Ramesh Damani on success and regrets

Nov 24, 2023

When Ramesh Damani enters a discussion, you can be sure that it would be a heady cocktail of vibrancy and passion.

There are a lot of individuals who are voracious readers backed with decades of market experience, just like him, but his ability to articulate an idea and his clarity of thought is exceptional.

I have seen him moderate panels and interview young investors on television, and I always wanted to interview him. Can you imagine my glee when he obliged?

This is part of a series where I attempt to understand the behavioural traits and mindset of money managers and investors. At the end of this (slightly edited) transcript, I have listed the 20 individuals interviewed for this series.

Investor RAMESH DAMANI is a legend in the Indian equity market and a member of the Bombay Stock Exchange.

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You have been through numerous cycles, bull markets bear markets, high inflation-high interest rates, low interest rates-low inflation, the pandemic, the GFC. How has your relationship with risk and your understanding of risk evolved over all this time?

Something's always happening. Today could be the Israel-Gaza conflict. Yesterday was Ukraine. Before that, the Global Financial Crisis. There's always something demanding attention in the market.

Investors need to strip the difference between what we call risk and volatility. Volatility is what happens when all these particular events take place - interest rates rise, the Dow Jones falls, war breaks out and oil prices spike. Risk is permanent loss of capital.

In India, because it's a growing economy and the markets have been doing so well over the last 30 years, we are a very volatile market but not a very risky market. In fact, the risk in India is not owning stocks; of being out of stocks in cash.

You have to approach stock market investing from the view of a test match, not a T20 game. In a T20 game, you are trying to hit every ball and try to get the scoreboard moving. Whereas investing is like a game of test cricket, you keep watching the pitch.

Everyday the market will throw you Reliance at 2500, ITC at 400, Lever at 2200. You don’t have to do anything. You just watch and keep waiting till the market throws you a softball and you hit it out of the park for six.

That's what good investing is about. Trying to find great value when the odds are in your favour. If done wisely, you're not going to permanently lose capital. The market will go up and down, but volatility is what you deal with and make your friend.

Tell me about your relationship with loss, because certainly there would have been bets that went wrong. Or opportunities missed. Either way, you lose out. So how do you cope with loss?

The loss of missing out has been more painful to me.

Warren Buffett taught us many years ago that you must invest in your circle of competence; whatever you're comfortable with. Maybe I'm comfortable with software stocks or FMCG or construction. That really doesn't matter. But you should get one part of the equation right - when a stock in your circle of competence comes to a level that you should be buying.

I missed Bajaj Finance, a company in my own backyard, in its first run up. The stock went on to become one of the best performing financial stocks in India. There's no excuse for me missing it. The ignorance of the opportunity cost me a lot of money. I think that is always more painful. As they say, the fish that got away, are the ones that bother me.

In a fund or an asset management firm, someone will point out your mistake. Because I run my own money, no one knows the mistakes I make. Only I do. So I have to be self critical and self introspective.

So if you work for yourself, how do you make sure that you're not getting lost in the echo chamber of your mind?

It's very simple. The market will give you a reality check. Much like a baby will signal if he's wet or hungry by crying. So the parents can check on the baby. The market signals via price action daily. In the short run, the markets are a popularity machine, but in the long run they are weighing machine. So we look at markets not in one-day or one-week or one-month intervals, but look at performance in yearly intervals. We try and find the reason for that under performance. Is it because the markets are ignoring a good idea or because the performance has been suboptimal in various places?

Over time, the market will signal to you if you're right or wrong. Part of being a good investor is knowing when to put money on the table and to stand by your convictions, and when to realize that you have to get out of the market.

What gives you sleepless nights? Since you manage your own money, it could be very stressful.

Oh, that's simple. Actually, it's my wife's cooking.

Just joking!!!

When I buy a new investment, I always worry whether it's right or wrong, whether it will work or not, whether my thought process was accurate or not. I don't have the self confidence to have implicit belief that only my stock pick is right and the rest of the market is wrong.

In the recent bull market, we turned very bullish towards public sector stocks. They were the most hated stocks. But we saw great value, clean order books, low multiples, good dividend yields. So we bet accordingly on these stocks. After some non performance for few months, they really start performing. So during the time when they don't perform, there is a lot of angst as to whether it will perform or not, whether you're right or wrong, and you wait for the market to kind of reward that conclusion at some time. Till that performance sets in, you tend to have a few sleepless nights.

And about my wife I am joking.

Is there something you believed as a newbie investor that you no longer believe in anymore?

I'll share a quote from my favourite guru Warren Buffett.

Time in the market and the wonder of compounding interest can make an average stock picker brilliant, and transform a family of modest means to wealthy in the course of a single generation.

When I was young, I thought the market is a good place to make money, but you couldn’t really get rich in that. After having lived in the market for 30 years, I realize how small acorns grow into mighty oak trees by investing wisely. I tell everyone that it doesn't matter if you have ₹10,000 or ₹50,000 or ₹2 lakh, just start. The younger you start, the higher the  probability that will be richer at the end of 30 years period.

Any amount of money, if you manage to double it every 3 years, you will end up with 1,000 times the amount you started. It was hard to believe it, but until you go through it, you don't believe it.

Is there any investment that you bought, and then felt very insecure about?

Lots of them. I've gotten lots of stuff wrong.

But here's the beauty of good investing. Because we are patient and managed to hold on for long periods of time, we tend to typically make gains of stocks up to 10x, 20x, 30x. Whereas if you're wrong, you can only lose 100% of your money. So on the positive side, I make 20x in some stock, and on the negative side, I lost maybe 60%, 70% of my money. So if you do the math, it works out pretty good.

You are going to get things wrong in the market, your analysis will be wrong, management will be wrong, conditions will change, but you should not bet so much money that puts you in financial peril.

So you buy businesses that will also keep businesses. You want to keep a winner, maybe go up 2x, 5x, 10x, 40x after that. When I bought my first grade stock, Infosys, its market cap was ₹30 crore in 1993. Today it is ₹6 lakh crore. Now you tell me, at what price should I have sold it?

Keep your winners and hope that you don’t have too many losers.

What is a personality trait that will hold an investor in good stead?

I've had the good fortune to meet some of the best investors in the world in India and overseas.

The investors that I respect the most are basically lone rangers. They think for themselves. They run astonishing amounts of portfolio money - $100 million dollars, $200 million, sometimes a lot more than that, just by themselves. They don't have a research department. It's all figured out in their head. They don't try to nickel-and-dime the cash flow to the next 2-digit number over the next three quarters.

They are very passionate about markets. They enjoy this business so much. So passion is very important. If you think of it as a job, you probably not would be good at it. If you think of it as the love of your life, you probably will be very good at it.

It also helps to have intellectual curiosity. How the world works. How things are valued.

The intellectual integrity that you bring to an idea. You bear the consequences, whether loss or profit. And you're willing to stand by what you said.

I think these things make for a very good investor.

And what is the red flag? That says you're setting yourself up for failure.

If they try to chase the crowd.

A lot of investors will come up with a particular style. And then, because that style is not performing, will move on to other styles, and then get stuck at both ends of the trade. So not being true to yourself is a red flag.

Markets evolve over time, and styles change. But the basic principles of don’t change. Buy with a margin of safety. Buy a good quality business. Buy a good management. These won't change, because then there won't be principles. You might sort of approach it or attack it from a different vantage point.

You once said that one should read at least 6 to 8 hours a day. Why? And what sort of books do you recommend?

The raw material of this business is reading. My wife calls me a book with two legs, because I read so much. I used to read a lot more when I was younger. With age, my capacity to read has dimmed down. It's very important to read. Reading opens up whole new worlds to you.Good newspapers, books, philosophy, psychology, biography on a sports star, investment greats… any number of things.

Munger expressed it best. You don't necessarily read today to get smart tomorrow. The knowledge that you read today compounds over long periods of time and comes back to you in 10-20 years as wisdom. That's what is required in the market. When you see a great opportunity, you will not hesitate. You'll put your money on the table and bet on that opportunity.

If you don't read, you have no advantage over anyone who can't read.

Would you consider yourself to be a successful investor?

I would.

In a market like India, growing about 16-17%, you get 2% as dividend. To double your money every 3 years, you need 20-23% compounded over a long period of time. If you are able to do that, you are pretty successful.

Have there been people more successful than me? Of course. I would like to imitate them, but I have my own set of limitations. The standard test for myself is if I have doubled my portfolio value every 3 years. If I've done that, I think I would have done a pretty good job and avoided the sleepless nights.

How much of a role has luck played?

We are all winners of the demographic lottery; born in the right place at the right time.

My father was a product to the stock market, from the late 1950s to 1975. The market was going nowhere. Dalal Street was a backwater. There was the Dividend Control Act. Stocks didn't go up.

I came to India at the right time.

I'd like to think that I've been skilful in picking stocks, but that would be the wrong conclusion to come to. I've been lucky.

I've been a product of India's great growth opportunity and been able to participate along with that. I haven't been able to maximize the opportunity. But we've had fun along the way, and we've enjoyed it, and we financially prospered. So I've been very lucky. I've been in the right place at the right time.

Why do you say you did not maximize the opportunity?

People who came to the market in the 80s and 90s realized what a great opportunity there was ahead of them. Say the opportunity was to make a thousand, and you end up making 200. That is still a lot in absolute terms. But it's not 1,000.

In sports you want to go for the Olympic gold. In movies, the Oscar winning performance. The person in the market who does the best is the one the maximum zeros in the bank account. Clearly, I haven't been able to do that. A lot of my contemporary peers have been able to do it so hats up to them. It is only a matter of inspiration. If you can be self critical, maybe someone else will learn from it, and realize that you have to test yourself against the best. You can't be happy by saying I've done well, I'm financially free, I live well, I can buy what I want...

You have to say: Did I do the best in the circumstances provided? So that is a regret.

But you are a success undoubtedly.

Well, I have two grandkids whom I love very much. I love playing with them. A shoutout to Veer and Aarna. Measure my life by the amount of fun that I have with my grandchildren, and of course I am happy.

Individuals interviewed by Larissa Fernand for this series:

  1. Prashant Jain
  2. Sankaran Naren
  3. Nilesh Shah
  4. Vetri Subramaniam
  5. Anand Radhakrishnan
  6. Devina Mehra
  7. Saurabh Mukherjea
  8. Raunak Onkar
  9. Samir Arora
  10. Kenneth Andrade
  11. Rajeev Thakkar
  12. Aswath Damodaran
  13. Ian Cassel
  14. Vishal Khandelwal
  15. Sanjay Bakshi
  16. Ramesh Damani
  17. Jim Rogers
  18. Ben Carlson
  19. Mohnish Pabrai
  20. Christine Benz
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