RD 360: Ramesh Damani with N Jayakumar and Madhu Kela
Ramesh Damani focuses is on the wisdom of Dalal Street, as he discusses the fork law, the sayings and the war stories of the street with two veteran watchers of the market—N Jayakumar of Prime Securities and Madhu Kela of Reliance Capital.
Here is an excerpt of the interview. Also watch the accompanying video.
Q: I started this as a Dalal Street maxim and the one thing that I always remember even when I was younger walking to Dalal Street was all the Gujarati community which tends to populate the street "Bhav Bhagwan Che". Tell me about that.
Jayakumar: I think it in some sense typifies the true trader on the street—they say a picture is thousand words but a stock price is thousand pictures. So I think that in a sense typifies hundreds of presentations, millions of pages get compressed into one thing, which is the intelligence of the market.
I really like one story which was unreal at Rs 10, unreal at Rs 2,500 and it is unreal again at Rs 10—the famous telecom story, Himachal Telecom, which, at Rs 10 everybody thought and felt it was a complete trash story, a fraud, etc and yet “Bhav Bhagwan Che” then became Rs 50, the Rs 500, then Rs 2,000, and then Rs 2500. It was there in the F&O so you could actually short it, you could go long.
There are enough stories of people who went bankrupt and others who made billions doing the right thing as it were. I don't think the fundamentals ever changed, the bubble became bigger perhaps and the stock is probably back at Rs 10 or wherever it is now. But the reality is that the trader never got caught in this. So in a sense the Gujarati or the Marwadi trader who believed that price told you everything. So when Rs 2,500 became Rs 2,400 became Rs 2,200, he said, 'thank you, I am out'.
Q: There are lot of stories but the one that is notable with you is that, a lot of people try to manipulate stocks, who try to run it up and run it down and the equivalent Dalal Street Maxim is ‘chalane wale chal base’ explain that to me?
Kela: I have used that many times and I use that every day with my own head because it's so easy to get carried away with your success and money in the stock market. And if you start to believe that even for a day that "I can run it" (main chala sakta hoon), and we have had plenty of examples of individuals who thought that they are larger than the market, both domestically as well as internationally, and we know what has happened to them (unka kya haal hua hain).
Q: 1992 the Harshad Mehta bull-run was built around that paradigm.
Kela: It's the same thing that where he though "I am bigger than the market”" and the same thing happened in 2000 again. Internationally also, whether it is long term capital gains or Enorn story, whenever anyone thought that he is bigger than the market, you are sure to collapse and we see that example everyday.
When I was a student in 1992-1993 and someone used say, "aare boss ye isko chalane wala hain", we used to get easily trapped because we always believed, "ke share chal kaise sakta hain jab tak koi chalane wala na ho".
I think 90% of people who actually do not understand value stock market price, they are still believe in this that there is some XYZ operator who is day-in day-out making this stock price. But my learning is exactly opposite. I think market actually makes these prices, individuals become hero or zero because either they align with the market or they misalign with it.
Q: The famous, probably the finest trader of our time Radahakrishan Ji who was called Young Turk, RK, old fox etc, etc, once told me, "speculation hamesha slip book se hoti hai cheque book se nahi". Do you agree with that?
Jayakumar: At the end of the day the way they look at it is as long as the gains are coming to you, and you are depositing it everyday, it makes sense. So the bottom line is as long as you are getting money in its fine, the day you have to fork out money, you want to cut-out. So this is like the equivalent of the glamorised expression about cutting your losses but riding your profits.
Q: There is a Rakeshism which says sell your wives jewellery and buy shares with it—what does he mean when he says that?
Kela: Basically it’s a conviction at a point of time when you believe that the value which you are able to see, there is so much value which comes at a price and there is a time in which the stocks do not move because sometime they really struggle hard, and that is a time it comes out says boss even if you have jewellery, sell it and buy stocks, don’t miss the opportunity (abhi tere paas bangad bhi agar hain toh tu bechke laga dena, chukna nahi).
Q: Because you cant afford not to make money in this share.
Kela: You can't afford not to make money because you have got so much conviction and market continues to ignore it for a long period of time.
Q: Any example in your life where you have felt that you would sell your family jewellry and buy it?
Kela: I felt about Jindal Steel and Power the same way. When we bought originally the stock at Rs 200 and after three successful years of performance and profit going three times, the share was still available at the same price. If sponge iron prices have moved up from Rs 3,000 to Rs 6,000 and I would go because I was a small fund manager, so I would go and explain it to people that you should buy this share but no one was willing to listen.
Q: Just for curiosity price went from what to what?
Kela: Price went from let say Rs 300 crore market cap to Rs 65,000 crore market cap.
Q: You are kidding me, Rs 300 crore to Rs 65,000 crore?
Kela: No I am not.
Q: And you felt that strongly at Rs 300 crore then?
Kela: I felt very strongly, I didn’t know that it is going to Rs 65000 crore but I was very clear that this is not Rs 300 crore, it could be Rs 3,000 crore, it could be Rs 5,000 crore, it could be Rs 10,000 crore
Q: Another Dalal Street aphorism that rings in Dalal Street, “when the panwala is giving you tips, be careful”.
Jayakumar: Interestingly, I heard this saying for the first time from one of the market veterans. I have seen many experts standing and actually talking to panwala just to get a sense of what is happening in the retail trade. But the same panwala, instead of getting the statistics as to what is happening in their trade, starts advising as to what may happen and what should you buy (soona hain ki bhaiya ye bhi le lo, soona hain ki Karntaka Ball Bearings le lo, soon hain Harshad bhai ye karenge), I think that’s when the thing was driven home. It was like the doctors were being told by the boy scouts as how to treat.
Q: There is an old Maxim, which says the market find new ways to tops and bottoms, give me some examples of that?
Jayakumar: We have seen many of the old time tested ones for instance the old days of the Badla through the 1980’s and early 1990’s we use to have the rice Badla because from the normal 1.5-2% a month it was a 2.5-3.5%, you knew that there were warning signs but of course there would be the contract guys who would say ‘Bada Badla toh Badi tezi’, which is the way to suck in the masses—don’t care if you are paying Rs 10 on a scrip because it will open Rs 20 higher.
Q: And you are making money.
Jayakumar: And you are making money on day one, so how does it matter whether you pay Rs 10 or Rs 12 because it will open like 2% higher than that. So that was a way if sucking people in. So that was the animal frenzy being brought out. In India we started discovering the top in terms of once FIIs pulling out.
So the first sign was when the FII slows started, I am talking about back in 1995. If you remember 1995 our markets went down 35%, the US markets in the same year went up 34% and the year preceding that was when the FIIs had put in record flows into India because it was still a short history that you were with but at that time the very fact that there is something called FIIs, the flow could go out and we could start falling was a top.
Q: I remember the 1992 top very clearly, the 4500 top on the Sensex. I was at a party with my brother, who happens to direct movies. That’s the only party I ever remember there were more people around me than him and I clearly said that was a bell because no one was interested in films.
Kela: When we started making a case and Infosys reached a PE multiple of 50 times, the die-hard fundamentalist said, it can’t rise beyond this (abhi yeh badh hi nahi sakta hai koi nhi haalat mein) and that 50 times actually became 200 times in terms of PE multiple and maximum amount of money actually was being made between that 50 times and 200 times not between 0 to 50 times.
Anchor: It’s almost a vertical...
Kela: It’s a real vertical rise. So I think many people can understand that directionally things are not good but to pin-point that okay this is the top. So the difficulty is how do you really pin-point the time. And, lets be fair, in the world we have only heard one example of this guy really discovering the big short where he made USD 20 billion in one trade. There is only one example which has come across. We all can understand that yes it is a very difficult thing to really understand when a top in the market is being made and to have the conviction at that point.
Jayakumar: In the forex market, which is what I consider, and have proved to be the most liquid markets in the world, there is a little thing which actually well summarizes—it says only fools and liars catch the tops and bottoms. So it’s only in stories you hear, it has never happens in reality.
Anchor: In fact you don’t want to catch the top if you are a trader. You want to wait for the market to correct and not go back to the highs.
Jayakumar: Because then you have not otherwise ridden your profits.
Here is an excerpt of the interview. Also watch the accompanying video.
Q: I started this as a Dalal Street maxim and the one thing that I always remember even when I was younger walking to Dalal Street was all the Gujarati community which tends to populate the street "Bhav Bhagwan Che". Tell me about that.
Jayakumar: I think it in some sense typifies the true trader on the street—they say a picture is thousand words but a stock price is thousand pictures. So I think that in a sense typifies hundreds of presentations, millions of pages get compressed into one thing, which is the intelligence of the market.
I really like one story which was unreal at Rs 10, unreal at Rs 2,500 and it is unreal again at Rs 10—the famous telecom story, Himachal Telecom, which, at Rs 10 everybody thought and felt it was a complete trash story, a fraud, etc and yet “Bhav Bhagwan Che” then became Rs 50, the Rs 500, then Rs 2,000, and then Rs 2500. It was there in the F&O so you could actually short it, you could go long.
There are enough stories of people who went bankrupt and others who made billions doing the right thing as it were. I don't think the fundamentals ever changed, the bubble became bigger perhaps and the stock is probably back at Rs 10 or wherever it is now. But the reality is that the trader never got caught in this. So in a sense the Gujarati or the Marwadi trader who believed that price told you everything. So when Rs 2,500 became Rs 2,400 became Rs 2,200, he said, 'thank you, I am out'.
Q: There are lot of stories but the one that is notable with you is that, a lot of people try to manipulate stocks, who try to run it up and run it down and the equivalent Dalal Street Maxim is ‘chalane wale chal base’ explain that to me?
Kela: I have used that many times and I use that every day with my own head because it's so easy to get carried away with your success and money in the stock market. And if you start to believe that even for a day that "I can run it" (main chala sakta hoon), and we have had plenty of examples of individuals who thought that they are larger than the market, both domestically as well as internationally, and we know what has happened to them (unka kya haal hua hain).
Q: 1992 the Harshad Mehta bull-run was built around that paradigm.
Kela: It's the same thing that where he though "I am bigger than the market”" and the same thing happened in 2000 again. Internationally also, whether it is long term capital gains or Enorn story, whenever anyone thought that he is bigger than the market, you are sure to collapse and we see that example everyday.
When I was a student in 1992-1993 and someone used say, "aare boss ye isko chalane wala hain", we used to get easily trapped because we always believed, "ke share chal kaise sakta hain jab tak koi chalane wala na ho".
I think 90% of people who actually do not understand value stock market price, they are still believe in this that there is some XYZ operator who is day-in day-out making this stock price. But my learning is exactly opposite. I think market actually makes these prices, individuals become hero or zero because either they align with the market or they misalign with it.
Q: The famous, probably the finest trader of our time Radahakrishan Ji who was called Young Turk, RK, old fox etc, etc, once told me, "speculation hamesha slip book se hoti hai cheque book se nahi". Do you agree with that?
Jayakumar: At the end of the day the way they look at it is as long as the gains are coming to you, and you are depositing it everyday, it makes sense. So the bottom line is as long as you are getting money in its fine, the day you have to fork out money, you want to cut-out. So this is like the equivalent of the glamorised expression about cutting your losses but riding your profits.
Q: There is a Rakeshism which says sell your wives jewellery and buy shares with it—what does he mean when he says that?
Kela: Basically it’s a conviction at a point of time when you believe that the value which you are able to see, there is so much value which comes at a price and there is a time in which the stocks do not move because sometime they really struggle hard, and that is a time it comes out says boss even if you have jewellery, sell it and buy stocks, don’t miss the opportunity (abhi tere paas bangad bhi agar hain toh tu bechke laga dena, chukna nahi).
Q: Because you cant afford not to make money in this share.
Kela: You can't afford not to make money because you have got so much conviction and market continues to ignore it for a long period of time.
Q: Any example in your life where you have felt that you would sell your family jewellry and buy it?
Kela: I felt about Jindal Steel and Power the same way. When we bought originally the stock at Rs 200 and after three successful years of performance and profit going three times, the share was still available at the same price. If sponge iron prices have moved up from Rs 3,000 to Rs 6,000 and I would go because I was a small fund manager, so I would go and explain it to people that you should buy this share but no one was willing to listen.
Q: Just for curiosity price went from what to what?
Kela: Price went from let say Rs 300 crore market cap to Rs 65,000 crore market cap.
Q: You are kidding me, Rs 300 crore to Rs 65,000 crore?
Kela: No I am not.
Q: And you felt that strongly at Rs 300 crore then?
Kela: I felt very strongly, I didn’t know that it is going to Rs 65000 crore but I was very clear that this is not Rs 300 crore, it could be Rs 3,000 crore, it could be Rs 5,000 crore, it could be Rs 10,000 crore
Q: Another Dalal Street aphorism that rings in Dalal Street, “when the panwala is giving you tips, be careful”.
Jayakumar: Interestingly, I heard this saying for the first time from one of the market veterans. I have seen many experts standing and actually talking to panwala just to get a sense of what is happening in the retail trade. But the same panwala, instead of getting the statistics as to what is happening in their trade, starts advising as to what may happen and what should you buy (soona hain ki bhaiya ye bhi le lo, soona hain ki Karntaka Ball Bearings le lo, soon hain Harshad bhai ye karenge), I think that’s when the thing was driven home. It was like the doctors were being told by the boy scouts as how to treat.
Q: There is an old Maxim, which says the market find new ways to tops and bottoms, give me some examples of that?
Jayakumar: We have seen many of the old time tested ones for instance the old days of the Badla through the 1980’s and early 1990’s we use to have the rice Badla because from the normal 1.5-2% a month it was a 2.5-3.5%, you knew that there were warning signs but of course there would be the contract guys who would say ‘Bada Badla toh Badi tezi’, which is the way to suck in the masses—don’t care if you are paying Rs 10 on a scrip because it will open Rs 20 higher.
Q: And you are making money.
Jayakumar: And you are making money on day one, so how does it matter whether you pay Rs 10 or Rs 12 because it will open like 2% higher than that. So that was a way if sucking people in. So that was the animal frenzy being brought out. In India we started discovering the top in terms of once FIIs pulling out.
So the first sign was when the FII slows started, I am talking about back in 1995. If you remember 1995 our markets went down 35%, the US markets in the same year went up 34% and the year preceding that was when the FIIs had put in record flows into India because it was still a short history that you were with but at that time the very fact that there is something called FIIs, the flow could go out and we could start falling was a top.
Q: I remember the 1992 top very clearly, the 4500 top on the Sensex. I was at a party with my brother, who happens to direct movies. That’s the only party I ever remember there were more people around me than him and I clearly said that was a bell because no one was interested in films.
Kela: When we started making a case and Infosys reached a PE multiple of 50 times, the die-hard fundamentalist said, it can’t rise beyond this (abhi yeh badh hi nahi sakta hai koi nhi haalat mein) and that 50 times actually became 200 times in terms of PE multiple and maximum amount of money actually was being made between that 50 times and 200 times not between 0 to 50 times.
Anchor: It’s almost a vertical...
Kela: It’s a real vertical rise. So I think many people can understand that directionally things are not good but to pin-point that okay this is the top. So the difficulty is how do you really pin-point the time. And, lets be fair, in the world we have only heard one example of this guy really discovering the big short where he made USD 20 billion in one trade. There is only one example which has come across. We all can understand that yes it is a very difficult thing to really understand when a top in the market is being made and to have the conviction at that point.
Jayakumar: In the forex market, which is what I consider, and have proved to be the most liquid markets in the world, there is a little thing which actually well summarizes—it says only fools and liars catch the tops and bottoms. So it’s only in stories you hear, it has never happens in reality.
Anchor: In fact you don’t want to catch the top if you are a trader. You want to wait for the market to correct and not go back to the highs.
Jayakumar: Because then you have not otherwise ridden your profits.
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