Lessons from a veteran stock investor
Joseph Oommen shares an account of his stock investing journey spanning three decades. His experiences offer important lessons for every stock investor
By Research Desk | Jun 25, 2018
Joseph Oommen's father was a practising dentist in Trivandrum and his mother was a headmistress at a girls' high school. Joseph's interests were shaped in childhood itself. His neighbour was a leading playwright in regional language, so Joseph grew up on a staple diet of literature. 'Even today, I prefer to read a novel or a play to a brokerage research report,' he jokes.
Joseph's first job at an NGO entailed the study of the conditions of the poor living in slums and villages. He undertook various projects to improve their situation. This compelled him to read The Economic Times regularly. 'And this brought me to the stock market pages, which were all Greek to me initially. Though I did visit a broker's office in Bangalore in 1975, I did not invest (right then),' Joseph recalls.
Investing in stocks
Then he got appointment in the civil services of Kerala government, with permanent posting in Trivandrum, but he opted to return after a period of three years in Bangalore. Those were the days when newspapers came only the next day because the flight from Mumbai to Trivandrum arrived late in the afternoon. 'I was very interested in buying shares but there were no brokers in Trivandrum at that time. Only a few IPOs could be applied for through the local bank branches. This was the case even in 1991 because I remember not being able to apply for the IPO of Infosys,' he laments.
The Foreign Exchange Regulations Act (FERA) stipulated that foreign companies couldn't continue with 100 per cent foreign holdings. 'Companies like IBM, Coca-Cola closed shop and quit India. My first investment was in Malayalam Plantations, a British company. It had rubber and tea estates in Kerala. I was allotted 25 shares with share certificate dated December 14, 1979, of face value of Rs 10 at a premium of Rs 2,' Joseph describes his very first investment.
This company later changed its name to Harrisons Malayalam, India's largest producer of rubber and pepper and South India's largest producer of tea. From Harshad Mehta's activity in the stock to foreign promoter selling off stake and then the company taking debt, Joseph says he could only watch as the stock price fell from Rs 400 at one time to Rs 4 in 2001. 'Later by 2005, it clawed back to Rs 40 levels. I exited. Harrisons Malayalam was an expensive lesson for me,' remarks Joseph, highlighting the importance of quality of management and the destructive role that debt can play.
Learning about the stock market
Joseph also had investments in other shares like Parke Davis, Varun Shipping, IDM, Nagarjuna Signode, etc. It was in the late eighties that a few brokers set up offices in Trivandrum. However, they were brokers of Cochin Stock Exchange and the volumes were very low. 'Accordingly, the impact cost was very high and hence it was possible only to buy at the highest price and sell at the lowest price of the day. This was a sufficient disincentive not to deal in the secondary market! Further, the physical transfer of shares was also a big hassle. So, I continued with my routine of buying shares in IPOs and holding onto them,' he says, revealing the reason behind his buy and hold strategy.
Joseph felt that having an MBA would be helpful, so he joined the first batch of distance education MBA offered by the then newly formed Indira Gandhi National Open University (IGNOU). 'By the time I completed MBA with specialisation in finance, my comprehension level of stock markets vastly increased. The degree was particularly helpful in picking shares for rewarding returns,' admits Joseph.
Coming across Value Research
Joseph wanted his children to invest in stocks also, and during this time he stumbled upon Value Research. 'By 2013, two of my children had employment and investible savings. I wanted them to invest in stocks. I wanted them to take the risk and thereby witness a learning curve,' he says. But by then the markets were in doldrums. So, the father in Joseph concluded that investing in mutual funds would be the best option.
Joseph never invested in gold or bank fixed deposits (FDs). Since he inherited the house from his father, there was no need for him to invest in land or build a new house. 'Dividend yield was my primary goal because there was no avenue to sell and book profits. Though yields were in the range of 2 to 3 per cent, regular bonus issues would increase the yield. Till 1991, I could not sell stocks and this sort of compulsory lock in influenced my investment behaviour. Even after 1991, I would hold onto my stocks without selling unless there emerged non routine expenditure needs,' he says.
Joseph used a trick that many of us don't practise. He would sell only the losers and allow the winners to run. Once he realised that a bet on a stock has gone awry, he would sell. 'But still I would do that only after holding for about two to three years. I have never sold a stock without holding it for more than two years,' he proclaims.
Being a hands on investor wasn't easy during the 90s. You had to read all available data on a stock. For a long time, Joseph had to do the homework to get the technicals and ratios of a stock. 'But now Value Research and others provide me all the data at the press of a button. Broadband has totally altered the art of investment,' he remarks.
Recalling his most trying times as an investor, Joseph talks about the period between 2010 and 2015. He had retired in March 2010 and invested about 90 per cent of retirement benefits in stocks. His cardinal mistake was these investments were mostly in small-caps and mid-caps. '...the market turned southwards in late 2010. For about five years, I monitored the market on a day-to-day basis but opted not to transact at all. I did not book profits or losses. Also, I did not make any fresh purchases,' Joseph notes. It was distressing to find that scrips purchased on account of sound fundamentals go steadily southwards. His investments in Tata Global Beverages, Tata Coffee, Tata Chemicals, Seamec, GIPCL, UPL, and Allcargo had specific issues that called for a loss of value. However, a change in market sentiment after 2014 election helped the stocks regain vigour.
Joseph Oommen's stock insights
Stock-market fortunes are not made by following the dictums of market gurus on TV. Don't keep on changing channels to get multi-bagger ideas.
Data interpretation is very important. An excellent buy before market hours could become an excellent sell after market hours. So, analyse data carefully.
Those who do not have the required skills should not invest directly in stocks. Go for mutual funds, where experts manage the risks.
Make financial investments only when you have savings. Don't borrow and invest.
Investment is akin to a farmer planting seeds. Not all become seedlings. Even out of those that grow, only a few bear fruits.
Avoid trading. Invest for the long term.