'Conviction on your own investment philosophy is the key'

In the previous part of the story, we got to know about Raamdeo Agrawal's role models and inspirations. Let us now continue further.

Which have been your most rewarding investments? What have been some of your investing mistakes that later became the stepping stones for your success?
My best investment is, of course, Motilal Oswal itself. Apart from that, it depends on when we are talking about this. In 1991, I bought Vysya Bank at Rs 22. In the bull run that went on for the next two and half years, it became Rs 2,200. It became 100x but I didn't own a lot of shares. So, while the number of times it rose is probably the highest but the amount made is very little because the base was small. As the base is increasing, you are likely to make much bigger investments and returns as you go forward. There are a lot of good experiences of Infosys, Hero MotoCorp, Bharti Airtel and Eicher Motors, among others.

But what is important is learning from investment mistakes. One of the things that I have realised is that if the management is a crook, it is going to go down and you are also going to go down with it. This outcome is clear. Never back a crook. He would come out with a lot of attractive propositions. The crowd falls for it because the stock moves. And then people get stuck. So, avoid crooks at all costs. If by chance you have bought into such a company and you only come to know afterwards, then run immediately. The second learning would be not to invest in bad businesses. You can't always invest in the best businesses but don't buy bad businesses. So, a very bad business and very bad management, both are to be avoided.

Are there any financial parameters that are indicative of bad business or bad management?
Return on capital employed, return on equity and cash flows are indicative of such things. If the cost of capital for a company is 10 per cent and the business is making 7-8 per cent and the management says that this will happen and that will happen, nothing will actually happen. The profits may also be cooked. If the profits are supported by cash flows, then the profit is real. If the cash flow is good but the profitability is low, then that is not good. You have to be careful as to the quality of the business and the quality of the management. You get to learn a lot of these things by experience.

What would be your advice to a budding stock investor who wants to build wealth through the market? What would be the top dos and don'ts?
Portfolio-building is a learning game. You need to be passionate about it. It requires a lot of skill and time if you want to buy stocks yourself and make money. It's a full-time job. You need common sense also, a lot of it, and a lot of patience. You need three things in the stock market: vision, courage and patience. You have got to have the vision about the business, then the courage to buy it and then the patience to hold it till your convictions are challenged. If you think that a particular company is very good and the business or the market becomes adverse, do you still think when the price is half or one-third that it is as good? So, getting conviction on your own investment philosophy is the key. You will keep learning slowly. Read, read, read. Commit some mistakes. Then you will understand. So, it's a slow process: reading and experimenting.

You should not speculate. When you speculate, then it's a different ballgame. I am not saying it's good or bad; only that, I don't know anything about the rules of speculation. And it's a slow build-up game. If the market goes up by, say, 15 per cent, don't expect that you can earn more than 20-22 per cent across your portfolio. Of course, individual stocks could be even 100 or 200 per cent. Also, you have to be an optimist. If you buy and the market goes down by 50 per cent, that doesn't mean the end of the world. Have conviction that the future is bright - that's very important.

This interview was conducted in January 2022

Previous parts of the interview:

'The best time to buy is when you have the money'

'One will always commit mistakes in the market'