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Sadhana Series - Mr. Ramesh Damani (Part III)
Hello Dear Reader,
I hope you are keeping safe and healthy.
In our first newsletter in this Series, we looked at the early life and investments of Mr. Ramesh Damani. In our second newsletter in this Series, we tried to understand Mr. Damani’s process through some of his hits and misses in his investment journey.
If you haven’t read them, I do suggest that you go back and read both of them.
Today, we will look at his 2008-09 experience, how he manages risks, his thoughts on selling, his thoughts on bear markets, how he identifies bear markets and his learning from his mentors and circle of friends.
I have mentioned this in both my previous newsletters and I will mention it again, the book “Masterclass with Super Investors”1 has been a great help to me in writing this blog. If you haven’t picked up the book yet, do order your copy today. Link to book is available in the footnote.
We will start with his 2008-09 experience
During 2008-09, Mr. Damani was 40% cash. Even though the market bottomed out in March 2009, he was skeptical to deploy funds. He had shorted many Banking stocks during that time. Mr. Damani finally entered the market when it recovered 20% from its lows. He thought whatever was supposed to happen as happened.
Image Courtesy - Google
If an educated investor would have followed the same principal and entered the markets in April 2020 last year, his portfolio would have done reasonably well.
So how does Mr. Damani spot and look for opportunities?
As per Mr. Damani, one has to have a different perspective when finding opportunities in the Indian markets. India, according to him is shifting from the unorganized to the organized sector.
QSR (Quick Service Restaurants) give a very good opportunity going forth from unorganized to organized.
Image Courtesy - Tasty Bites Website
Image Courtesy - Tasty Bites Website
When Mr. Damani is often looking at opportunities, he doesn’t look at the current outlook. He looks towards the future. He thinks what the market cap maybe 5-7 years down the line.
As per Mr. Damani, India is at a stage of infancy. There is a long runway ahead of us. A smart investor just has to find his sweet spots. These could come from QSR, retail, logistics, ITes or any other sector. One should look where great migration is happening in India.
Lets talk about risk
On risk, Mr. Damani has said that an investor’s entry point should be so good that even during a correction, capital is not lost permanently. Mr. Damani on an average is over 90% equities. However, when he sees a bear market coming, he goes into 20-30% cash. He has rarely invested in any other assets. However, this has not stopped him from investing in realty. If he sees an undervalued proposition, he invests in it.
Death in one’s field is better than glory in another’s field.
In his interview in the book Masterclass with Super Investors, Mr. Damani has named Bajaj Finance, Sundaram Finance and Himatsinga Seide as companies to watch out for.
Sell! Sell! Sell!
Mr. Damani feels that there are two times when one should sell. The first is when one feels the bull market is getting over. In his view, once a bear market starts, stocks can go down 50-90%. Only fools would want to be in equities in such a market. In such a market, only those stocks which one never plans to sell should be held.
The second reason to sell is when valuations don’t make sense anymore. He however presents a contrary view to this saying that just because the valuations don’t make sense, it doesn’t mean that one should sell a stock. Good gains have come from the last rallies of the bull markets.
He has though given a solution for this. He says when for either one of the reasons an investor decides to sell, s/he should sell 15% of her/his portfolio every week. They should do this 11 am every Wednesday according to the % allocation they want to book and be in cash. Accordingly, this will give a phased exit and take out the volatility and it will take the decision making part out for the investor.
Can we time markets?
Mr. Damani feels that timing the markets is a futile exercise. However, at extremes, the signs are clearly visible to intelligent investors.
He feels that at the peak of the bull markets, corporate profits will be very high, news will be positive, the indices will make new highs and there will be a wagon of new investors in the market. But, the markets will start plummeting despite the good news. This can be a clear indication that selling is happening.
Similarly, at the bottom of the bear markets, the news will be negative, corporate profits will go haywire, investors will panic and there will be an all round situation of negativity. However, individual stocks would start going up. That is a time when an intelligent investor has to see individual stocks and not the aggregate indices.
If your panwala is giving you an investment advice, pull out of markets, if your broker/sub-broker is telling you that the markets are going to finish off its such a big crash, invest! invest! invest!
Even though Mr. Damani feels that timing the markets at extremes can be very profitable, he feels that time in the markets always beats timing the markets.
Often at the top, investors would be scratching their heads around valuations. There is nothing like a permanent bull or a permanent bear market. When we were in a bear cycle last year, intelligent investors kept their held held high and knew this cycle will end. Right now, as we are in a bull cycle, the intelligent investors are cautious of the same.
Time in markets beats Timing the Markets
Only at extremes has it been profitable to ever time the markets. Most gains come from time in the markets. As per Mr. Damani, finding the top is relatively easier than finding the bottom.
Our country has a growing population of over 138 crore Indians who aspire for consumption, a higher standard of living and better life. Any drawdown we see even a sharp one is going to be swift. Big money has always been made when an investor buys at the bottom of the bear market and builds his/her portfolio for the bull markets.
Speculation is not for everyone
Mr. Damani has quoted saying in Masterclass with Super Investors that speculation is not for everyone. A person who speculates constantly thinks about markets/prices/conditions. A speculator does not have time for anything except speculation. It takes a huge toll on him. If a person can double their money in every 3 years, they do not need to be a speculator.
On having a charmed Circle of Friends
Mr. Damani was lucky to have Mr. Jhunjhunwala, Mr. R.K. Damani, Mr. Nemish Shah, Mr. Dugesh Shah among others as his friends and peer group. All of them have had a big influence on his life. Mr. Jhunjhunwala taught him conviction, Mr. R.K. Damani was an excellent timer. Mr. Nemish has been excellent in playing commodity cycles. One major common trait among them is that all of them are bullish on the India story.
The first part of this series has been taken from online interviews, excepts & from the book “Masterclass with Super Investors”. As a parting gift in that book, Mr. Damani gives a couple of pointers to young investors. I would like to share them with all as I end Part 3 of the Sadhana Series on Mr. Ramesh Damani:
Understand the power of compounding
Develop independent thinking
There are no shortcuts to becoming a great investor
Making money is more enjoyable than spending it
Maintaining individual frugality takes you long way
You don’t need a high IQ to make money in stock markets
The market values integrity, intellectual independence and patience
A Quick Update…
This past year has been a roller coaster ride for me.
I cleared my first year of MA Economics Honors with 88%, finally decided on pursuing on CFA and started my preparation for the May 2022 Level 1 exam and ventured into the field of mutual fund distribution. In the short time that I have been a mutual fund distributor, I have also got some clients and that is only because I am 100% honest with them on Day 1 about the commissions I will make on investments they buy from me in Regular mode, which are not many as I have only empaneled myself with 3-4 AMCs.
However, I have also lost a few friends, some to cancer, some to Covid and some to heart disease in the past year. Some friendships have also been severed and I do not have the patience to mend them.
But, after all this, I finally feel now that I am at a place of tranquility in my life now that I have eliminated all WhatsApp and Telegram noise from my life and have surrounded myself with books and am focused only on my studies and my clients. I would like to apologize to all of you for not being active for over a month.
To make up for my inactivity, I have made all my previous posts free for everyone to read.
From this month onwards, I would be making some changes to the blog and would be releasing a case study on one company per month for my paid subscribers at the end of every month and one free newsletter on wealth management and personal finance for all in the last week of the month. You can use the below button to subscribe.
I hope you enjoyed this newsletter.
As an ending note, like in my last two letters on the Sadhana Series, 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.
For any queries or feedback, do get in touch with me on email@example.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.