Chennai's 'accidental investor' who became D-Street's top multibagger hunter
For almost a decade, this investor's struggle in the stock market continued without much success.
Khanna, born and brought up in a middle class family in Chennai, has had his fair share of struggles in early life before becoming a top individual investor on Dalal Street.
Rajiv was a bright student since the very start and graduated as a chemical engineer from the prestigious IIT, Madras. Later in 1986, he started his own venture called Kwality Milk Foods, an ice cream business, which he sold Hindustan Unilever in 1995.
“I knew nothing at all about investments. So I put my money in fixed deposits and certificates of deposit,” Rajiv Khanna told students of IIT, Madras in an address, whose video is now available on YouTube.
Had no understanding of stock market, says Khanna
Talking about his entrepreneurial and investment journey, Rajiv Khanna said in 1995, he had no idea where to invest the funds that he received after the sale of his ice cream business to HUL.
Khanna, who prefers to stay away from the media glare, said investing in the stock market was initially more of a hobby than a profession. In 1996-97, Khanna casually decided to invest in Satyam Computers just because his neighbour’s son was working there.
Tracking the stock movement, Khanna felt Satyam Computers & other tech stocks had great scope and would deliver multibagger gains. They didn’t.
Khanna went on to invest heavily in tech stocks unaware of the fact that they have become highly overvalued and a bust was inevitable. In 2000, as tech stocks crashed, Khanna was lucky not only to emerge unharmed but also make gains in excess of 300 per cent.
But he was mentally shaken by the experience and decided to put out all his money from stocks and put it in safer investments. “I decided I don’t understand the stock market. I put back my money into fixed deposits and debt funds,” he recalls.
For almost a decade, his struggle in the stock market continued without much success.
Turning point in investment journey
Things changed when Khanna was looking to buy a flat in Delhi in 2003-2004 and stumbled upon Unitech, a realty company.
Amazed by their luxurious office, Khanna decided to investigate about the company. He found out that Unitech was available at a valuation of Rs 100 crore and Citibank and other FIIs held big stakes in it.
Impressed by the business, he invested Rs 5-7 lakh into the stock and decided to forget about it.
“In 2008, as the realty boom came, my petty investment of Rs 5-7 lakh in Unitech turned Rs 25 crore,” he said.
Khanna further says he used to buy the stocks of the makers of the products that his wife was using on a daily basis like Fem bleach, Hawkins Cookers and Nutralite butter, which he thought would appeal to other women as well and would do well. Luckily, that investment theme also worked and Khanna’s portfolio got full of multi-bagger stocks.
He says he did particularly well between 2003 and 2008 before the global financial crisis in 2008.
Unaware of what was to come; Khanna was confident of India’s growth story and admitted that he never expected the stock market to crash so drastically in the wake of the Lehman sub-prime crisis.
“I lost 75 per cent of my wealth. In March 2009, I decided this was too much. I have lost too much money and I started selling,” he said.
However, as the market recovered in March 2009, he bought back all of his multibagger stocks.
Need both merit and luck to be a successful investor
Khanna attributes his success to not only merit but to some amount of luck as well.
“If I started with Rs 6, it is now worth Rs 2,000 at a mind boggling CAGR. Do I have the capacity to do so? I do not think so. It was a bit of luck, a bit of everything,” he said.
Downplaying his achievements, he says he did not deserve such adulation. “People put me on a pedestal and keep writing about my portfolio. I was far too stupid to not know when to sell a stock and it went on to become multibagger,” he says.
‘Buy and Hold’ technique can yield multibagger gains
Khanna says the ‘buy and hold’ technique of investment can yield mega multibagger gains to patient investors.
Citing a study conducted by Fidelity Investments, Khanna said investors who got the best returns were those who were either ‘dead’ or who had ‘forgotten’ about their investments.
Khanna is a firm believer in the power of compounding and feels investors who did not tinker with their investments made multibagger returns, which were better by a huge margin from the returns generated by the so-called ‘active’ investors.
Stock market best place to create wealth
Khanna advises his followers to start investing in the stock markets from a very young age to maximise returns. He feels if one plans to create wealth, then investing in the stock market is the best option as a large percentage of the wealthiest people in the world are stock market investors.
Among the eminent stock investors he admires, Khanna named Rakesh Jhunjhunwala, Warren Buffett, Peter Lynch, Stanley Druckenmiller and George Soros.
Important to weed out plunging stocks
Revealing a bit about his thought process before buying a stock, he said he first asks himself whether the business which if available for sale is worth buying. If the answer is yes, he would go all out to buy its stocks even without knowing about what the company even sells.
He said in the stock market, it is more important to weed out the losers faster than finding the winning stocks. He said to create wealth in the stock market, it is important to buy good businesses which have good managements with a clear vision.
Encouraging youngsters to invest in the stock market, he said the stock market gives us an opportunity to partner in good businesses and exit them if they are not doing their jobs well.
Money not the metric for success
Khanna encouraged his audience to live their dream and give life their best shot. He said the metric of success is not money but how hard one works to tap his potential.
He concluded by quoting George Bernard Shaw and said, “A life spent making mistakes is not only more honourable but more useful than a life spent doing nothing.”
(Disclaimer: This article is based on a YouTube video of a speech delivered by Rajiv Khanna to the students of IIT, Madras.)