Rakesh Jhunjhunwala has invested in a company. Should I invest in it too? He is one of the most successful investors we have in the country.
“If Jhunjhunwala has invested, then the company must be having a lot of potential. It will surely give become a multibagger, right?”
The company might go on to become a ‘multibagger’ but you will sell it long before it gives excellent returns. Chances are, you might sell it for a loss too.
Copying successful investors is one of the biggest mistakes that new investors make.
Remember this – It is impossible to get rich by copying other investors. If it were possible, there would be many Rakesh Jhunjhunwalas or Radhakishan Damanis. The fact that there are so few, itself proves you cannot copy them and become a successful investor.
Even their closest relatives will find it impossible to emulate their success.
There are several reasons. We will discuss each point in detail. Make sure you read this article till the end, especially if you are new to the stock market.
Big Investors also make mistakes
Do you know Rakesh Jhunjhunwala had invested a large sum of money in DHFL and the investment has gone to zero?
He is invested in a company called ‘Mandhana Retail Ventures’ – the share price of which has fallen from more than ₹ 200 to ₹ 18 at the time of writing this article. And we are in a roaring bull market currently when most stocks have risen 2 to 3 times from lows.
A quick look at his portfolio will tell you – many of his investments fail.
Which brings me to the next point…
Their biggest winner is usually their biggest holding
Everyone wants to know which company Jhunjhunwala has invested in. But very few understand that nearly 50% of his net worth is in one company – Titan.
How many want to buy Titan? Very few.
“The price is high. Jhunjhunwala must have bought Titan for a very low price, we are more interested in the new companies he invests in”
This is the thought process of most new investors.
But did you know Jhunjhunwala has been averaging up in Titan? He did not buy all his shares at once. He bought some, added more as the fundamentals of the company improved.
We find it difficult to hold stocks which are showing 50-100% gains – the need to book some profit arises – but he has been holding Titan even after it has gone up more than 100 times.
Loss does not affect them
Probably the most important point. Again, something most people do not understand.
If Jhunjhunwala invests 50 crore in a company – it might seem like a big investment to you, but for him it is nothing.
His net worth is 20,000 crore. What is 50 crore for a man who has 20,000 crore?
Let us remove the ‘crore’ part. You have 20,000 rupees. Out of that you invest 10,000 in Titan. You buy a few other shares and are left with 50 rupees. You invest it in a penny stock. That ₹ 50 investment goes to zero. Would it affect you?
You wouldn’t care. The same with Jhunjhunwala. Wh en he invests 50 crore, it is 0.25% of his portfolio.
High risk, High return
Back in 2018, Jhunjhunwala invested ₹ 180 crore in Nazara Technologies. The company was listed in the stock market this year.
The currently value of his investment is ₹ 572 crore.
When the investment goes right, it looks great. But Jhunjhunwala himself has said half of his investments in unlisted companies are failures.
Speaking at the India Economic Conclave 2021, he said that he had made about 20 private equity investments (in unlisted companies). “Out of these, 10 are duds – they are written off. Five of them gave moderate returns, and the remaining five have done beautifully” he said.
In short, the risk is high. When it works, the returns can be huge too. But there is a 50% chance of the investment going to zero.
And even if most of his investments go to zero, it won’t affect him. That’s because 50% of his net worth is in a well-established company like Titan.
His risk investments are those investments which he can afford to lose. That’s the biggest takeaway from this article.
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