us over time. We will talk about this in Part II & Part III of this newsletter. If there is one takeaway from this newsletter I am hoping you get dear reader, it is to not be afraid of saying,

“I don’t know this. This is outside my circle of competence.”

I hope this letter was useful in your investment journey. I was earlier going to release this as a single newsletter but the story and learnings of Mr. Damani cannot be summed up in one newsletter. Hence, I have decided to now make this a three part release. Do subscribe to the premium newsletter service to access Part II and Part III.

As an ending note, I would like to give out a special thanks to Mr. Vishal Mittal and Saurabh Basrar. I called their office to use extracts from their book and they were very kind enough to give me permission.

Rgds,

Ayush Agrawal

For any queries or feedback, do get in touch with me on valueinvestorayush@gmail.com

Disclaimer: The author of this publication is not a SEBI Registered Advisor or Analyst. The information on the company and its promotor mentioned in this newsletter is provided for information purposes only. It does not constitute an offer, recommendation, or any investment advice to any person nor does it constitute any prediction of likely future movements in the company’s stock prices or business performance. It should not be used as a basis for any investment decisions or as a proposition to buy or sell any securities. Please seek advice from a registered financial advisor and do your own due diligence before making any investment decisions.

1. https://altaisadvisors.com/masterclass/book/

2. https://blog.finology.in/success-stories/ramesh-damani-investing-story