ARE YOU A COW IN A HERD - FOLLOWING DIRECTIONLESS?

By Ruma Dubey

Yesterday, the market tumbled down over 300 points but one stock, shined bright throughout – Aptech. No change in its fundamentals – the company ended Q1FY17 with a consolidated net profit of Rs.46 lakh, a fall of 84% (YoY). What really moved the stock price to a new 52-week high was the news that Rakesh Jhunjhunwala bought 7,00,000 shares of the company at an average price of Rs 91.62 per share. He already held a 45.28% stake and yesterday, he added another 1.38% more.

Stock price of CRISIL, Lupin, Titan, Dewan Housing, Geometric, Rallis India, Federal Bank – all move to tune of Jhunjhunwala as he and his family owns more than Rs.100 crore worth of shares in each of these companies. He holds stake in Indian Hotels, Suzlon, Dish TV, Muthoot Finance, Unitech, MCX, Edelweiss, Prakash Inds, Orient Cement, Polaris, McNally Bharat amongst others. On the other hand, he reduced stake in A2Z Maintenance, Titan, Lupin, Karur Vysya and sold his entire 8.45% stake in Praj Industries.

Whatever he touches, the stock price zooms up and investor frenzy whips up. Many call him the “Warren Buffett” of Indian markets. There is no doubt that he is a discerning and extremely intelligent investor, having built up an enviable net worth and because almost all his investments have turned into goldmines, people feel that, that would rub-off onto them too if they buy the same stocks. But then is it right to follow him, buy what he buys?

There is no doubt that he buys stocks after a lot of research; it is rarely an impulsive buy as he puts huge amounts of money. But remember, he gets the shares before we even know about it and by the time, the bulk deal is announced, the price is high, leaving very little for us on the table.

Also we may have given him the stature of demi-gods of the market but he is human, prone to mistakes. Take the case of A2Z Maintenance, no renamed as A2Z Infra Engineering. This company, when it went for an IPO, the only attraction, where people blindly invested was the fact that Rakesh Jhunjhunwala had invested in the company. He held 21.03% stake pre IPO, and was an investor in the company since 2006 but he was amongst the group of investors who sold part of their holding when the firm floated its public issue. He had earlier made around 2 times on his part exit. In Oct’12, he had resigned from the board but he now holds no stake in the company. It’s a different story that the stock is today quoted at Rs.38 levels while the IPO was made at Rs.400/share. And what about Radico Khaitan? Jhunjhunwala bought some 6.85 lakh shares in Jan’14 when the price was high at Rs.167/share. Today, the stock is at Rs.89.

What this means is that when these big guys buy, just on the momentum, the price rises but it is not that the price rise is always sustained just because they have a stake. Thus as a trader you could probably make some “news based” money but buying for long term just because they have a stake, makes no sense at all.

What we have to learn here is that like every individual is different, his investment needs and strategies should also necessarily be different. What works for Jhunjhunwala need not work for you. He is like a lion on the prowl in the jungle; when he moves, the entire jungle knows but can a monkey eat the lion’s hunt; it is only the hyena or the vulture, both scavengers who eat the leftovers after the lion has eaten. Is it a good idea to be a scavenger? Best to be a hunter but one can take lessons from the best. The basic purpose, to eat, is the same but methods and requirements are different. That’s the same logic when it comes to following these legends or Warren Buffett. You can take lessons from the king of the investing jungle but it defeats his teachings if you only follow him blindly.

Remember, Jhunjhunwala made millions by staying invested for a long term. He is not a day trader. And that is probably something we all should follow him blindly for. Invest wisely using your own mind and intellect and maybe, you could emerge as the new Jhunjhunwala, Damani or even the Buffett of India.