`Speculation is for the sharp and well-connected'

Rasheeda Bhagat

MR ANISH POOJARA started investing in 1971, when he was in Standard IX. ``I bought just one share of Century Textiles at Rs 980. I sold it a few months later at an ex-bonus rate of Rs 560.''

Thereafter, Mr Poojara, owner of the Pune-based Zenith Enterprises, a sub-broking firm, bought and sold a few hundred shares of GE Shipping, SPIC and Grasim regularly for a few years. ``These were the flavours of those days. Tisco used to be Rs 80-125, with a dividend of Rs 12 per share per year. Things were relatively calm and easier then,'' he recalls nostalgically.

In those days, one could buy a share a few weeks ex-bonus ``sell after the bonus, making reasonable profit eight times out of 10. New issues used to be massively oversubscribed and to get an allotment was a great thing. In those days, we used to get misled, once in a while, by the premiums quoted in the grey market. But, overall, things were good.''

Mr Poojara, who grew up in Bombay, recalls the bhelpuri-wallah on Dalal Street, who used to make a lot of money, thanks to patronage from the punters. ``He made a lot of money, and instead of speculating, sent his son to the US to study management. He came back and continued his family business; the small shop became big. He would not have speculated in shares, which is probably why he is still successful, while most speculators of those days lost everything, sooner or later. And still nobody learnt the lesson. Yours truly included.'' he says.

And this was ``because the excitement or dreams of limitless profits gave a mental stimulation that few things can offer, even today.''

He himself inherited some shares and some money which he built on the portfolio. ``The number of companies listed in those days was few. Results were declared once a year and there were no quarterlies, no press conferences and no detailed information. We used to get plain, simple annual results that gave little information to the shareholders. This is why communicative brokers were admired.

``But this had its inherent dangers too. Investors were easily misled by information from some brokers that `Management is buying this share'; or `XYZ is tipping this or that share'. It took me years to realise, and that too the hard way, that XYZ was tipping a share only after he had already bought, and was now looking for bakras (scapegoats) to unload.''

With sources of information being limited, many conservative investors preferred such stocks as Tisco, Hindalco, Grasim, Bajaj Auto or ACC. But in the subsequent years, with FERA dilution, a whole new set of companies got listed and people started buying stocks of Colgate, Ponds, Hindustan Lever, Ingersoll and the like. ``These companies gave tremendous returns to original allottees and long-term investors. There was a breed that never sold a single share. But there were others who sold on listing and rotated the funds successfully. I was lucky to some extent with the `FERA' shares, but unfortunately could not hang on to them. I constantly used to, and still do, book profit too early and sit with losers for too long, and still do it,'' Mr Poojara says.

His investment strategies are varied. ``Some shares have never left my portfolio and have became big losers. Sometimes I bought and sold vigorously, about 50 trades a day. I am sure my broker made as much or more money than I did, and slept happily the nights, while I tossed and turned. Speculation is not for most people. Probably, 90 per cent of the speculative profits in the market is made by only 10 per cent of the people.

``These traders are sharp, naturally gifted, well connected, with money muscle and are experts in understanding the psychology of small traders and investors. In those days, they used to systematically accumulate shares, spread rumours, draw the smaller traders and investors into the web and devour them.'' And sometimes, managements were only too willing to lend a helping hand.

But he feels that in the long term, speculation does not pay. ``It is virtually impossible to make money on an ongoing basis in speculation and my sincere advice to investors is to keep away from this. Of course, rolling settlement has helped virtually do away with it.''

Here is his formula for big success: Those who ``can be short- and long-term investors and traders rolled into one, and are able to have different approaches to different shares at the same time. Money is made in some shares by merely forgetting that you own them. But if you fall asleep, you may go past the prime,'' he says.

He gives the example of Colgate. ``Colgate had been one of the most rewarding companies for investors. But then suddenly it stagnated. And those who sat with it watched their profits shrink. It is still a great company and is now making serious attempts to recover lost ground.''

Mr Poojara is convinced that every industry and company has its cycle of good and adverse times. ``One's aim should be to try and exit at the second sign of trouble; the first is never obvious, unless you are an insider. What is required is to focus on a few companies and track them on an ongoing basis. So much information is now available to investors that it is easier now to make less mistakes.''

But the explosion of information means much work. ``Home work has to be done constantly. I read all possible newspapers and magazines. I watch as many television programmes on the stock market as possible.''

His experience in the bourses makes him conclude that even successful people go wrong about 70 per cent of the times. ``But their stop-loss principles and the ability to let the profits run, make them eventual winners.''

So, how does he himself take his winnings or losses?

``I must admit that my ego does not easily let me take losses. And it is certainly a major weakness.''

Successful investment strategies are not only all about reading up and analysing the information but also about timing. Mr Poojara feels that the times when the equity market, or a particular share, is dull or listless, and is moving only sideways, investors should stay away, analyse their holdings and take conscious long-term decisions.

Also, ``one has to be ruthless when it comes to selling. You have to realise that nobody out there cares about your cost price and whether you have decided to wait for your cost. Often I have waited long -- and still do so -- on one counter and lost out on other opportunities. It is difficult, but essential, not to get wedded to one's shares.''

Coming to the technology boom and how good companies have rewarded their investors, he gives the example of Infosys. ``Every original share of Rs 10 of Infosys has become 32 shares of Rs 5 each. This means an investment of Rs 1,000 in Infosys almost became Rs 4,00,000 at its peak price. And, yet, people maintained that Infosys would continue to grow at 100 per cent per annum for the next eight years.

``If I had bothered to take my calculator out of my briefcase, I would have realised that the market valuation of Infosys at that stage on the basis of the then P/E ratio would probably have made India's GDP look like a shoeshine boy's daily collection.''

On many individual investors getting their timing all wrong, Mr Poojara says: ``It is human to get carried away. When the market is near the bottom and logic screams `Buy', most of us are too depressed or scared to act. We tend to forget that it is darkest just before dawn and being a contrarian can work wonders.''

Does he see a turnaround in tech shares?

``Looking at the world economy, it looks like software companies will probably take 12 months or so before they start looking up. Oil prices have come down from about $34-35 per barrel to $24-26. This may enable economies that have still not fallen into recession to recover quicker.''

That is one aspect. Another, in his perception, is that in the coming days, companies such as Infosys will probably have to go for a major cut in salaries if they want to keep growing. ``Otherwise, China will overtake us in a few years. The Infosys Chairman, Mr Narayana Murthy, has proved himself an excellent manager (sharing the company's prosperity with shareholders and employees). Let us see if he can adapt to the times and ask his team to grin and bear the impending salary cut. Otherwise, the Infosys share price will probably head for the sub-Rs 2,000 zone''.

Coming to his pick of individual stocks, Mr Poojara feels that for ``conservative investors'' Infosys and Wipro will be good buys after some time. But the upside remains an interesting question as most funds have them and will turn sellers at every rise. ``Tata Infotech looks interesting at this stage. Mastek would be an excellent buy, provided one is willing to accept the management's view that the net profit will double next year. But all this will take time,'' he adds.

But compared to technology, at least for the next six months, he feels that Old Economy shares look a better bet and the risk-reward ratio in such shares as Mahindra and Mahindra, Punjab Tractors, Tata Engineering, Tata Steel, SKF Bearings, ACC or Gujarat Ambuja make them appealing.

With his experience, coupled with continuous pouring over figures of companies, he finds smaller bank shares, such as of Federal Bank, tempting. ``If Philips falls to Rs 45, after the previous buy-back attempt at Rs 105, it should definitely yield money. Tata Engineering may go from Rs 65 to Rs 40, but will go to Rs 165 in good times (two-three years). Tata Steel has a lower range of Rs 80-85; but it tends to go to Rs 165 every one-and-a-half years,'' he says, crystal-gazing.

Coming to the must-asked question of what rate of return a small investor should be content with, he says that select Old Economy counters ``can give about 30 per cent return between now and March 2002. By then, the New Economy stocks should be ready for their next move up. But this time, the move will be slow and steady. And that is how it should be. Without speculation, merit will find its due place. In spite of whatever the brokers complain about rolling settlement and the absence of badla, it will turn out to be the best thing to happen to the stock market,'' is his optimistic forecast.

On the plight of many brokers, he says they have a tendency to complain every time the systems change, or when they see a cut in income. ``But look at it from an investor's point of view. I can go and hedge my shares. Automatic stop-losses come into being with options. Once volumes pick up, the options-futures system will be a dream come true.''

Like thousands of small investors, he too took a beating in some B-2 shares in the aftermath of the Harshad Mehta scam, and the fall in the market from February 2000 onwards. ``But my anger is not directed at Harshad Mehta or Ketan Parekh. It is directed at myself. Valuable lessons can be learnt from such experiences.''

Calling himself a ``moderately successful investor'', Mr Poojara says that despite the information explosion, ``still there is nothing like identifying a company yourself and making money. My picks such as Dr Reddy's, Punjab Tractors, German Remedies and Thomas Cook would have fetched me a small fortune had I been able to hang on to them long enough. Identifying a stock is the easy part. Writing out cheques is even easier. But more difficult is mastering the art of selling.''

Would you like to share your experience as an investor? Write to us at bleditor@thehindu.co.in