Beat SENSEX by 3310% by cloning the portfolio of Mr. Rakesh Jhunjhunwala
How much money a retail investor could have made just by copying the portfolio of Mr. Rakesh Jhunjhunwala?
Three years ago, we (Varun, Priyabrata & myself) took this up as one of the projects during our MBA program at IIM Ahmedabad under the guidance of Prof. Joshy Jacob.
We created a lagged portfolio that mimics Mr. Jhunjhunwala’s portfolios with a lag of a quarter i.e. Mr. Jhunjhunwala bought stock X in Q1 then a retail investor will buy it in Q2. To create such a portfolio we took time-shifted prices i.e. companies held for quarter t and prices used for quarter t+1. The number of shares was exactly similar to the one used by Rakesh Jhunjhunwala. The analysis was performed for a sixteen-year period from
Jan 1, 2002– Dec 31, 2017.
Findings
- Returns of Mr. Jhunjhunwala: 29.68% Annualised Returns OR 6300% cumulative returns (64x)
- Returns of BSE Sensex during the same period: 16.1% Annualised Returns OR 990% cumulative returns (11x)
- Returns of a portfolio that mimicked Mr. Jhunjhunwala during the same time period with a lag of a quarter: 26.72% Annualised Returns OR 4300% cumulative returns (44x)
Basically, one could have beaten the index by 3310% by just replicating Mr. Jhunjhunwala’s portfolio. Detailed calculations, raw data & approach are provided below.
Project Motivation & Goals
What is cloning: Replicating the holdings of fund managers in a portfolio basis publicly available data and then rebalancing the portfolio as and when required as per the fund managers' actual transaction.
A case for cloning: Despite the fact that the cloning investment strategy has a time lag, there have been many reports, which hint about its success in comparison to the overall market.
Mr. Mohnish Pabrai has widely advocated cloning as a strategy. Warren Buffett has admitted that his early success was a result of ‘coat-tailing’.
There are some academic backing as well. As per the study, A hypothetical portfolio that mimics Berkshire’s investments created the month after they are publicly disclosed earns positive abnormal returns of 14.26% per year. Source
Exploration opportunity in India: Cloning has been explored in the US, it has not yet been explored to a similar extent in the Indian context. The steady rise in BSE SENSEX over the last 30+ years signals scope for long-term cloning-based strategies. In the last 16 years, SENSEX has risen from 3338 in 2002 to 35965 in 2018 producing CAGR 16.1 percentage returns to investors. We were fascinated by the idea of cloning top Indian investors and through this project intend to explore if cloning strategies can beat the average market returns over a similar period?
Methodology & Data
We created quarterly portfolios of Mr. Rakesh Jhunjhunwala by browsing the CMIE database of company filings and collected everyday unadjusted market prices data, split data, dividend data, bonus shares, and share buyback data of all the companies in Mr. Jhunjhunwalas portfolio for the period 2002–2017
Choice of investor: We choose Mr. Jhunjhunwala because Mr. Jhunjhunwala, a billionaire investor, is well renowned and respected for his stock selection abilities. He has been consistently producing stellar returns in the Indian market for more than three decades. He is considered as India’s one of the most successful investors.
Choice of the time period: We did this analysis for 2002–2017. We had the best data available till the year 2002 in our DB. And the project was done in 2018 so 2017 was the latest year when the information was available.
All the companies that were held by Mr. Rakesh Jhunjhunwala b/w 2002–2017 Link #1 & lagged portfolio Link #2
Data is taken based on the company filing i.e company needs to declare names of all the investors who hold more than 1% stakes in the company on a quarterly basis.
To identify all the stocks that Rakesh Jhunjhunwala held, we clubbed the shareholdings of “Rakesh Jhunjhunwala”, “Nishtha Jhunjhunwala” (daughter), “Aryaman Jhunjhunwala” (son), “Aryavir Jhunjhunwala” (son), “Rajesh Jhunjhunwala” (brother), “Raju Jhunjhunwala” (brother), “Rekha Jhunjhunwala” (wife) and “Rare Enterprise”.
Entry date: For all transactions, the date of purchase was assumed to be the first date of the quarter
Example → Mr. Jhunjhunwala held AGRO TECH FOODS LTD. in Q1 2002. We would not know the exact date on which he had purchased the firm so we had assumed that he has purchased it on Jan 1, 2002.
Exit date → if the holdings in a firm were reduced to less than 1% then it will not be reported in the filings. In such cases, it was assumed that Mr. Jhunjhunwala has completely exited at the last date of the previous quarter.
Example → Mr. Jhunjhunwala exited ALACRITY HOUSING LTD in Q1 2004. Exit Price Mar 31, 2004.
Prices of the lagged portfolio had a delay of one quarter i.e. for AGRO TECH FOODS LTD., Entry Price on Jul 1, 2002 (you get to know about the info in March filing which will be released during Q1), Similarly Exit Price for ALACRITY HOUSING LTD has been taken as Sep 30, 2004 (Till March he was holding, so in March filings, you will find it but he exited the next quarter. So you get to know about it during Q1 filings)
We have taken the first or the last trading days in the qtr for taking prices.
If you want to read more about our work, you can refer to this report Link although the scope of the project was more than the simple insight which is shared in this article.
Disclaimer
We do not recommend replicating Mr. Jhunjhunwala OR any particular investor. Please do your own research for your personal investing. Consider it an academic or fun exercise to explore the scope of cloning in the Indian context.
However, if you are interested in exploring this theme then please check out this article → Cloning super investors as the investing strategy
