‘Let’s start soon so that we can finish on time. We have a long night of partying ahead of us,’ Shrikant announced as everyone was finishing their lunch.
‘OK. We’ll rest just for an hour and then meet at the lobby at 3 pm. Is that fine with everyone?’ Mihir asked.
Everyone was fine with it and headed to their room to get some rest.
The six friends - Shrikant, Mihir, Satjeet, Jimmy, Mazahir, and Siddharth – had come for a week-long retreat to Goa. They were all into investing and had been friends since their B-school days. It was their annual tradition to spend a week at a beach resort in Goa relaxing and discussing investment ideas.
This year, their theme was ‘Super Investors’ and they had decided the each one of them would study one leading Indian investor covered in the book ‘Masterclass with Super Investors’ by Vishal Mittal and Saurabh Basrar.
As decided, they met again at 3 pm in the lobby and proceeded to the lawn nearby. There they sat in a circle on the fresh grass and drew lots for who would go first. Satjeet’s name came up.
‘Great. I am going to speak about the insights that we can glean from Ramesh Damani, one of the well-knows faces of the investing community in India.’
‘Sure Satjeet, Why should we study him?’ asked Shrikant.
‘He has doubled his money every three years over 30 years, across bull and bear markets, by picking several great companies at cheap valuations and on the cusp of big structural changes.’
‘Wow, that’s quite an achievement!’ Shrikant replied.
‘Yes. His philosophy is that the stock market can help us become long-term wealthy and enjoy financial freedom. His complete net worth is directly linked to equity. He says that as investors, we should aim to double our money every three years. If we can do that over 20-30 years, we will he rich.’
‘That’s an excellent goal to have,’ everyone agreed.
‘You mentioned that he has made some great stock picks. Can you give us some examples?’ Mazahir was interested in getting some specifics.
‘Of course,’ Satjeet continued, ‘Ramesh had worked as a systems analyst in the US before moving back to India in 1988-89 and starting his own firm. The 1990s saw the tech boom and he rode the trend as technology was in his circle of competence.
In the 1990s, he invested in Infosys which was a 500-bagger for him (i.e. every Rs 1 lakh invested became Rs 5 crore) and CMC which was a 40-bagger before it got acquired by TCS.’
‘It was a lucky strike for Ramesh that he was bullish on tech, he came from a tech background and understood the space which was his edge, and the bull market was also in tech. He hit pay dirt,’ Jimmy told him.
‘But he didn’t stop there,’ Satjeet answered, ‘He exited the market before the crash in 2000. And post that, he kept a large part of his portfolio in cash. He didn’t want to buy stocks just because they were cheap. Instead he wanted to buy new themes and new ideas. He decided he would not be scared and would bet on great businesses at cheap business-level valuations.
‘You are building up the suspense now. Which stocks did he invest in?’ Jimmy was anxious to know more.
‘In 2003-2004, he bought stocks of PSU companies like Bharat Electronics (BEL) and Bharat Earth Moving Equipment (BEML) which were backed by strong assets, a large order book, and high dividend yield which could be slow compounders over time. He held them till 2008 and exited them before the crash.
Both Bharat Electronics and Bharat Earth Moving Equipment turned out to be a 100-baggers for him.
He also invested in ITC and Sundaram Finance.’
‘Wow, so it wasn’t just luck. He made some really great calls,’ everyone agreed.
‘What investments did he make after 2008?’ Mihir asked.
‘Well, in the last decade, Ramesh bought Media stocks like TV Today, Sun TV, and Zee Entertainment as he saw a big growth in advertisement spends. He bought TV Today when it had a market cap of only 300 crore and it became a 8-bagger for him.
He also bought some companies in the Logistics space given the increasing adoption of eCommerce in India.
And in the construction sector, he bought NBCC which was available at Rs 1300 crore market cap, with Rs 600 crore cash and some advances. It became a 20-bagger for him.
He believes that Cyber Security is a big opportunity and has invested in Quick Heal Technologies.
‘Great. We have covered his success stories. Did he have some duds in his portfolio too?’ asked Siddharth.
‘Of course. Even the great investors have them. He lost 80% of his investment in MTNL and says that the company has been a graveyard for many value investors like him.’
‘And what about key stocks he has missed?’ asked Shrikant
‘Again, every great investor misses out on some opportunities. Ramesh missed out on multi-baggers like HDFC Bank, Bajaj Finance, Lupin, and Titan.’
‘OK, we’ve got a good overview of his stock picks. Let’s discuss his investment style,’ Siddharth suggested and everyone agreed.
‘Sure. Ramesh mentions that he has two halves:
One who looks for stocks that can go up 10-50-100x.
And the other who, after encashing some of the chips, looks to put it in safer stocks that will compound.
He has been successful in finding business franchises over periods of time. He prefers technology companies and consumer franchises but is not limited to them.
Ramesh doesn't use leverage, short stocks, do F&O, or invest in commodities and cyclical stocks.’
‘But what differentiates Ramesh from the other investors?’ continued Siddharth.
‘There are three characteristics
1. He can navigate both Bull and Bear markets. He has an innate ability to look for bargains, especially at bottom of bear market. And he also has the ability to find the top of a bull market.
2. He looks for underlying value in his circle of competence. He doesn't care about portfolio construction vs benchmarks. He only wants to find good stocks that are cheap.
3. He gets excited when a bear market is ending, and a new bull market is commencing. That's when people are disbelieving, and bargains are great. His particular strength is to find under Rs 5000 crore market cap companies at bargain prices, often when management themselves are shaken about the prospects of the business.
‘That’s impressive. Most investors can’t navigate a bull or bear market, forget about both. Let’s try and understand his investment process,’ said Mazahir.
‘Ramesh is a voracious reader.He filters certain ideas, forms a working hypothesis, and finds companies that fit that working hypothesis. He doesn’t use screens.
His criterion is an enormous value versus the market cap of the company. He focuses on how cheap the company is in relation to the size of the opportunity or where it could be after 10 years. He is not even concerned about current earnings.
Ramesh bets on great businesses at cheap business-level valuations. He starts with the market cap or Enterprise Value (EV) of the company. Then he evaluates if as a businessman, he is willing to buy the whole business at that market cap or EV considering the runway for growth. He might be willing to overlook and tolerate some issues if he thinks they can be fixed.’
‘It’s interesting that he does not particularly care regarding the P/E ratios of businesses while most investors focus on the that,’ said Mazahir.
‘Yes, he believes it leads to short-term thinking. And he holds stocks for the long-term,’ Satjeet replied.
‘What else can we learn about his investment process?’ asked Jimmy…