Up to 7,000% returns! This Silicon Valley returnee milks market’s downcycles
Parmar prefers to have at least 1:5 risk-reward ratio in his investments.
Pune-based investor Jiten Parmar is extra busy these days; he loves cyclical downturns in the economy and businesses, because that’s where he finds greener pastures to pick potential value bets.
Parmar, 49, claims his success stories in the market have been written on mispriced, contrarian opportunities and cyclical turnaround stories.
He does not spend his energy trying to spot big gainers. Instead, he focuses on creating solid annualised returns.
Peers who know him talk about his knack for identifying gems in market down-cycles. It is such stocks that have delivered him multibagger returns over the past 15 years since he took to serious investing.
One of his early picks, Balaji Amines, is up over 7,000 per cent in last 14 years. He still holds the stock.
Another favourite, Godavari Power, has risen more than 600 per cent since he bought it in 2016 at Rs 63. He has since sold 25 per cent of his holding at Rs 530 apiece. The stock currently hovers around Rs 453.
Rain Industries is another stock that multiplied his wealth in less than three years. He bought it in 2015 at Rs 36 and sold 30 per cent of his holding at an average price of Rs 380. He still holds the rest.
His very recent exit was Piramal Enterprises, which he sold with over 600 per cent returns.
“Jiten is one of the most astute and humble investors I know. He is a master at investing in cyclical businesses. His success story has inspired many to go down that path successfully,” says Gurgaon-based investor Gaurav Sud, who knows Parmar for last 12 years.
Parmar has a sweet tooth for sugar stocks, predominantly a cyclical business. He bought Dwarikesh Sugar, Dhampur Sugar, Ugar Sugar and Triveni Industries in 2015, bagged an average return of 700 per cent in just 18 months and then exited all of them in 2016 and 2017.
Cyclical investing is nothing but value investing, says he.
“You buy an asset that is grossly mispriced due to the business being cyclical in nature. And sell it when the stock comes close to its intrinsic value,” he says.
Paper is another pocket Parmar is fond of. He bought Kuantum Paper, Star Paper and West Coast Paper from end of 2015 through the first few months of 2016, earned on an average 600 per cent returns on them in next two years and then exited.
ETMarkets.com could not independently verify all of his holdings at present or back then.
“I do not run after multibaggers,” Parmar claims. “I am more concerned about CAGR return of my portfolio. As long as the portfolio delivers above-average returns on a CAGR basis, I am happy. One has to understand that the market does correct periodically and all portfolios take a hit. The only thing one can do is minimise that knock. I am a firm that no one can consistently call the top of the market,” Parmar told ETMarkets.
His keeps investing strategy, too, is simple: understand the sector, study past cycles and find out the reasons why a stock is mispriced.
Parmar swears by the India growth story, and says in the currency one should keep investing at every dip.
He says while the domestic market currently faces short-term challenges on the macro and political fronts, the micro factors look better. “Investors with a view of over three years should keep investing at all corrections. I like infrastructure, specialty chemicals, paper, fertilisers and agri-related, auto ancillary and metals sectors,” he said.
In between talks, Parmar suddenly stops to serve a disclaimer: “I am not a Sebi-registered analyst and the stocks mentioned are not recommendations”.
He says investors should not get wedded to a stock just because it has delivered multibagger returns once. One should keep challenging an investment decision on valuation and fundamental parameters. “One must keep reading all filings of the company, quarterly results, shareholding patterns and annual reports and try and attend analyst calls,” he said.
One must understand P/E re-rating and de-rating in different phases of the market, and adjust accordingly, says he.
“Valuation is an art. Investors need to understand the concept in different phases of the market. In a bull market, one might get slightly higher valuations, and in a bear market, one may need to adjust,” he said.
How does he judge a company management?
Reading past annual reports, say for five years, is a must before taking exposure to a stock, says Parmar.
“A report can tell you a lot about the company management,” he said. Annual reports can help investors know whether the management is always over-promising or under-delivering. It can tell you if the management is realistic about the challenges in the market.
“I rarely meet company managements. I prefer to let their performance speak for themselves. I read balance sheets diligently, and try to find red flags in them. I read transcripts of concalls, if available. That speaks a lot about the management’s ability to deliver on it promise. One has to assess whether the management is good at capital allocation and frugal in operations. Insights into cash flow patterns can also help avoid mistakes in investing,” said he.
Mistakes are opportunity to learn and failures the stepping stones to success. That’s a piece of Parmar’s own wisdom
He says investing has four parts: conviction, valuation, discipline and patience. One who gets all these aspects right will rarely lose money in the market.
He said conviction comes from research about a company, sector and competitors, while valuation is an art and science. “Look at the margin of safety. Risk-reward ratio is something you should be always focusing on. That’s where valuing a business comes in handy.”
Parmar prefers to have at least 1:5 risk-reward ratio in his investments.
“Conviction has to be seen in conjunction with valuation. A business might be great, but the price may not offer value. On the other hand, one may get an average business at huge undervaluation. I prefer the second option, as long as I understand the business,” says he.
Be greedy when everyone is fearful, and fearful when everyone is greedy. That bit is familiar. But Parmar has another take on this: “It’s easy to say, but very difficult to follow. That's where discipline comes in,” he said.
Patience is another important virtue in investing. One must understand that stock prices follow company performance over long periods. In the short term, the market is mostly irrational and inefficient.
“One must be able to bide time and wait till the market is ready to give a fair price to a mispriced bet,” says he.
Many investors lack temperament in investing. They are more focused on short-term market gyrations, and a lot of times they miss the big picture. “Investing is simple, it is we who make it complicated,” Parmar said.
What attracted him to stock market?
Parmar’s father had invested in the IPOs of Hindustan Unilever, Grasim and Tata Motors, among others, which helped the family in tough times. He made enough money on them to be able to buy a home and marry off his daughters. This helped Parmar Junior understand that wealth creation through stock market.
A software engineer by education, Parmar went to the US in 1992 and worked with HP in the Silicon Valley. In 1995, he co-founded a consulting company called Aquas Inc with a capital of $2,000. “We grew rapidly and were acquired by a Nasdaq-listed company in 1998-1999. I returned to India in 1999,” he recalled.
Parmar’s first investment was Microsoft, where he invested more than two decades back.
“Back then, I was not well-versed with fundamentals. Over the years, and mainly after returning to India, I learned the intricacies of the market. Being an engineer, balance sheet reading did not come to me naturally. But I had the passion to learn and over time learned to figure out financials,” he said.
His passion turned him into a full-time investor. Today he also conducts seminars in equity investment. “I have conducted many sessions on the behavioural and temperamental aspects of investing. I like to share whatever I have learnt and love to learn from others,” says he.
Parmar, now a partner at Pune-based investment advisory firm Aurum Capital, saw wealth creation through stock market from close quarters during his stint in Silicon Valley.
“Stock markets give companies the value they deserve. Many tech bellwethers of today started and listed right in front of my eyes. Yahoo, Google, Netflix and so on. That's when I realised this is what I want to do: become a partner in this wealth creation,” he said.
The journey was not that smooth, though. He did burn his fingers in a couple of stocks such as Assam Company, Alok Industries, Euro Ceramics, GEI Industrial and ICSA. However, he was quick to realise his mistakes and exited the stocks fast.
“I have made many mistakes in my investing career. We all make mistakes; what is important is to realise and learn from them,” he said.
Parmar says Benjamin Graham’s The Intelligent Investor is his bible. He loves to learn from great investors and then tries to develop a customised approach that would suit him.
“I do not follow anyone blindly. Books can only be a starting ground. The best teacher is experience. And outcome depends on your adaptability,” said Parmar.