Key Learnings from Masterclass with Super-investors- Ramesh Damani

Ramesh Damani

One of the well-known faces of the investing community in India. He has played a vital role in popularizing equity culture in India and has been one of the veteran investors. He first became a broker in the Bombay stock exchange and then a successful investor and he picked great businesses at cheap valuations and on the cusp of big structural change.

Key learnings from a masterclass with super-investor Ramesh Damani are as follows:

Understanding Market 

• spend a lot of time understanding what bull markets are, what bear markets are, understanding where India is going and where it was and what it was. And look for what is going to be the leader and take India out of its current problems.

Circle of competence

• Connecting investing life with your academic/professional background and finding the company that suits your knowledge with Good corporate governance and a professional team could increase your confidence and help you understand the importance of a circle of competence. For example, In the case of Ramesh Damani who had a technological background bought- Infosys and CMC as their first investment.

Comfortable v/s uncomfortable dilemma

• When you have a great idea, you need to back up the truck and buy. It is difficult to do so because you are scared and there is self-doubt but great ideas are very rare and if you feel you have one, you should perhaps back up the truck and buy.   
• You want to be comfortable, and the market gives you money when you are uncomfortable. 

Generating Ideas

• Read a lot as when you would read, certain ideas would filter down, and based on that a hypothesis would form.
• How cheap is the company in relation to the size of the opportunity or where it could be after 10 years?

Stock Picking 

• If the company is undervalued and the risk reward is in your favor.
• Bet on great businesses at cheap business-level valuations.

Allocation

• The initial position should be much bigger than what it normally is, especially when your portfolio allows it.
• Instead of waiting for the stock to go up and doubling multiple times, one should be adding a bit more aggressively. This is a characteristic of smart investors.

Investment process

• Tracking about two-dozen companies on an ongoing basis and analyzing a dozen companies in a year in a more threadbare fashion.
• Buying a basic business- if the industry does well, they will do well.
• If it is a small company then tracking it more frequently.

Selling and thought process behind it

• Selling when the market is getting overvalued and not when it has gotten overvalued. Never try to catch the peak as no one knows what is peak.
• The thought process behind it was when bull markets were over, leaders are squashed completely and new markets would have new leaders. 
• Even if you love the stocks but the kind of windfall that the market gives is extreme and once the stocks peak and are on the down run, it kept going. Hence, you have to sell. 
• Once you fall in love with your stocks, it is hard to sell because the day you sell, the price goes up and you end up feeling like a fool. Hence selling in part helps.

Handling corrections in the market

• You don't sell it just because it doubled or tripled. you sell it when it has no further scope of scalability and growth.
• The difference between fundamentalists and price-action-oriented investors is the fundamentalist will understand what he/she has bought has deep value and even if the stock has tripled, it doesn't mean that the value has vanished.

Portfolio construction, position-sizing, and managing risk

• Buying leadership stock and at a cheap price.
• Regarding position resizing- when a bull market is over then trim position or when you don't understand the valuation anymore.
• There are many path to nirvana, if they are able to double their money broadly every three years then they are on the right path.
• Thinking like a part-owner is the key to managing risk. Once you do that, you don't get rattled. And sell it when you see a bear market coming.

Do meeting companies help?

• Yes, meeting companies help as it can tell more about management and how they are thinking.
• You don't have to buy whatever the management says, you have to check if their talk is credible or not.
• Look at their past records and check whether they have delivered or not. Also, check how they speak during bear markets and bull markets and also check if the peers are talking in a similar fashion.

Analyzing the company when it is highly regulated and there are question marks on corporate governance

• Part of stock market investing is that you think beyond. In the case of  Mcdowell's, it was available at a very cheap market cap compared to the global alcohol and tobacco industry. And at such a cheap rate, there is only upside and the only risk is the opportunity cost. With India accepting alcohol and even if the industry is heavily regulated, you would earn profits.
• With regard to corporate governance's question mark, if you see management's interest aligning with your interest then you are good to go even if there are some issues going on.

Evaluating management

• Whether or not they are hungry and passionate about building their business. 
• If they are interested in stock price or interested in the company's growth.
• Must have substantial skin in the game.
• Must think like a shareholder.
• Go back 10-15 years and check what they have done.
• Business is full of uncertainty and checks if they are trying to tempers the uncertainty.

Indicators

• At the top of the bull market, news headlines will be very positive but despite the good news, the market will go down which means smart money is anticipating bad times. 
• When there is a bear market going on and every news is negative news but despite the negativity, individual stocks start running. Here you have to see individual stocks and not necessarily the aggregate.
• Also, one should check public sentiments- the principle is when the public gets smart, the smart get out.
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Life Learnings

• When you measure yourself- you don't measure yourself by whether you are rich or comfortable, but you measure yourself by how much you could have done and how much you did.
• Have the integrity of independent thought cause you cannot piggyback on someone else's thought.
• The stock market is not a place to get rich quick overnight- one in a million nights do it. 
• You don’t need a 180 IQ in the stock market, it is fine to have an IQ of 110-120. People try to be super smart and stumble along the way. The market values integrity,  intellectual independence, and patience.