We bring to you his 5 guru mantras Raamdeo Agarwal Interview:
Raamdeo Agrawal, Joint MD, Motilal Oswal Financial Services in an interview with CNBC-TV18.
Be choosy in what to buy
Stock picking was easy sometime back but after the recent rally finding stocks at the right prices has become tougher. “When the Nifty was trading at 7,000-8,000 levels, the job of picking stocks was easier,” said Agrawal. Now, investors have to be more careful in what to buy at what price.
“Most of the investors now know what to buy but that may not be available at your price. Finding good things at a reasonable price is the biggest challenge in this market which makes the job even tougher,” he said. Finding big idea has become difficult.
Construction boom is coming, timing is key
Raamdeo said he is not into real estate stocks right now but trend seekers should always be on a lookout for sectors which could outperform. For example, the construction boom is imminent, but timing remains a key. Underlying stocks can surge very quickly whenever that happens. If investors pick stocks from depression stage, the returns are usually exotic.
Don’t be carried away with averages
The market might be trading at 22x, but there is hardly any company which might be trading at a P/E of 22x. Averages have one fundamental quality that the distribution of the population is presumed that 50 percent on one side while the rest on the other side (normal distribution).
In a stock market, when you are saying that it has done 18 percent where 4000 companies are listed, it is assumed that 2000 companies would have done below 18 percent while the rest 2000 companies would have done above 18 percent. But, the world is not so simple.
Markets are skewed which means that 10 percent would do 80 percent of market performance and the rest 20 percent will share the rest. Out of 4000 companies, only 400 companies would contribute about 70-80 percent to the market cap growth and the rest will share the average. While operating in the market, don’t be carried away with averages, explains Agrawal.
Select winning companies:
Agrawal emphasised on the fact that investors should not be concerned about companies which are not in their portfolio. Instead, they should handpick, let’s say, 20 companies which can be called as winning stocks.
To explain the concept from the book he just read, he took the example of Dow Jones Industrial Average between the period of 1976-1982, Dow moved in a narrow range but Warren Buffett’s portfolio grew by 6 times.
“It means that even if the market is down by 5-10 percent, it is the job of active manager’s job to put money in those stocks which can grow irrespective of how markets perform,” said Agrawal.
Pick stocks for the long term:
Agrawal said when we buy stocks we buy for the long haul. “None of these companies (Avenue Supermart, RBL Bank) were created for 2-3 quarters and prices are not such that it can’t grow,” he said.
If the valuations are high then prospective returns in the short term will go down in companies which are expensive. But, it will be attractive in long term such as 10-15 years, he said.
Agrawal further added that we try and pick stocks with reasonable valuations so that out short term return is reasonable and is very attractive on a 3-5-10 year’s basis. Hence, we buy stocks with 10-15 years horizon.