Lies, damn lies and statistics is a famous saying. Rahul Rathi, the ace investor from the house of Puranartha, has a different take.
“Numbers don’t lie as they are outcome of your actions over a long time.” says Rahul to Ramesh Damani in a free-wheeling chat.
Look the companies such as HDFC, Asian Paints, and Infoys in the Sensex, they have returned more than 250 times since inception. So, observing numbers carefully is very important.
A Puranartha Equity Investment advisor has an enviable track record of generating higher alpha. How do they choose their picks—asked Ramesh Damani who has a great knack for extracting hard-kept secrets.
All novice investors looking to do well in the market should be thankful to him for hiss kind efforts. If you still get loss in the market by investing in low quality stocks in the hope of getting high-returns—only you’re to blame for your miseries.
So let’s come to know his stock selection strategy.
1.High Operating Cash-flow
Any stock that wants to pass the stringent criteria should have at least 11 years of track record, which is a typical GDP cycle in which it has increased, decreased and drifted. A good company should be able to grow its operational cash-flow successfully.
But what about the businesses that generally require high-CAPEX or dividend payment?
The operating cash-flow should be sufficient enough to meet all working capital needs and capex related requirements since this is when ideal debt-free scenario is created.
Amazing! Isn’t it?
2.Strong Volume Growth
After analyzing 160 companies over a period of 30 years, Purantha Capitals found that those companies that doubled their operating cash flow in three years offered maximum return in this period.
3.Invest in Consumer Led Companies
They offer more secular growth and are relatively insulated from the vagaries of GDP growth. They are less volatile.
However, Rahul Rathi was candid to accept his mistake in the J&K Bank. They selected the company because of their monopoly in the state, but soon they come to know this hard truth that recovery mechanism doesn’t work.
So they learned the hard truth that data alone is not sufficient and it should be viewed in the current context.
(This article has been written based on the interview of Mr. Rahul Rathi in Market Wizards by Ramesh Damani )