Rakesh Jhunjhunwala: A perspective

Rakesh Jhunjhunwala is known to have started his investing journey in 1985 with Rs 5,000. He was worth Rs 50,000 crore when he passed away two weeks ago. That is a compound annual return of 65 per cent over 37 years. No one seems to have calculated this number or explained its implications. So here it is. This makes Rakesh the world’s second-most successful investor ever, based on the data available for investing marathoners. Nosing just ahead of him is Jim Simons of Renaissance Technologies, who racked up 66 per cent returns between 1988 and 2018 (based on the last available data). The returns of legendary investors like George Soros, Stanley Druckenmiller, Warren Buffet, and a few others are only in the high ’20s and low ’30s. Many “top investors” barely managed a 20 per cent compound return. Yes, investing is that hard and Rakesh was that successful at it.
 

In fact, Rakesh’s achievement was greater than that of Mr Simons, a mathematical genius who has a team of super-bright mathematicians and physicists to develop quantitative techniques and create algorithms to trade the market with high accuracy. In order to achieve his 66 per cent returns, he employed hundreds of PhDs from diverse fields to detect patterns, in what seem like random movements we see in nature, life, and markets. Also, most top investors earned their returns by investing other people’s money, using hedge funds as their vehicle. Rakesh did neither. He worked with a small team of people for the past two decades and he got rich not by managing money for others. He multiplied his own money. I have read about every famous trader/investor in the world and I know of no one who can make this claim. One other investor who did it all alone was Robert Wilson, who converted $15,000 his mother gave him in 1958 into $800 million by 2000, which is a compound return of 30 per cent per annum.
 

Surely, Rakesh’s long-term record of such extraordinary success is based (apart from luck) on a unique method of canny risk-taking, which got better and better over the years. Sadly, there is not much documentation of his strategies, his high and low points, handling of risk arising from high leverage that he embraced, and his nose for spotting a bargain when others around him were throwing in the towel. There are umpteen TV clips on his views about markets at different times, but there is no in-depth interview that captures his own investment journey in detail. Gregory Zuckerman has written a whole book on Jim Simons (The Man Who Solved the Market), even though Mr Simons did not cooperate. Although few people are familiar with Robert Wilson, there is a book on even him — titled Killing the Market by Roemer McPhee. There are countless books on Warren Buffet. George Soros and his former partner Jim Rogers (who had an eye-popping record when they ran Quantum Fund between 1973 and 1983) have written multiple books explaining their strategies. And there is the best-selling Market Wizards series of books on great traders and investors by Jack Schwager. But no life account of the world’s best investor and trader. This is unfortunate, because he was generous with his time with mainstream journalists. Of course, if you disagreed with him, you had to face a testy and scowling adversary who would fire back questions and counter arguments at a high pitch.

Remember, there were many ups and downs behind Rakesh’s 65 per cent compound return; he also survived three huge market crashes over three decades. He was only one of many speculators in Dalal Street in the early 1990s, when Harshad Mehta had already built much more wealth, through a combination of trading, smart investing, and deal-making with banks and public sector undertakings. In 1992 Harshad was audaciously saying that his firm Growmore would be bigger than Merrill Lynch in a few years. Rakesh, having sold short, was nearly bankrupted by the Harshad-engineered bull market. But Harshad went up in flames largely because his own follies; Rakesh survived. Here is the irony. Harshad tried to make a ham-handed comeback, ramping up a set of shares, backed by a bunch of journalists, fixers, and scammy businessmen. That too failed. A few years later Ketan Parekh, the new big bull, followed Harshad’s playbook but he too crashed. On the other hand, Rakesh changed gear and strategy and his wealth went up exponentially as he ploughed his trading profits into long-term holdings, aided by India’s rising prosperity and zero tax on long-term capital gains.
 

I first met Rakesh in 1996 in a tiny office near Dalal Street. He advised me to read books by Victor Sperandeo. His other advice was to always start with small positions because we are bound to make mistakes; and remain humble because the markets can be merciless. Priceless words of wisdom. My next encounter with him was when India was in severe slowdown in 2002. Like everyone else, I asked him: Kya lagta hai. His answer was: Teji, teji aur teji. A few months later, from April 2003 India had the biggest and longest bull market, which lasted five years. Yet another time, we were in a hotel lobby when someone asked him: Are you fully invested? He quipped: “I am always 130 per cent invested”; it showed the role that leverage played in his returns. He was a guest at the launch of Moneylife in 2006, and his advice to me that day was “be positive”. The broad secret of Rakesh’s success was that he combined two completely opposite strategies (short-term trading and long-term investing) spiced with borrowed cash. But how exactly could he dance to the short-term trend with leverage, and still remain firmly focused on the big picture, is a secret that has probably gone with him.
The writer is the editor of www.moneylife.in

Twitter: @Moneylifers