Ramesh Damani Success Story: “How to make 100 crores by investing 10 lakhs” was the highlight of an interview given by investor Ramesh Damani. But unlike most gurus, we find online these days Ramesh Damani is a man who practices what he speaks. He has done well for himself over the 3 decades in the Indian market to boast a fortune of over Rs. 200 crore.
In this article, we cover the success story of the Investor along with the advice and mistakes he made while building his personal wealṭh.
Ramesh Damani’s life before becoming an Investor
Ramesh Damani was born into the world of investing as his father too had earned a living by trading in shares. His fathers’ efforts put their family in a well-to-do spot financially.
Damani graduated from the H.R. College of Commerce & Economics and went onto get an MBA from California State University-Northridge. But what may surprise you is that, unlike some investors to whom the stock market meant everything from a young age, Damani wanted nothing to do with the stock market.
His father on the other hand wanted him to return to India and be involved in the markets along with him. Part of this stemmed from the fact that he couldn’t imagine living far away from his only son.
Damani however had other plans. After failing to convince his son multiple times his father decided to give one more final try. He got into a deal with his son where he sent him $10,000 to invest the money. If Damani was successful in doubling the money the amount would be his. If the investment went sideways his father would put an end to all questions.
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Sadly, in a span of 6 months, Ramesh Damani somehow managed to lose the huge sum. Although disappointed his father stuck to the deal and no questions were asked.
The story however took a turn for good. Damani could not believe that an MBA graduate was defeated. That too in bullish markets. The loss had hurt his ego and to reclaim himself he decided to dive into the world of investing.
Ramesh Damani Success Story: Journey to become an Investor
After returning to India, the MBA graduate became a member of the Bombay Stock Exchange. He also went on to make a living as a broker at his own brokerage firm.
Damani was able to make a lot of money for his clients during the Harshad Mehta Bull run in the early 90s but at the end of the day would receive only 1% of the returns. Some of his clients had made returns up to 100%. Once the Harshad Mehta bubble burst, Damani decided to invest for himself.
Damani was already following the footsteps of his father who also had been successful enough to earn an income from the market to live well off. His father followed a strategy where he would sell the investment after the stock price went up.
But what excited Damani was identifying potentially successful businesses, and investing in them for the long term. After all, he was part of the generation that started getting influenced by great investors like Warren Buffet and Charlie Munger’s style of investing.
“I learned that just because a stock doubles, it is not a reason to sell it.”
Damani had worked as a coder for the brief period he was in the US. Hence after noticing Infosys go public in 1993 he was quick to identify the potential the company had in the future. He jumped upon the opportunity. He invested 10 lakhs in 2 companies, Infosys and CMC.
By 1999, his investment had grown a hundredfold. This was proof enough for Damani to hold onto stocks instead of selling them immediately after making a decent return.
Following this Damani was quick to identify that the entire Indian liquor industry was available for Rs 500-odd crore. Damani quickly became bullish on the industry and the investment paid off handsomely.
In addition to this, he also identified Bharat Electronic Ltd and Bharat Earth Movers Ltd in the early stages. His only regret with these companies was that he did not invest enough.
Lessons to learn from Ramesh Damani’s mistakes
Damani made a lot of mistakes as an analyst but these have served as lessons for the next 30 years of his life. Let us take a look at some of which he has shared with us:
Damani’s very first investment of $10,000 in the market offered some very valuable lessons. Damani’s strategy involved looking back at the price history of stocks and picking stocks that had fallen but performed exceptionally in the previous bull markets.
This taught him an expensive lesson that it is not necessary that a fallen stock is a good investment.
“There are no losses, only lessons learned” – Ramesh Damani
Another mistake that Damani recalls is not buying aggressively when the markets crashed in 2008. By the time he had entered the market, the market had already crashed.
Ramesh Damani Success Story: Advice to Investors
- Advice for potential investors
“Market has gone up so much that people keep asking me if they should invest. I would reply by saying that the market would grow further. Use the market as a vehicle to get rich over time. It is not a quick-rich scheme. If you move 18-20 percent of your money over 20-25 years, you will be fine. A small portion of the money will become large in the long-run. My advice to everyone especially India which is a young country is to get it started. The first thing in order to test waters is to get your feet wet.”
He also stated that “Compounding is the surest thing to make you rich. The earlier you start, the better off you are,” he said.
- Simplicity beats complexity
“We try to find out the obvious. If I expect a business to make Rs 1,000 crore profit over the next five years and currently getting the same business at Rs 500 crore then you do not need to put that into a spreadsheet and figure it out. It is not rocket science. The way to do it is to understand the market capitalisation and external opportunities. For instance, in the logistics industry, if say the Indian economy is supposed to grow from a trillion-dollar to five trillion dollars there would be enormous movement of the goods. Also, with the introduction of the GST, they will create a national marketplace for the first time. And today you are getting these companies at Rs 500-1,000 crore, which is clearly at the lower end of the spectrum.”
- The other upsides of buying cheap
We want to buy them cheap relative to its external opportunities. That’s the number one rule in the financial markets. If you buy cheap even in the case of a bad purchase decision you will be able to get out of it over a period of time. Besides, understand the market capitalization, understand the discounted cash flow (DCF), price to earnings ratio and look at the external opportunities.
- When investing in Bull Markets
As the price may already be inflated in the bull market offering a reduced margin of safety. Damani states “Probably, the margin of safety is not there. But, whenever we have seen leadership in the market like we have seen cement stocks in 1992 or technology stocks in the year 2000, these stocks generally have a long way to go. They are seen as expensive initially but as the earnings catch up they get re-rated and become even more expensive.”
- When prices are falling or in relation to the maxim ‘Never catch a falling knife.’
“ The maxim comes from the principle that a lot of people start buying just because the stock has fallen 10 percent, 20 percent, or 50 percent. This is a fairly dangerous way to make a living. When we go back to the technology boom and see the so-called K-10 stocks in that era, they fell from the peak they made by 50 percent and then by another 50 percent and then another 50 percent. So, any time if you try to bargain hunt or catch the falling knife you essentially put blood on your hands. There is only one way to buy the stock, buy them when they are cheap and you do that by way of including a variety of factors.”
- Do the rules of investing change over time
The Law of Gravity cannot change. The same thing applies to the rule of investing. These are the universal principles.
- Getting to 100 crores
“Suppose you start with Rs 10 lakh and double your money every three years over 30 year period, Rs 10 lakh become Rs 100 crore. So that’s a phenomenal amount of money to have.”
The Ramesh Damani success story offers advice and motivation for anyone looking to enter into the stock market and most importantly highlights the importance of investing with a long-term view. He is among the most successful stock market investors in India.
For a novice investor looking to enter the markets but afraid of losses, “The first thing in order to test waters is to get your feet wet.” Happy Investing!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.