Book Review

Published: Dec 29, 2021
Updated: Dec 29, 2021

A-Z of investment strategy

Is it possible for an unknown little scrip to become a money-spinner for a small investor who stayed invested in it for a period of years? The answer would be an emphatic ‘yes’, provided the investor identified the scrip at the right time and began steadily investing and accumulating his holding. And this is precisely what happened to the small investor in Kerala, who soon came to be called a billionaire in local circles as he began investing in an unknown small garment exporting firm, Kitex Garments, in the state. Till 2009, the firm was totally unheard of and he, persuaded by friends, started buying the scrip with its price at just Rs 4-6 in lots of 100s and 500s. Soon, his holdings reached the then permissible level of 15%. Luckily for him, the authorities increased the maximum level of individual holdings to 25% and he continued the buying spree and soon reached 24%. All through, the share price was on its upward journey. In April 2014, when the company’s results were announced – with a doubling of net profit – several brokerage firms and big investors flocked to Kerala to know more about the company and started buying heavily! The share price, which was hovering around Rs 50-60 at that time, soon galloped to Rs 100, then to Rs 500 and later to Rs 1,000, all in the course of a year! The investor did not require to invest in any other equities for the rest of his life as he had made a huge fortune in a short span of 5 years or so!

Some such gripping stories and very useful, practical suggestions for different investors in the stock market are outlined in the book under review. As may be seen from the title, the author, T.S. Anantharaman, an investment advisor and former chairman of CSB (Catholic Syrian Bank), having spent his life in the stock market, has vividly brought out his experiences. Having founded a brokerage firm, Peninsular Capital Markets (now merged with Motilal Oswal Financial Services) and earlier being closely associated with the Cochin Stock Exchange as Vice-President, and also as board member of NSE, he has brought to bear his rich knowledge of the markets in the book. In some 24 short chapters and a dozen annexures, the author has covered the entire range of the stock market and discussed all important issues of investment in equities and mutual funds threadbare — both gains and pitfalls – and has pointed out how, despite the occasional scams, equity investment could still be the preferred one for all types of investors. What is more appealing is his concise way of presentation in very simple terms of even difficult topics. By having uniformly short chapters, just 4-5 pages each, the reader is sure to take an instant liking as it enables quick reading. The annexures are also not merely a presentation of charts and figures, but cover, among others, the regulator’s (SEBI’s) role, the amazing story of Reliance Industries, the first Indian company to enter the Rs 10 trillion market cap club, and the roller-coaster journey of the Sensex from just 100 in 1979 to 41,000 in December 2019. Considered the country’s economic barometer, the Sensex can be taken, as Ashish Chauhan, BSE’s CEO puts it, as the ‘first real-time index of India’. …..”If you look at the chart of the Sensex since the beginning, you will be able to see that when India smiles, the Sensex smiles and when India cries, the Sensex cries too.”

INHERENT RISK

According to the author, despite many success stories, by and large the average investing clan remains sceptical about investment in equities and the stock market. For even now, just some 40 million out of a population of over 1.3 billion, or a little over 3%, form the investing public. He attributes this poor ratio to two main factors—ignorance or non-awareness and ill-advised approaches of investors. While the ignorance factor is being taken care of by the BSE and the NSE through the print and electronic media, Anantharaman has attempted to highlight for the aspiring investor the great potential of the stock market and guide him to invest wisely to avoid pitfalls. He has echoed the views of the average investor, who has both lost and gained in the market, and says “it is a dangerous place.” Much of the losses in the market also occur owing to excessive fear and greed. They enter and exit from the market at the wrong time, with the result that they end up buying at very high levels and selling at lower prices.

He points out that buying equities definitely involves some risk as all other investments and the risk-taking factor of the investor play a dominant role. While it is difficult to time the market for both entry and exit — one should not attempt it — but definitely one can plan one’s finances in such a manner that it would not necessitate exiting at the wrong time owing to a sudden and unexpected misfortune or other compelling factors. As a prudent investor, one should set apart funds for meeting emergency needs and only the spare sums should be earmarked for investments.

PATIENCE IS KEY

Again, the author adds that only companies showing consistently above-average growth rates over an extended period should be considered. Titan Industries is one company that has readily adapted to change and has earned a place in the minds of good investors. Starting off as a watch company and having failed to make much headway, Titan soon diversified into jewellery when it saw the sector with no clear leader, and entered the field through Tanishq. Incidentally, Titan has become one of the biggest multibagger stories and a key holder of the scrip is the legendary Rakesh Jhunjhunwala. As for buying at the right price, his advice is to be patient and wait for a market crash. Markets are not always rational when they crash, and often recover soon. Individual companies also crash for no reason. Markets tanked when Prime Minister Modi announced demonetization, but everyone knew they would recover and in a few months’ time the recovery came about. Such are the ‘buying opportunities’ which one has to literally grab to succeed.

One other thing to remember is ‘holding the scrip to its full potential rise’. Often, investors hurriedly exit by booking profits before the scrip has risen to its peak. As Basant Maheshwari, a successful investor, said, “Sitting on profits is a lot tougher than sitting on losses, as investors are insecure about their profits.” This habit precludes the possibility of multibagger returns. One should book profits at the right time, which is no doubt the most difficult thing to do. When the valuation of a scrip increases sharply, then perhaps it does not make sense to hold on to the scrip any longer, but often, owing to greed, one holds on, hoping for a further rise. Taking the Kitex Garments case again, this scrip reached dizzy heights in 2015, over Rs 1000, while the turnover was only Rs 500 crore and the market cap had crossed Rs.5000 crore! The scrip had literally crossed all limits of sanity! Soon, it crashed and is now just Rs 100 plus! Even Warren Buffett, the biggest proponent of holding shares for the long term, books profits when he considers it prudent.

TIMING IS ALL

He adds that a common mistake is to book profits in winning stocks at the wrong time and holding to the ones that are in losses, hoping that they will turn the corner. If a scrip was a poor choice, one should exit at the earliest, cutting the losses. On the other hand, if the stock is actually good, it should be kept till it reaches its full potential. Again, avoid sentiment while investing and remember that one is investing in shares to make profits and create wealth. Also, never blindly imitate others — sometimes they cause serious harm if the ‘expert’ advice goes wrong. He quotes Warren Buffett who says, “If you buy things you don’t need, you will soon sell things you need.” If a person has a portfolio of some 10 scrips, one or two are likely to be losers and 2 or 3 big winners. The strategy should be to get rid of the losers after examining their potential and hold on to the winners. In other words, cut one’s losses and run with the winners.

His chapter on Warren Buffett’s “Lessons in wealth creation” is essentially ‘pearls of wisdom’ for all investors. Time is of the essence for wealth creation, “no matter how great the talent, or effort, some things take time” and wealth creation is one of them. Buffett invested some $11 million in the ‘Washington Post’ company way back in 1973 and holds it to this day. Its present worth runs into billions of dollars! By providing additional reading material for interested readers and a financial terminology at the end, the author has done a splendid job of ‘providing a simple and comprehensive guide’ for investment in the stock markets. The book should be a must read for all investors as it can be read and re-read regularly.

— V. Raghuraman