Learnings from the renowned investor Mr. Ramesh Damani
Mr.Ramesh Damani is one of the well known faces of the investing community in India. He has helped popularize equity culture in the country through his popular TV show Wizards of Dalal Street and various talks in India’s Business and undergraduate schools. A very successful investor who is known for investing in good businesses at reasonable valuations, is also the Chairman of Avenue Supermarts Ltd ( Dmart). Mr. Damani is a very humble person and helps students regularly. I am fortunate to have spoken to him and receive his guidance on my investment journey. I attended his insightful online session on “ Wealth & Wisdom for Generation Z” which is a part of the Financial Literacy Course by Flames University.
WEALTH & WISDOM FOR GENERATION Z
The session talks about how a student should plan for financial freedom so that in the next 30 years he is financially free. We need to plan and take charge of our life now, so that we can do what we want to do in the later part of our life and need not worry about our finances. “ Money making is simple but never easy” quoted by Mr.Warren Buffett. So let’s explore a few concepts adopted by Mr. Ramesh Damani in his successful career.
- 18.92% CAGR
We can double our investments every 4 years at a compounded annual growth rate (CAGR) of 18.92% and that should be our aim . Historically it is observed that the BSE Sensex has been growing with dividends at a CAGR of 17% in the last 40 years.
Assume that we have invested Rs 10 Lakhs, this doubles every 4 years and at the end of 40 years this amount will grow to Rs 100 Crore with the power of compounding. To illustrate this concept look at the figures below.
So in 40 years we are doubling our money 10 times and the effect of compounding can be seen in last 20 years where a miniscule Rs 3.2 Cr magnifies to Rs 102.4 Cr
2. Margin of Safety ( MOS )
These are the 3 most important words in the world of investing. Actually this is an engineering concept but it is also applicable in the field of finance. While designing a bridge, an engineer will take into account extreme load factors so that the bridge will not collapse under any circumstances. Similarly an investor’s utmost priority should be capital protection under all circumstances and there should be enough margin of safety to protect his capital.
Markets swing like a pendulum from extreme pessimism to optimism and vice versa. An investor, who is investing in good businesses when the stock prices are trading below their intrinsic values during extreme pessimism will have enough margin of safety.
3. Circle of Competence ( COC )
“Behind every stock is a company. Find out what it is doing” said Peter Lynch. So invest in only those companies whose business you understand or have a circle of competence.
For Example : During my internship at a Hotel and while researching the sector by interacting with industry experts, reading books and annual reports I was trying to develop a circle of competence in the sector. So as per Mr. Ramesh Damani’s advice I should invest only in my circle of competence and not venture into anything unknown.
4. Merge the two concepts MOS & COC with Compounding
When we combine the above two concepts with the compounding effect ,it will give us financial freedom for the rest of our lives. The trick is to find great companies which will multiply our investments at 18–19 percent a year or double them every 4 years.
Investing is like test cricket and not like a T-20 match. In a T20 match the player has the compulsion to hit a 4 or a 6 to improve the run rate in just 20 overs. Whereas in a test match the batsman will wait for the right ball. For Example : Cricketer Rahul Dravid also known as The Wall, arguably the best test batsman, used to wait for the right ball and the right time to hit boundaries.
Similarly the market throws a ball at us everyday, so as a prudent investor we have to choose whether to play it or leave it . In the market we have to be patient and wait for that brilliant idea to come our way at a reasonable price. Time and again when markets throw opportunities at us and we grab it confidently we tend to make a lot more money compared to people who tend to wait out. During the Covid19 meltdown the BSE Sensex was 25,000 and now it is 60,000 so the market with its own wisdom gives astute stock investors a great bargain with enough margin of safety in their own circle of competency.
Words of wisdom for generation Z
Mr. Damani recommends to read books of different genres, adopt an interdisciplinary approach and compound your knowledge multifold. His favourite quote is :
Some of the blogs and books recommended by Mr. Damani :
- One up wall street by Peter Lynch
- The making of an American Capitalist : Roger Lowenstein
- Poor Charlie’s Almanack by Charlie Munger
- Blog : www.longform.org and www.browser.com
