‘Skin in the game’: the monetary journey of Ravi Dharamshi9 min read
How did your inventory investing journey start?
I hail from a household that has been related to fairness markets for over 4 many years. My dad began off as a sub-broker within the late Seventies. He labored his means up out there and have become a dealer, and we made sufficient cash to put aside some capital for investing. The bulk of my investing information has come from my dad. He was very eager that I study concerning the inventory market and he used to debate with me, no matter he did or didn’t do, and why. While I used to be hooked on to the markets, I by no means took it as a severe profession choice till I went to the US for my administration diploma (2000-2002). At that point, I learn all of the Berkshire Hathaway newsletters and the funding classics and that’s once I realized that I needed to be within the fairness market.
When I went to US, the Dotcom growth was nonetheless on, and everyone needed to do one thing with know-how. I did a diploma in superior computing however someplace alongside, I knew that I didn’t wish to do coding all my life. So, I switched to the sector of finance.
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ValueQuest’s PMS methods.
Did you make any cash in the course of the Dotcom growth years?
No, I didn’t take part in both the Dotcom growth or the bust. At that time of time, I used to be simply understanding what was occurring round me. I kept away from investing whereas I used to be learning. This turned out to be a boon as a result of once I returned to India in 2002, we had probably the greatest bull markets for the subsequent 5 years.
Take us by way of your skilled investing journey.
So, once I got here again from the US, I began working for Rakesh (Jhunjhunwala). I spent a superb 4 years with him till 2007, and people had been the very best years within the inventory market. And it was a whole lot of studying for me. Lots of people say it’s good should you begin within the markets with a loss in order that classes are properly ingrained. But I got here in at a time the place there was some huge cash to be made. This boosted my confidence.
Also, over time, we (my dad and my brothers) had realized that broking was not a enterprise the place your pursuits are aligned with that of your purchasers. And we might moderately give attention to investments. So, we stopped our lively broking enterprise round 2000.
Post 2007, I joined my brother who was operating a analysis agency, ValueQuest. My colleague and faculty mate, Sameer Shah, joined me then and we debated on what we must always do going ahead as we already had a prepared base of purchasers who needed us to handle their cash. My dad was of the opinion that if we lose shopper cash, we’ll lose out on relationships. But I felt that if we needed to transfer up in life, we must institutionalize and never stay particular person traders. So that’s how we determined to transform the analysis agency right into a portfolio administration service (PMS) in 2009 . We obtained our PMS licence in 2010 and began managing shopper cash.
You began out by working for Rakesh Jhunjhunwala. Did that make you very bullish and a giant risk-taker?
Absolutely. The greatest takeaway from working with Rakesh was that if you see a chance and also you see that the chance reward is in your favour, then you shouldn’t maintain again. And that capacity to wager massive and maintain on, may be very tough. It’s not like I’ve not paid my charges out there. But should you begin on a unfavourable word, then you find yourself having a much more conservative strategy typically in life.
Any fascinating cases that you simply recount from the time spent working for Jhunjhunwala?
There are many. I’ll let you know one. We had been all working (researching) for him and when he made any funding, he would come and ask us “doobenge toh nahi na?” (We won’t sink, no?) And you really didn’t know what to say because he was asking us if we had made a mistake. That was just his way of figuring out other people’s thoughts. One thing that I learnt under him was to not utter a word unless you were sure because he was a very, very hard taskmaster.
What’s your current asset mix?
I come from a school of thought that we cannot be invested in any other asset class other than equities. So, I have zero allocation to other assets. I do own a home and some land, some of which I inherited. But from an investment point of view, I am 100% into equities. Within equity, listed would be 80% and unlisted would be 20%, in terms of today’s value.
What are some of your largest private equity investments?
So, one of my earliest private equity investments was a company called Concord Biotech, where Rakesh Ji had also invested. I used to track pharma for him and I was involved in evaluating the company. I could see that the entrepreneur was really good with skills in a market that did not have too many players. The company is into fermentation-based APIs (active pharmaceutical ingredients). It’s a 16-year-old investment for me. Today, the company is close to doing an IPO. Second, is the National Stock Exchange (NSE), whose shares I bought in 2018. At that point of time, there were not too many opportunities in the listed market and this was the time when public sector banks were trying to clean up their books and whatever good assets that they had, they were selling off. It was very clear to me that NSE was being given away for a very, very cheap cost, but the banks really didn’t have a choice.
Where do you invest in the listed equity space?
We believe in having skin in the game. So, all my listed equity exposure is through VQ Platinum, the PMS for which I am the portfolio manager. So, my clients have the comfort that I’m also invested in the same scheme as them.
What’s your exposure to large, mid, and small cap stocks? Do you plan to change it?
We are market cap agnostic, however, the way our philosophy has been, we have ended up allocating more to mid-cap stocks, the definition of which has changed over time. This is how we look at it today—companies above ₹1 trillion are large caps, between ₹10,000 crore and ₹1 trillion are mid-caps and below ₹10,000 crore are small caps. So, 20% of my allocation would be to large-caps, 60% would be to mid-caps and 20% to small-caps.
It doesn’t matter how excited you are about a company, but if it is very small, then you cannot be allocating too much to it because there are some liquidity considerations. That’s why our allocation to small-caps remains below 20%. The area where you can take a large enough bet, and hope to earn more than 25% kind of return and still sleep peacefully at night is essentially the mid cap space.
Tell us about your first stock pick.
This was around 2002 when I joined Rakesh. I was researching two themes then. One was pharma, a sector that I was tracking. In 1995, India became signatory to the WTO, which basically meant that India had to abide by intellectual property rights. There was a window of 10 years during which we could still continue to reverse-engineer some of the drugs and sell them in the US. So, we saw that there was a huge opportunity for small companies in India to do this. The companies were all in the market cap range of ₹500 crore to a couple of ₹1,000 crore, while the market opportunity was in billions of dollars. So, CRAMS (contract research and manufacturing services) was the first theme I was bullish on. But at that time, I didn’t have much skill to identify the eventual winner so I made a basket of companies—Suven Pharmaceuticals, Sashun Pharmaceuticals, Matrix and Haikal—to invest in.
The second theme that I invested in was capex. The Indian government had announced a huge road infrastructure project, and we were on the cusp of a big capex cycle. Again, all these companies were available at less than ₹500 crore market capitalization, while the opportunity they faced was in thousands of crores. We invested in Elecon Engineering, Mc Nally Bharat Engineering Company, ESAB, and Mather and Platt Pumps. These were all trading at single-digit P/E (price to equity) multiples and their balance sheets were quite okay. They had a tremendous growth opportunity at that point.
What do you think have been the key drivers of your portfolio return?
I think what one needs is the right attitude and aptitude. You need to understand that the market is not a place where you come to make annual returns. One has to come with the attitude that you are creating wealth for yourself 10-20 years down the line, for your future generation. Then you have to stay allocated to equities to the extent possible and for as long as possible. And, stock selection does play a role, but that is probably secondary in terms of wealth creation. You might have picked the best stock but if you allocated only 1% of your entire net worth to it, then even if it turns out to be a 100-bagger, it’s going to have a much smaller impact.
But somebody like me who’s completely dedicated to equities market, can have 100% allocation to them. But if someone is depending on somebody else to do this, then they might not want to have such high allocation.
Any investment mistakes?
So, there’s a laundry list of mistakes. My favourite quote of Rakesh Ji is this – he used to tell us “make mistakes that are affordable. And don’t forget to learn from your mistakes.” The greatest mistake is to not study out of your mistake. Let’s say I’ve made 10% equal allocation to 10 shares and one among them goes to zero as a result of I made a flawed inventory selection. That’s high quality. All I would like is no less than two three shares to change into massive sufficient to compensate for that.
But it’s the errors of omission that don’t present up in your steadiness sheet. What hurts me most is that if there’s a chance that I wager on however didn’t wager on it massive sufficient or didn’t maintain on to it lengthy sufficient. For instance, Titan was clearly an organization that Rakesh had a big allocation to. But on the similar time, I didn’t have the identical conviction that he had, nor the identical degree of allocation and neither did I maintain on so long as he did.
Any inventory picks that didn’t do properly?
Oh, that listing is lengthy! I’ll identify one as a result of we truly made a loss in that firm, a considerable one. This was Cafe Coffee Day. The firm was vastly leveraged and there was a whole lot of leverage on the promoter degree additionally. We had been conscious of all this however we thought that the underlying asset was excellent, the intent of the promoter was to scrub up the books and are available out of the mess. But what we didn’t gauge was the extent of the issue and he most likely wasn’t mentally sturdy sufficient to get out of it. And we needed to take an enormous loss on it.
In phrases of our funding philosophy, earlier, among the winners that I wager on was once the most cost effective or the smallest corporations within the sector. But I’ve realized over time which might be normally transitionary wealth creators. So, we now have modified our philosophy to purchasing solely the leaders or the challengers in a specific sector, moderately than going for the smallest or the most cost effective firm within the sector.
Is your partner concerned within the household’s private finance choices?
My partner and I do talk about the general technique and the place we’re placing how a lot. She’s conscious of what she owns and what she doesn’t. I do maintain her within the loop however every day, she just isn’t concerned. She trusts my judgment on asset allocation.
Have you taken a vacation in latest instances?
I used to be in Dubai final week for an Investment Summit. But previous to that, I went for the India Pakistan T20. Cricket World Cup. And that turned out to be a incredible recreation. I’ve been to another matches too. I’ve been fortunate sufficient to witness MS Dhoni hit his final six within the 2011 World Cup that India gained. I’m a sports activities traveller, particularly a cricket traveller.
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