BQ Edge | Ramesh Damani’s Regret: Why I’m Not A Billionaire

Ramesh Damani is among the most-successful Indian investors, but he too has a regret.

“Given that the index has surged 40 times and some of my peers have become billionaires, why am I not a billionaire?” Damani asked, referring to returns by India’s benchmark index in a little less than three decades. He was speaking on the Mumbai edition of BQ Edge, BloombergQuint’s on-ground initiative.

“If one is in the equity markets, one has to compare himself with the best and the opportunity size,” Damani, a veteran investor, said. “The reason why some great investors became billionaires is because when an opportunity presented itself, they bought large chunks, and maybe I couldn’t do it as well,” he said. When an investor has a great idea, Damani said one has “to back up the truck”.

After all, a trader or an investor comes to equity markets not for social service, not for nation building—but to make money, he said. “That’s how the capitalist system works.”

Which explains the great rush to find a great stock, he said, because it helps people make money. The richest people in the world are rich not because they built great business alone, but because they owned common stock, he said. “Not the ownership of real estate or of diamond mines, but ownership of large chunks of equity.”

One aspect that plays a vital role in an investor’s success is the mentors he or she chooses, said Damani, invoking the names like Warren Buffett and Charlie Munger. He considers himself lucky to have known some of India’s best-known investors including Radhakishan Damani, Nemish Shah and Rakesh Jhunjhunwala.

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But investing has unintended consequences as stocks at times do well and at times don’t, according to Damani. A reason why the key to success is to understand it’s very difficult to get rich quickly, he said. “It’s almost easy to get rich slowly. And even if someone were to double his money in three months, he won’t beat me in the long run, because the weight of history is on my side.”

What he was referring to is the power of compounding. A portfolio that compounds at 22-23 percent yearly would double every three years, he said. “That will certainly make an investor very rich.”

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The Dalal Street veteran, however, admitted that large falls still rattle him, but 30 years of experience has taught him to handle it better. He uses such events as an opportunity to question his hypothesis.

But an investor first needs to develop an “investment philosophy”. Once that is in pace, he or she can continue making bets without getting bogged down by the noise, he said. “It’s a liberating feeling.”

Watch the full video here

For more on Damani’s rushes, regrets and reminisces, read on…

Would there be any bigger rush even for a veteran like you for finding great stocks to invest?

That makes us money and that’s why we came to Dalal Street and that is the only reason we come to stock market. It is not for social service or nation building. We come to make money and that’s how the capitalist system works. I came to market in 1989 and I started the business. The Sensex that time was 600-700 and it is closer to 36,000 today. So, it has been a stupendous journey. When I came India was well established third world country. My friends called me crazy that I came to India at that time from America, but my father saw a boom coming in India. So, he asked me to come back as the opportunity is here today and he is right. More importantly, after 30 years they are now coming to India. Their kids are realising the of emerging markets franchise. I was lucky as I am was in the right place at the right time. We all love our country and we all are patriotic. We all want India not to be a third world country. It is going to become the third largest economy in world. We want to have place under the sun. We want to have pride for being Indians when we travel. Over the last 30 years, we may not see on day to day basis. We can see technology, pharma industry transforming India’s place in world. We are no longer looked upon as snake charmers or rice bowl beggars. But actually, people have good technological and pharmaceutical skills. We will continue to have progress with democracy that we have done over last 70 years after independence. The next 30 years promised to be greater rush than last 30 years.

What gives you a bigger kick? Is it the money that you make in a particular stock even if that was not your best idea but something that you had half conviction in or seeing the stock which you had great conviction top up the charts even though your own personal investment may or may not be as large as you would have ideally wanted it? What’s the bigger rush?

It is something which all of us toy with. There is law of unintended consequences. You find the stocks which you were very scared of have performed the best and one the ones where you have put money on table, and it didn’t perform so well. It is always like a mixed blessing and you don’t know. I look as my portfolio as an aggregate. I want to see my portfolio compounding 22-23 percent a year. That is the goal. If it does 22-23 percent, then it is doubling the money every three years which my rush is. I try to distance myself from highs and lows of individual stocks. Sometimes my best ideas won’t work out which is very frustrating to me. I try to move my portfolio at CAGR of 22-23 percent on an aggregate. Once you manage to achieve it then you are in a fantastic place. If you can double your money every three years, then there is no secret of success I can give all of you.

You are saying that in your 30 years even if your money doesn’t double in one year while you see people around you and there stock ideas doing it, if your portfolio is moving at 20-25 percent then over a period of 15-20 years, you will end up being satisfied for sure?

Here is the key to success in stock market. It is very difficult to get rich quickly and it is almost easy to get rich slowly. The trick to it is compounding. You move your money to 22-23 percent regularly. I don’t care if someone has doubled the money in three months, he is not going to beat me because the weight of history is on my side.

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The next rush was building a career in stocks. Can you elaborate on your career?

You want to look back with professional satisfaction. Money is good but it is also measured by the intellectual output that we bought. Like I managed to pick PSU stocks in 2000-era. So, it is an imprint on investing audience at large. Like this guy came from PSU or technology or FMCG call. It is rushed to be an intellectual leader. A lot of this has been said by Buffett and these things don’t change. Buffet said that if philosophy changes then it is not philosophy. The philosophy of buying at margin of safety, buying , great companies is always going to be there as long as stock market exist. I happen to meet great investors. I will tell you how lucky I was. I came in 1989 and landed up with greatest investors in India of over half a century who were Nimesh Shah, Durgesh Shah, Rakesh Jhunjhunwala and RK Damani. Imagine you were in America and you landed in Omaha, Nebraska and you met Warren Buffet the next day and you will think everyone is good investor. I was lucky to happen to meet those people. That time BSE where physical ring and we used to exchange ideas. Only with passage of time we realised that the veracity and the courage and conviction which helped me. I happened to land in good crowd. Buffet says that it is important to choose your mentors wisely. Lot of people have peddled lot of things in stock market like get things which are popular, buy it because I am buying it. What is sign of top of a market is that when small people start lasting large shadows. When people having no particular business In stock market become popular-fed by the media, speaking about portfolio and bragging about returns. That is when the market is possibly topping out. For me the rush was how blessed I was that I got to learn from masters. People which I mentioned will go on in history as some of the finest investors not in India but globally because of sheer accomplishment and picking of stocks over 30-50-year period.

Lot of people might disregard the developing of a philosophy. Why is it big rush for you? What is being your investing philosophy? Has it changed or developed?

It has changed, and I became sharper in understanding how markets, income generation and business works. It is apt 30 years from now. I can impart it to my son and then to his son. So, philosophy continues as long as we have capital system, there will always be boom and buzz. We are not scared of monsoons at it will soon get over and then there will be winter. From stock market it teaches that I should buy my raincoats right now as it will be costlier in monsoon season. Such as monsoon follows seasonal pattern, so does the stock market. It is nature of capital system. In every boom, there is seed of buzz and vice-a-versa. January and 3-4 months were the toughest even I faced it toughest in my 30-year career. In 2008 everyone felt bearish, but I had foreseen it and managed to sell lot of equity. I did not foresee the bizarre fall which took place in January-February. But you know that after every winter, there will be spring. It is true of seasons and stock markets also.It is very important keep that in mind. Great business will find way to create . Good stocks compound over a long period of time. Once you develop that philosophy it liberates you. You get so much noise in stock market which but it liberates you. If my son or other person understands this philosophy, it changes their life. now you know that you want to become rich and this is the path which Warren Buffet, Charlie Munger, Peter Lynch has shown us. How many of you know the richest guys in world? Bezos is richest, Buffett is at number 3. All of them become rich because they had common equity and held common stocks. Jeff Bezos has 30 percent of Amazon, Larry Page of Google, the guy who owned Zara, Bernard Arnault from LVMH. Equity stocks have made people rich and not ownership of real estate or diamond mine. It is about equity and how of it had made them rich. Once you understand that holding big blocks of stocks will make you rich that’s the rush to find great companies and hold stocks for long period of time. Businesses don’t get built in a day. They take time to compound and built . You will find a business which grow 15-18 percent then you are way ahead of the game than most people.

When companies which you had a high conviction but due to some temporary measures or otherwise tend to fall, does it make you smile inwardly that market is mispricing it but I am not worried because I know after this winter there will be summer and take advantage of winter if you had capacity in your portfolio.

That is harder said than done. It is a tough thing. I would like to move to zen-like state, but I am not there yet. I do get rattle when stocks fall 30-40 percent. It seems like that in January the market picked out for me for my punishments. All my favorite stocks were falling 20 percent. Every single day one stock was down by 20 percent. That happens in markets are in last stages of a fall. It takes even strongest believers to doubt. Over 30 years, I have become better. I don’t rattle that easily though I keep questioning my hypothesis.

You mentioned that you are being a witness to history. Could you please tell us about it?

I came when India was a third-world country. Today, it’s stock is the third largest economy in world. Lawrence Summers who was US treasury secretary and he says that if India could go at double digit rates, it will double the size of economy every 10 years. So, in 40 years period which was roughly my career span, the economy will grow 16 times. It is not enough to grow at 7-8 percent. We need to grow at 10 percent. We are going from a smaller base and we need to grow at 10 percent. If we grow at 10 percent for next 20 years, the economy can grow to 4 times. We are at $2 trillion economy and become a $8 trillion economy. You will see the opportunity flow it up. Insurance, cars, travels, education and the kind of opportunities the investors could have when you have economy growing at 4 times. There is no correlation between economy growing and stock market. But it does have an opportunity set for investors. Not only that we also saw great companies we bought. Infosys was listed, Reliance was listed a bit early. Imagine Indian company belonging to the Fortune 50. HDFC has drawn a 100-billion-dollar market cap based on their ADR price. It is extra ordinary thing for us as we are not used to it. The 60s market cap where the GM was 3 times the size of Indian stock market. So, we have come a long way. we watched history being taken place in this country. We are moving towards right and free market and competition. We are seeing some great investors happened and we have seen some great companies. I think we have greater sense of pride on ourselves as Indians whether we celebrate Indian movies, music. It is no longer clones of Hollywood movies. There is diversity in opinion in this country which happens only with self-confidence.

You said that you don’t back up the truck when buying. Have you been able to change that behavior or is it extremely difficult thing to do?

When you look at career, you look at what worked and didn’t work. We picked some stocks. The question is given the fact that the index has gone up 40x as you have been in stock market and given the fact that lot of peers have become billionaires then why aren’t you a billionaire. When you are in profession you will always compare yourself to the best and the opportunities. The opportunity size for my generation was to be a billionaire because Rakesh Jhunjhunwala, RK Damani, Nimesh Shah made it. and they all started with capital-scarce environment. It is not that they started when they were rich. They started with few more money. Great idea is very rare. It comes typically at end of bear market or beginning of bull market. These guys had the conviction and ability to back up the truck and buy the share. Rakesh bought 14 percent of Titan. RK Damani bought a percentage of HDFC bank. So, that ability distinguishes from average investor and great investor. The ability to back the truck and buy in huge quantity when you feel convinced about the stocks. We have picked some great stocks. A lot of stocks have become 50-100 baggers over last 20-25 years. So, why I don’t become billionaire? Because I didn’t back up the truck and buy it. you bought 10,000-15,000 shares. Great idea is rare. So, if you do have a great idea you owe it to yourself to do it. It takes unique combination of characteristics to do it. I need to manage lot of courage, conviction and cash at the same time. I was interested in stability and did not want to rock the boat. My friends had that ability to make risk and not worry about the consequences. My urge to youngsters is that there is a quality of greatness in your life. this business the quality of greatness is becoming a billionaire. That is how you are being measure and not by how good you are. In stock market it is measured according to zeros in your bank balance. If my peers have billionaire zero and I have millionaire zero. It is not that I envy those people. I don’t think they do anything different than I do. My urge is don’t feel short to yourself. The opportunity is limitless in this country and you have to start thinking big. Unless that happens, you never get big. So, that was one of my regrets.

How crucial is not making mistakes or cutting losses over a period of time?

People say you got lucky because you got Titan, Crisil and nothing else worked out. It is a wrong way of looking at it. Rakesh Jhunjunwala’ biggest position was in Titan and he held it through much ups and downs. The idea that you will hit every ball for a six is a stupid idea and might work for T20s but not in a game of investing. You will see many balls and try them. The one which you want to hit for a six, you will hit it the hardest. The genius of Rakesh Jhunjunwala was that he saw Titan, and he kept adding even as prices went up and his biggest position was in Titan, which became the best performing stock. That is not an accident, but a skill. It is easy to dismiss it. Overall portfolio basis, he has compounded at 30 percent over last 30 years or so. Let’s assume that someone has managed to save Rs 10 lakh and then wants to invest in the stock market. He has a 30-year career further in stock market or in life. If you double your money every three years, you will have 10 doubles in your life. Let’s do the math to understand compounding. So, from Rs 10 lakh he goes to Rs 100 crore. Suppose he starts with Rs 1 crore which can become Rs 1,000 crore. Rs 100 crore is global wealth even today. You can go to Silicon Valley and be a rich guy. So, that is the opportunity which is available in India. The index has gone up. The Sensex has compounded 16-17 percent. There are so many companies in India which have delivered very good returns over a long period of time. So, the trick is to try and focus on your portfolio to double every three years. Start on a small basis and it is easy to do because the Indian market gives you that kind of an opportunity. Once the base becomes higher, it is pretty hard to do. It is simple but not easy. It requires huge passion, commitment to your profession to what you are doing. It gets increasingly hard as to get Rs 10-50 crores and keep doubling every three years. The last time we got lucky, it was tax-free. You don’t have to sell. Find a business which you can keep for 10-20 years. Until you sell, you don’t owe any taxes to the government. So, focus on finding those great businesses.

You said that one regret is lack of a second act in life. Is it that there is a stock which drives you and there is nothing else meaningful?

You want life that is well lived. Bill Gates builds the greatest technology company in the world, throws the keys and goes on the greatest philanthropy known. That is a second act. Al Gore lost being president by a few thousand votes in Florida. He received the Nobel Prize for his global warming documentary, and he built a second life for himself. I always wanted to do that. You need to be defined by something greater than yourself or the pursuit of money. When you are 30, you need to have ambition and have to make money as it is very dear to a young person’s heart to establish themselves. But you need to have a second act. I am struggling to find that second act. That is one of my regrets. I have a few ideas, but I have not able to implement them, yet.

Do you think they should start early to find second act?

It is difficult. Firstly, you are so focused on being financially free and you don’t want the second act in life. By the time you become sixty, and when you have achieved that financial freedom, then you will realize that there is a second act in life that you need. If you want to consider living a good life, then you need to do it. I have a passion for teaching children or for health issues. I need to find something in that area. My real estate is running out and I need to do that in a hurry.

Charlie Munger said that aging is great. You say it is not that great.

Someone asked Warren Buffet that how can they became as rich as he. Warren said that he could give a lot of money to be young but won’t give up the experience he has had over 30-40 years because it is this experience that can help him make that money back. I will give the money but give me the youth. I wish I was young again, but I want my equity knowledge. I can trade money of what I have right now. I am excited about the next 30 years’ global experience. You regret that you will not live around long enough to see all that happening. Steve Jobs said that death is a great change agent in life. It is great that we die, and a new generation takes over. Sometimes you are caught in great human experiment and you want to see what happens.

Aside from compounding, something which stood out for you in memory. Was it the personal experiences or would investing related knowledge and sharing which happen when you talk about this bring great reminiscence?

Some people have impacted me tremendously and I am blessed to know them. RK Damani, who is the founder of DMart, and I am on the board. People often confuse us. I got to know him for the last 30 years. It is an extraordinary career which you need to understand. Ask anyone from stock market from 70s and 80s that who was the greatest speculator in India. They will name RK Damani. He will smell a bear and bull market and tell you within a day, not even a month. He was the greatest speculator and investors of our generation. He picked stocks like HDFC banks when it was at Rs 40. He picked Nestle when it was at Rs 300. In 2000, he gives all this up and becomes an entrepreneur. He starts DMart, which is d at Rs 1 lakh crore in the market. He has three acts of great speculator, investor and entrepreneur. We all think Steve Jobs did great as he reinvented computers, publishing, iPhones. And here in India we have someone doing that. It is truly a gift of my life to absorb the energy and see the outperformance over a timeframe. A part of the reason why he is successful is because he is a great listener. In a conversation of 10 people, he will be the only one not talking. Lot of people like here are understated. They will never give a profile in press. They are open to ideas, though. When I came to the market, RK Damani was already a legend and so well known in Dalal Street. He could share the ideas with everyone. I asked him that how he could share ideas with everyone in the stock market where people hoard information and they don’t share it. He said that the stock market is like a river running down. If I pick up four buckets of water, then it doesn’t mean that there is less water in the river. If we both pick up two buckets, we will both prosper simultaneously. That comes from a great deal of intellectual self-confidence. Lot of these people are free to share their ideas. It created a web of comfort with each other. In the last 30-40 years, the market has gone through various phases. There was a group in the 1992 scam which came, flourished and went away. In 2000, the same thing happened. So, lot of people have come and gone from the market. But this group (RK Damani) has prospered through 30 years and become wealthier. They have seen this the web of trust between the players. They believe that the market is supreme. They don’t believe they create the market. Lot of people think that they will buy the shares, prices will go up and then will supply the shares to LIC or UTI and make money. That’s a perverted thinking to have. After 30 years of being with Damani and the likes, I have realised that they are perennially bullish on India. That never waivers. They feel very strongly that they have become successful because the opportunities in India afforded them, and not because they were skillful. They believed that they were lucky because they were at the right place at right time. They point it to Shree Cement. Why does it have a great market cap? Because it has a great entrepreneur. For example, Azim Premji, the House of Tatas. These guys with ethics and with a belief in markets and businesses and they built great businesses. We were lucky to invest along with these people. They will say that they are not smart but lucky and were at right place at right time and no matter what happens, they are bullish on India. Those three basic insights propel them to where they are today. My role is to be witness to history and explain history. These are people who have set the boundaries, shown the philosophy, guided us. I have been a great beneficiary. My job is to explain the history to the next generation. These are the names which count, and the rest have come and gone. It takes some doing who will leave an edge in the market.

You said that patience is difficult. What do you have to say?

Irrespective of your method, at the end of every three years, you have to double your money and if you have done it then you are on the right track. I believe that buying great companies is the easiest way to double your money in three years. If you want to get rich, you need to find a method to double your money every three years. First investment is to invest in yourself. Be the best in your field and the extra money comes from the stock market. Only after you have invested in yourself then invest in stock market. If you are young avoid buying depreciating assets by appreciating assets as impact your life overtime. Measure it every three years. It liberated me. You take Rs 10 lakh which becomes Rs 100 crore in 30 years then you are the richest in the world. Look at stock opportunities we have had in India. Ar Opportunities are greater in the next 30 years. Opportunities which we will see in next 30 years will be dwarfed by the opportunities in the last 30 years.

Is it tougher to invest now than it was in the last 30 years?

I don’t believe that. The market size is bigger now. On a busy day at BSE in 1992, we did $100 million worth of volume. We now do $100 billion dollars in two minutes now when the market opens. So, the opportunity size is bigger. You need to look at different places. 10 years ago, Google, Alibaba didn’t exist. The greatest stock in last 10 years was Amazon. So, opportunities are even more present, and they will be more present in the next 10-20 years. We will go through cyclical corrections. To make money in any era is difficult. I am not sure from where the next opportunities will come from. So, take advantage of opportunities.

Does money creation come with a natural instinct?

Perhaps. I am still struggling to do it. You are dealing with uncertainty. It is reputational slap. Also, you are losing part of your wealth. Jhunjunwala and Damani have natural characteristics of risk-taking ability and fearlessness, which perhaps I don’t.

How do you decide to move out if a company is not performing well?

Opportunity cost is always there. You will always make money on your own best ideas. If you are convinced about a particular stock, you need to hold it unless your hypothesis is violated. I bought United Spirits at Rs 40 apiece and for two years it did nothing before it went up 50 times. My hypothesis was that I was buying 50 percent of India’s liquor market for Rs 200 crore. I used to think that if I bought 1 percent of United Spirits, out of every 100 bottles sold, one was mine. You think like you are running a business. I think that a particular conundrum is difficult, but we have to find a way.

What are the other things which you do in your personal life have made you a good investor?

Two qualities which is I read a lot, and it is good for my business. So, one thing to become a better investor is to read and read a wide variety of sources. Secondly, there are two websites—one is called ‘thebrowser.com’ and ‘longform.org’. These website curate the best ideas and put it out there. It expands your reading dramatically. The other quality is serendipity. Before I came to the stock market, I was a system analyst. I used to write computer code in America. I came with computer code background with great bull market going on in cement and I didn’t know anything about cement, and everybody was making money except me. At that time Infosys, Wipro started going public and I understood those businesses. So, I connected the dots and saw an opportunity here in tech. So, if you are a doctor, you fill find great pharma stocks. So, your life experiences will connect at some point in the stock market. You just have to believe it will connect.

Can you elaborate on Damani being a great speculator and an investor?

It is like writing with both the hands. He has done it. His brain is wired to do both and not mix things. It is difficult but he can. He will do according to the rules of the game. He will not tolerate a losing position in a speculative market. He will be very patient in an investing in market. These are two extraordinary skill sets combined in one person, but that is a gift of god. It is like a black swan which occurs once in a while.

Can you highlight on portfolio strategy?

I try to buy more stocks than run a constant portfolio. My goal is to double my money every three years. There is a great benchmark that you are young. You can follow any strategy. You double your net asset every three years and continue doing it. If you feel more comfortable with concentration, follow that strategy. But, is it getting you closer to your goal of financial liberation in 30 years’ time?

If we want to invest for longer term then what is your idea of the future?

What is the only thing that an audience in the next couple of years will want to watch live in the future? So, sports and sports people like to watch cricket. And in cricket, IPL is watched more. That’s the theme.