Focus On Buying Bargains And Buy Things That Are Out Of Favour

In the realm of the stock market, there have been numerous folks who have come and disappeared within a few years. However, there are a few gems who have stood the test of time and have made a dent in the universe of the stock market.

Shri Ramesh S. Damani, Member Bombay Stock Exchange is one such rare jewel who has been in the markets for over two decades. In a conversation with Soumya Malani, he shared his incredible journey and laid out his investment philosophy.

- Soumya Malani

Where do you think the current bull market stands? What do you suggest should be one’s strategy at this juncture?

There are three phases of the bull market. Phase one is the initial uptake in the markets. Phase two is the longest and perhaps the slowest phase in a bull market. Phase three is almost always a vertical rise in the markets where majority of retail participant jump in and a huge amount of euphoria is witnessed. In phase three it is typical to find the extreme discrepancy between price and value. My sense is that we are in the phase two. Ideal strategy should be to stick to the basics, which is to find and invest in good businesses at a reasonable valuation and hold it. Also one of the crucial lessons that I’ve learnt is never to try and time the market but rather time in the market. Only at rare extremes (too much pessimism or too much optimism) one might be able to time the market, but otherwise it is very difficult and foolhardy to time the market.

Charlie Munger talks about the mental model of Inversion and emphasizes on the significance of avoiding stupidity rather than being intelligent. How vital do you feel it is to first learn to avoid inferior business than focusing on finding great business?

I always tell young analysts or fresh market participants that their job should be to try and double their money every three years. So to find a stock which can double in three years, the first question one must ask is that ‘is this business going to be around three years from now and will it be better off than it is today?’ That question will itself weed out a lot of bad business as you might not have a clue about the sustainability of several businesses. This is a good way to narrow down the pool of business to study. In life also if you know what you don’t want and what to avoid, things become relatively easier.