Rakesh Jhunjhunwala's Approach of Investing

The future is always uncertain and therefore a prudent investor invest in the "realms of possibilities". He assess what possible outcome is likely in the company's profit performance and what kind of valuation it can produce.
Here, I basically focus on Rakesh Jhunjhunwala's investment approach which has following five elements
-Efficient asset allocation
-correct stock selection
-Exit horizon
-Disciplined leveraging
-consistent review

EFFICIENT ASSET ALLLOCATION
-Analyze what percentage company allocate to which asset class
-It depends on growth prospects, risk profile, valuation of each asset class etc.
-Determine weightage of each class, and deciding on level of leverage

CORRECT STOCK SELECTION
- When we invest in a company we invest in a business model
-All profit arise due to certain prevalent factors which are also dynamic in nature
-In general we can categories these factors into:
EPS related, which include external opportunity, competitive ability, scalability and people
PE related, which includes price value divergence.

EXIT HORIZON
-It is important to exit the investment at a favorable time and price
-For, Rakesh Jhunjhunwala, existing a stock is an independent decision not driven by profit or loss. He would like sell if he judge that he has better competitive opportunities.
-Since price=EPS*PE, he would also sell when the EPS or expectation about the EPS of a company peak, coupled with PE ratios that are unsustainable.

DISCIPLINED LEVERAGING
- Most of the large successful equity investors have never taken debt for investing-never leveraged. But Rakesh Jhunjhunwla were never been averse to leveraging
-He believes in magic of emotionless and disciplined leveraging. Leveraging allowed him to magnify his investment and earn meaningful returns.
-He leveraged only to extent of his ability to service interest cost and principal repayment.
-He structured his leveraging in such a way that dividend from his investment was enough to repay interest and establishment costs. Leverage doesn't exceed more than 10% of his portfolio value.
-Liquidity is the key to leveraging. We should hold liquid shares at least five times greater than the amount of leverage so that we can de-leverage ourselves at great ease whenever so desired.


CONSISTENT REVIEW
-Review your investments for the changing circumstances because it could alter your assessment of future
-Don't make your entire investment in one go but does it in various stages as thing pan out.

We must realize that the future may not be what we assessed it to be. The ingredients of successful investing lie in locating gaps between current expectation and future likely performance.