Rakesh Jhunjhunwala's Real CAGR

I have always wondered about the real CAGR achieved by the big investors. Stories are created and floated in the market to make their achievements look much bigger than what they actually are. Rakesh Jhunjhunwala is unarguably the most successful investor on Dalal Street. I was always interested in knowing his real CAGR. The problem is that the stories created around him make it almost impossible to gauge that. It requires some glimpses into his early years as an investor/trader to know the approximate CAGR achieved by him.

As per the fable, he came to Dalal Street with 5000 Rs in 1985.  And now considering that his net worth is close to 2 billion dollars(12000 crores), the CAGR achieved will be closer to 77%. For a 30 year period, achieving a 77% CAGR looks almost impossible, and I never bought into the story.

Recently, RJ was interviewed by Ramesh Damani and N. Jaikumar (of Prime Securities fame in which I successfully managed to lose two thirds of my original capital in 2008 in just 3 months. Sometimes, I will write a blog on phony, nice sounding, TV-appearing people and their investment (mis)achievements but for time being let us focus on their interview). A good portion of the interview was spent around the early years of RJ in Dalal Street. Some facts were stated about his early years, which make his story much more clearer to us. As per the story, even though RJ came to Dalal Street with 5000 Rs in 1985, in 1986 he made 25 lakhs. This is a very very important fact and takes us much closer to the real achievements of RJ.

Being investors in the market for long, we all know that by no means one can convert 5000 Rs. to 25 lakhs in a single year. So, assuming that RJ started his investing journey with 5000 Rs is either false or only partially true. At least, the fact that RJ started his investment journey with only 5000 Rs should not be interpreted as "he had only 5000 Rs and all his net worth was created out of these 5000 Rs by investing them in the stock market" as most of us do. Based on the facts stated by him, it is highly likely that he had at least 10 lakh Rs to invest (assuming that his networth jumped by 3.5 times (highly optimistic) in the first year). So, a much more realistic scenario is that RJ started his investing journey with 10 lakh Rs in 1985 and now in 2015 he has 12,000 crores. This is a CAGR of close to 48%, which is great by all standards but much more realistic.

The other way to calculate his CAGR will be to ignore the first year and go by the fact stated by him about his networth in 1986. So, if we remove the first year and start from 1986, his networth has jumped from 25 lakhs to 12,000 crores in 29 years. That will still be closer to 45%. So, based on all the realistic facts, RJ has achieved a CAGR of 45-50% for 30 years. That is a great achievement, but not very unrealistic. All of us can target for it, and probably many of us will be closer to that for a shorter period of time.

The most important lesson of this fact is as follows. "If one can compound his networth at 45% for a 30 year period, he can easily become a billionaire starting from a modest sum of 10 lakhs". Another important fact that we should not ignore is the drop in CAGR rates with the increase in the corpus size. So, in the same interview, RJ mentions that his networth was 20 crores in 1990. That is an increase of almost 100 times in the first 4 years of operation. That will put his CAGR for first 4 years at 200+%, which is truly remarkable. But this also points to the fact that RJ has achieved only 30% CAGR since 1990 which is remarkable but not very far from what many investors have achieved on Dalal street for a shorter period of time with smaller corpus sizes.

Based on all these facts, it appears that RJ's journey has been great but not an impossible one. Many of us can try to emulate his journey and hope to do equally well.

Please find the link to the interview below.

http://www.moneycontrol.com/news/market-outlook/grab-opportunities-buy-first-research-_1329409.html