Rakesh Jhunjhunwala at India Investment Show 2007

Well known investor, Rakesh Jhunjhunwala, speaking at `The Nadkarni Lecture`, in India Investment Show 2007, organized by myiris.com, in association with ICICI Direct, said that his decision to remain more than 100% invested in Indian equity, against a background of unprecedented growth prospects for the India economy, and the vast under-exposure to stocks of various investor classes, was the key determinant to his success.

Speaking about his investment approach, Jhunjhunwala said his investment goal is to earn absolute returns, that factor in inflation and risk-adjusted post-tax returns, as against relative returns. According to him, the five elements constituting good investments are: efficient asset allocation, correct stock selection, exit horizon, disciplined leveraging and consistent review.

Jhunjhunwala illustrated the importance of asset allocation with the example of an investor, who bought gold in 1970, bought Nikkei stock in 1981, and then bought Nasdaq stock in 1991, raking in returns in excess of 25% per annum, compounded for three decades.

Jhunjhunwala said that while selecting stock, he looks at the business model, understands the reasons and circumstances that will give rise to profits rather than forecasting profits. He gave the example of Praj Industries, which identified opportunities in the ethanol space early, indicating a future growth in value, making it a profitable investment.

It is not only enough to make a good investment, but also crucial to exit the investment at the favorable time and price, he added.

Jhunjhunwala said he believes in the magic of emotionless and disciplined leveraging. While most large equity investors are averse to taking debt for investing, the truth is, leverage allows the investor to magnify the investments and earn meaningful returns.

Jhunjhunwala himself always ensures leverage only to the extent of his ability to service interest cost and principal repayment. He emphasized the need of consistent review to make necessary changes in the portfolio at appropriate time.

Amongst the attributes of the successful investor that Jhunjhunwala listed, are optimism, realism, avoidance of a herd mentality, assessment of risk, an open mind and understanding of the larger picture.

Via IRIS