It is said that the stock market is a business which does not have any entry barrier. Anybody can become a stock broker and an investor. 20 years ago when I started, the list of great investors included Rakesh Jhunjhunwala, Raamdeo Agrawal, Nimesh Shah and Radhakishan Damani. Yet 20 years later the investors are still the same.
The investment experience is very cumulative in character. At least I started like a useless fellow. In 1984-85, when I passed out from CA, I came into the stock market and I am quite sure all the names you said at the young stage must have been in the stock market. They must be mad after the stock market knowing nothing a lot of kids I see in my office or whenever I meet anywhere all come to meet me. The issue is what do you do after that. When you start your career, you have certain handicaps; you do not have capital. I did not have capital; so first I had to figure out how to find capital and that is the biggest problem because zero multiplied by anything is zero.
So first you have to find your patient capital. How do you do that? So I had to find a business model which did not require capital but produces the capital. A business model where you do not need to put capital but it does generate some profit. That was brokering at that point of time. I am quite sure all the investors you talked about have had their own model of generating some initial savings which they then multiplied depending on what opportunities came on the way. Everybody has a different style. All the people I meet are all my friends but there is very little that is common in the set of stocks and yet we all have done very well. So the issue is that everybody has a different style and if there are millions of guys, there are millions of ways of making money. You have to find your way of making money and it takes a lot of time and perseverance to find your style. It has taken me almost 30 years to figure out this is my style and then we coded it as a QGLP. And I swear, when I am confused, I still go to QGLP. So I am quite sure everybody has their own philosophy and style, and maybe they have not coded it, but they are very shaped by their style to pick stocks and sell stocks.
So I think that takes time. Finding your way of investing takes time and hence once somebody finds that it is the way to make money, they keep compounding their money. I am sure in 10 years, you will find 10-15 more guys who would have made actually faster and bigger money than any of us. I am quite sure they are all in the making. But right now what you say is true about some old names, which are still in the forefront.
Why is that we do not have a global example or a local example of a trader becoming a billionaire?
Fundamentally if you see, in the stock market who makes money? All the entrepreneurs made the maximum money. Look at Bill Gates. Look at Mark Zuckerberg or look at Amazon’s Jeff Bezos or Walmart. Even Mukesh Ambani or Tatas or Birlas; the entrepreneurs made the maximum money in the stock market. Why? There is only one exception in this list and that is Warren Buffett who started with nothing and in one lifetime has made half a trillion dollars in Berkshire Hathaway. But that is more of an exception in the rule. So it is very difficult to imitate him. You can learn from him but his journey to be repeated is like a 10 sigma event. So you are not going to find many Buffets in any part of the world.
What happens is there are multiple probabilities; like you sow the seed at one end and then every year there is a challenge in that particular outcome and every outcome has to be positive. So it is like a toss of a coin; 50 times you toss and every time you have to become the winner and that last guy is the compounded win in that particular game. So there are millions of businesses which are born and 99.9% businesses die out or they remain very small in the process.
Anywhere in the world only the few successful ones become Microsoft or if there is one Microsoft, there must be millions of other start-ups in the same field which nobody knows about. So we only talk about the ones who are successful. We read the story about them. We read their biographies. They become the world’s richest guy but nobody talks about the million guys who did not make it. So what does it take to make money? It is a compounding machine; year after year where exactly do you keep making money and do not break down. So that happens in successful businesses. A great business run by great management over a period of time keeps compounding the money and we as an outsider sometimes understand that machine; that this machine has a chance to become great and then we buy one or two per cent at a reasonable price. We can never get at the promoter’s price and then what happens is the promoter is stuck with the company for the next 30 years. We are not committed to staying for 30 years.
In one year, two years, one quarter, four years or five years, we make money sometimes and we lose money sometimes and we get off the track. And then the entrepreneur goes down all the way 70-80%, 90% and comes back. Like Amazon has seen a price correction of 70% three times but Bezos has not sold. Millions of guys have sold out. So the guys who sold out are not making money but Bezos stayed with his 50-60% holding and he is a trillionaire now. So this is the mathematics of difficulty of making money in the stock market and also the pleasure of making money in the stock market.
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