The Oracles Of Dalal Street

Most of the investment billionaires have used their capital effectively 

Each weekday morning at around 8.30 am, a few million people switch on their favourite business channel on TV to listen to investing advice about ‘hot’ stocks that could make them millionaires, perhaps billionaires. They become day traders or professional investors.  For many, the sexiest war stories are about the “cigar butt” style of investing: looking for great short-term investments, that like cigar butts have a few good puffs left, and after using them, putting them out-in other words, selling them.

But the more successful investors who have gone on to become billionaires purely through investing — the table (‘Bull’s Eye’ on page 54)  identifies a few in this country — are more likely to be like Charlie Munger, investor billionaire Warren Buffett’s lesser known partner in Berkshire Hathaway, the insurance company that they run. Buffett (and his style of investing) has gone on to become something of a cult leader: Munger jokingly referred to himself as ‘the assistant cult leader’.

The number one idea, according to Munger, is to view a stock as ownership of the business and assess its sustainability and competitive advantage. In fact, Munger actually believes that more people could do better in investing that they actually do if they followed common sense behaviour. As he puts it, his firm does not make money by calling swings. It’s by keeping their heads down, handling the headwinds and tailwinds as best as they can, and taking the result after a period of years.

In India, there are a few people who have become rupee billionaires by virtue of just being investors. Some of them follow the Warren Buffett school of thought; others have learnt to use their capital effectively. Yet others may have been fortunate to pick on one idea and stick with it over the years. There are also many who function beneath the public radar, and may have been doing it for years. What drives these people, and what inspires them?

A Rare Kind Of Investor
Try getting him during market trading hours, and chances are that you will fail, though he does get back after the closing bell. The most famous investor in India will be Rakesh Jhunjhunwala, who along with his wife Rekha, manages his investing firm RARE Enterprises. “The sheer passion for markets and the ability to do what I enjoy is what inspires me,” saya Jhunjhunwala. He has been asked to manage other people’s money, but prefers the freedom of not having to answer to anybody, and has thus turned all offers down.

Jhunjhunwala acknowledges having started off as a trader, but today is in the mould of Warren Buffett. The list of companies he identified as winners — they paid off richly — include Titan Industries, Praj Industries, Crisil, Karur Vysya Bank and Nagarjuna Construction, among others.

He is a regular on talk shows, given the respect he commands; ordinary investors follow his stock picks and take any advice hands out. 

Another famous name — the man is even more reclusive — is Nemish Shah, who along with brothers Manek and Vallabh Bhansali,  founded Enam Financial Services, a security and investment banking firm. Among Enam’s most famous launches was Infosys Technologies (another ‘multi-bagger’ was Sesa Goa) whose IPO they managed in the 1990s. The IPO was barely subscribed to, and went on to become one famous firm in the global markets.

Shah is very media shy, and prefers to stay out of the limelight completely. There are few, if any at all, of his pictures that have been widely published: very few people even know what he looks like. One of his partners called him the silent investor, because whatever he has to say is clearly not for public consumption. But this much is certain: he knows how to pick them.

Academics are unlikely investor billionaires, so Shivanand Mankekar is like an oddity (of course John Maynard Keynes made a tidy packet as a Wall Street investor himself). This  professor of financial management at the Jamnalal Bajaj Institute of Management Studies is on the investor billionaire list for some years now, first having surfaced in 2006. His early picks: Pantaloon Retail and India Infoline.

Starting Young
Author Michael Lewis (of Liar’s Poker fame), in his 2001 book Next: The Future Just Happened tells the story of a 12-year-old boy, Jonathan Lebed, who used his father’s credit card to begin trading US stocks on the Internet. At 14, he was investing the family’s savings, posting on bulletin boards and chat rooms for traders, and providing stock tips to investors.

He used the chat rooms and bulletin boards to move the prices of penny stocks that he owned, making several hundreds of thousands of dollars between September 1999 and February 2000. In 2001, the Securities and Exchange Commission (SEC) prosecuted the 16-year old, making him pay back $285,000 in profits and interest he made on a dozen trades in an out-of-court settlement. But they let him keep half a million dollars. He continues to trade actively, and even has a newsletter.

Nirmal Kotecha, one of those who market folk call an ‘operator’, is said to have begun his sojourn in the stockmarket at the tender age of 16. He worked the markets — he started trading at the Kochi Stock Exchange — through his college years. Now in his late 30s, Kotecha’s investments have made him crores of rupees and catapulted him to the list of rupee billionaires.

But like Lebed, Kotecha — who was fascinated with the late Harshad Mehta — was also investigated by the Securities and Exchange Board of India (Sebi) for his role in the Pyramid Saimira scam — he was accused of sending a fake letter purporting to be from Sebi asking the company to make an open offer to minority shareholders at roughly four times the prevailing market price. Kotecha continues to invest actively, and carry on his day trading activities.

Passive Versus Activist Investors
Apart from building their own wealth through their investments, do billionaire investors bring anything else to the table? Carl Icahn, one of the  most famous investors in the world, is famous for his investor activism, taking on company managements on issues of business strategy and corporate governance; in that sense, he also acts like institutional investors.

But in a market like India, the opportunity to take on that kind of role seems rather limited; promoters have a big say in corporate strategy and are loath to give up management control on those issues. As Jhunjhunwala puts it, he does not like interfering in a company’s affairs unless it’s a matter of corporate governance that demands his attention.

“I give my views if asked, but my investments are not contingent upon my being consulted,” he says. “After all, I make my investments based on the positioning of the company and the capabilities of the existing management.”

“Where investors like Jhunjhunwala can help is in identifying value in mid-cap stocks,” says Anurag Mehrotra, who heads the wealth management business at Quant Capital, a Mumbai-based securities broking firm. “They bring liquidity to these stocks and generate considerable investor interest.”

Take VIP Industries, for example. Jhunjhunwala, among others, has a large position in the stock of this company, whose stock price has risen from the 60s to Rs 370 now; remember, however, that this value has been discovered over a period of time, not overnight; long-term players like Jhunjhunwala help the growth in value of other smaller investors whose interests are also aligned with theirs.

Angelic Investors
It’s a role that these investors have grown into; in a number of cases, they may even sit on the boards of these companies as independent directors. However, this kind of role is restricted to mid and small-cap stocks; large-cap stocks, on the other hand, are more likely to be influenced by institutional investors.

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Unlike institutions, individuals are not subject to process in making investment decisions: large investors act very quickly when the opportunity presents itself in small and mid-cap stocks. “Everybody prefers stability in stocks’ liquidity, so these investors can dampen the volatility associated with large-ticket capital-raising,” says an anonymous investment banker.

As a corollary, big individual investors also list in unlisted companies, even if not at the start-up stage. Since the valuations of many of the companies are not part of the public record, we have not been able to quantify their value in rupee. “Even in these companies, my role is limited to strategic advice and financial matters, perhaps corporate governance as well,” Jhunjhunwala says. “ I am a transient partner, and the company is the entrepreneur’s dream.”

But the presence of large individual investors who have the ability to identify opportunities of considerable potential — like in the renewable energy space — can add considerably to the allure of investing in these firms to larger institutional players. While their process takes care of the due diligence aspect, the instinct of individual billionaire investors when it comes to ideas related to investments are important inputs in the decision-making.

Looking Beyond The Horizon
With their wealth, these investors are eminently capable of investing overseas; the Reserve Bank of India allows individuals to invest up to $200,000 a year in foreign securities. But that calls for an expansion of attention that goes beyond what they have now. They may need to institutionalise some of their operations, which could take away some freedom to operate.

Capital account convertibility is another implied roadblock, even though it will be some time before these investors — barring a few exceptions like Jhunjhunwala — will have the wherewithal to make and manage foreign investments. The premise of such investments could well fall into the zone of wealth management, rather than pure investment.

But unlike the entrepreneurs and industrialists of the new generation, can individual investors take the lead in developing a corporate philanthropy culture that is sorely needed in this country? Some would, but most are focused on building their investment portfolio to a large size to enable them to consider the proposition.

But it can also be misleading to use just the listed stock portfolio of the rupee billionaires as a yardstick of assessing how many there are, or even making an estimate of their total wealth. There are several of them who have invested through investment companies that they control, so their names as individuals will not appear on the companies’ roster of shareholders.

What lessons can wannabe investor billionaires take from the current lot? “I will restrict myself to just this: balance greed and fear when you make investing your full-time activity,” says Jhunjhunwala. Another suggested putting many of your eggs in one basket, and then watching that basket very carefully. Others, sadly, were not very forthcoming.

With inputs from Mahesh Nayak