Stock Investing Lessons from Radhakrishan Damani
Here are a few Stock Investing Lessons from Radhakrishan Damani:
You don’t come across the rich men every day. When you get to meet one, you are going to ask them “Sir, how to become rich?”. The answer would at all times be the same “You need to work hard. I worked really hard”. Then, you are left startled as to “why aren’t you getting richer?” Day-in and day-out you toil. But your money is not multiplying in a way it should do.
Well, Damani can help you out!
Radhakrishan Damani is the mastermind behind India’s most valuable retailer D-mart.
You may think why Damani? Why not anyone else?
It’s because Damani’s story is a kind of experimenting and applying till he nailed it. His journey has been intriguing till now; notwithstanding his personality. The man who always loved to keep a low profile suddenly became the talk of the town. An IPO rising 114% of its price on the listing day itself is quite an unbelievable thing. And the impact was enormous. He rose to the levels of Ambani, Piramal and Godrej who happen to be the billionaires.
D-mart has been there in the Indian retail scene for quite some time. With its store located in a few states, it is steadily expanding its reach. The business model pertains to the selling of FMCGs and consumer durables at reasonable prices. The focus is on delivering value ethically via continuous study of customer preferences.
D-mart, as a successful venture, came at a much later stage. Before that, he has been gaining experience across different roles. His journey started as a trader at his father’s ball bearing business. After dabbling there for quite some time, he decided to switch his profile. In 1992, he joined as a stock broker at his relative’s broking firm. Initially, he didn’t know much about stocks. But he had a fire in the belly. Gradually, he got a command over the entire game of investing.
Risk taking had always remained his forte. He started placing bets based on his knowledge. It’s not that he always won, but he knew how to cut the losses. He never let ego come in the way of investing. In fact, this virtue has enabled him to get so far. He perceives it like performing surgery on one arm with another arm. It’s vital to prevent the arm from being amputated altogether.
Damani has been a keen learner from the very first day at work. This quest for excellence made him an astute investor. So much so that peers believed that Damani possessed a Midas touch.
Everyone enters the stock market to take risks. But only a few like Damani are capable of looking beyond numbers. From the very outset, he has been a value investor. Be it running a retail giant like D-mart or investing, getting to the basics has been his approach. He need not profess any theories of investing. But his deeds speak a lot louder.
It’s rightly said that “Man is known by the company he keeps”. Damani follows it religiously. For him buying a stock is equivalent to buying the whole company. So, he makes sure that only the right stuff gets into his portfolio. If he is convinced about the quality of stocks, he buys the whole lot at once. Contrary to this, he just abandons stocks that have lived their maximum potential.
If you are looking forth to investing in equities, then many things can be learnt from him.
Importance of a Mentor
In case you are naïve at stock picking, find a mentor. The person you choose to be your mentor should have lived the investing world like anything. Damani too had a mentor named Chandrakant Sampat. He taught Damani the nuances of stock investing.
If you want to emerge out as a winner, then consult a good advisor. Possessing adequate knowledge in equities is not enough. He must have been able to make money out of stocks. Adept at studying markets, he must be able to predict its direction.
The entire game of Investing works on patience. Paul Samuelson once said “Investing is boring. If you want excitement to go to Las Vegas”. He too wanted to point out the emotional angle of investing. It’s quite usual for you to expect quick returns as soon as money is invested. But things don’t work that way.
If you check the prices now & then, then you complicate matters. It will just create unnecessary exuberance and may cause premature exits.
You need to stay away from all the irrational elements. Keep calm and watch your money grow patiently.
If you pull your money day in & out of markets, then you are not an investor. You are simply a trader. To become an investor, you need to stay in the game for quite long. Damani too does the same thing. Research has proved that stock prices tend to move towards the mean in the long run. It means there may be volatility in the short-term. But the fluctuations smoothen out to give average returns around 12%.
Know your game
Have you checked your manner of stock picking lately?
If not then that could be the reason behind your massive losses.
You need to know the rules and facts of the game before getting in the ring. Even Damani does the same thing. Before picking a stock, he goes through its entire history. The act is based on data rather than intuition and guess. He uses ratios like P/E ratio, Enterprise Value to EBITDA, Net Margin, RoCE, Revenue growth year-on-year, quarterly financial history, etc.
When you know the fundamentals well, you can assess the value correctly. Ultimately, you end up shunning stocks that don’t hold water.
Try this. It works!
Diversification & Rebalance
You might have heard this oft-repeated quote “Don’t keep all your eggs in the same basket”. But have you followed it in your investing?
Favourites exist everywhere, and more so in investing. You may have placed large bets in a single sector. Or your portfolio may contain stocks of a few companies.
It’s time to wake up & smell the coffee. You may be too optimistic about the company or the sector. But putting all your money into that increases your risk beyond the threshold. You need to diversify the portfolio like Damani. He never invests more that 1% in stocks of a single company.
Additionally, he remembers to rebalance his portfolio regularly. It’s good to sit tight on your investments. But when the alarm buzzes, you need to take the call.
Develop your judgment
Judging people might not be a good thing, but judging stocks is. Equity investing is all about judging the market and developing a perspective. If you don’t have an opinion, then you can’t succeed. Damani is adept at judging the behaviour of stock prices. He is a patient listener. He attends to the advice of everyone but acts according to his judgment and instinct.
You can’t judge the markets from the very first day. Even he didn’t. It will take some time to understand how things work. But sooner or later the winner’s one having a viewpoint of his own.
Investing in equities is your journey. You are your master, and you set the rules. You frame your goals and decide the time horizon. Damani may inspire you to some extent, but the battle need not be fought alone. Mymoneysage will always be there for your hand-holding.