What Works For Rakesh Jhunjhunwala May Not Work For You
Apr 20, 2017 | 18:29 PM IST
Apr 20, 2017 | 18:29 PM IST
Let's start with the pressing question - Why only a few investors make money in stock investment? The answer to this question is not as simple as it seems. To understand this issue we will have to do a micro-analysis of Indian investors and their investment behaviour. On assessing the data you will be startled to learn that there are striking similarities in the methods of most of the investors who fail at investing. In this piece, we will try to identify some of the deep-rooted investment mistakes which have affected too many investors for too long.
What Works For Rakesh Jhnujhunwala Will Work For Me Syndrome
Many investors enter the market with this ill-informed idea that following celebrity investors will bring them good returns. On the face of it, it sounds like a good plan. After all, why would Rakesh Jhunjhunwala, or any other celebrity investor for that matter, will invest in any stock if he/she is not absolutely convinced about its fundamentals? True, Mr Jhunjhunwala does extensive research before entering any stock. There are stories which suggest that Jhunjhunwala spends most of his time assessing balance sheets and other fundamentals of the company he is going to invest in. So after doing such rigorous work wouldn't it be fair to expect good results from the company?
Certainly, but here comes the catch - unlike other retail investors, Jhunjhunwala goes for a long haul. He invests in a company with a huge volume which is next to impossible for the retail investors to match. Furthermore, he has a long-term investment perspective, which is ironically missing from all those investors who keep looking for Rakesh Jhunjhunwala tips every day.
For a better perspective, just take a look at Rakesh Jhunjhunwala's share holdings, you will realise that he holds his stocks for a very long time, sometimes for decades. Also, despite holding it for a long period of time some of his stocks didn't give good results for a considerably long period, however, his patience and conviction outlived the market consolidation so he earned enormous profits.
A question to retail investors - would you be willing to hold a non-performing stock for a period of 5 years?
Negative, most of the investors would lose patience and exit the stock. Jhunjhunwala wouldn't.
Rakesh Jhunjhunwala A Pied Piper
You must have heard the story of Pied Piper. Pied Piper lured rats of the village by playing pipe. He cast a spell on the rats through his pipe's tune and led them to their death. What were the rats doing? They were blindly following the tune. Pied Piper's analogy is quite fitting for Jhunjhunwala and his followers. Whatever Rakesh Jhunjhunwala does his followers blindly follow. If he buys a certain stock that stock would start surging and if he sells any stock, immediately that stock takes a dive.
In the recent past, Jhunjhunwala has reduced stakes in companies like Intellect Design Arena, Tata Motors DVR and Sterling Holiday, and every time he cuts his stake, the particular stock goes into a downturn. Similarly, when the 'buy' news breaks out, the stock starts surging. The most noticeable were the rise of Adlabs Entertainment which gained around 50% when he entered that stock. Astounding, isn't it?
Rakesh Jhunjhunwala's fan following is undoubtedly overwhelming, but hollow fandom will never help you achieve your objective of wealth creation. If at all you want to follow any quality of Rakesh Jhnujhunwala it has to be his unflinching confidence in his research and knowledge. The man has built a fortune worth 13,000 crores from scratch, an unparalleled achievement in any walk of life, let alone investment.
To succeed in stock investment, merely following your idol wouldn't suffice. You will have to take conscious efforts to do for yourself what Jhunjhunwala does for himself - planning, investing and waiting. Happy investing, dear investors.