We all have heard investing folklores of how if you have purchased Eicher shares instead of buying a Bullet motorcycle, you’d have enough to own a BMW or if only you had bought TCS in the IPO, it would have made you a millionaire. The idea is to underline how stocks can generate wealth for those who own them.
If I try and define the holy grail in investing, it’s going to vary person to person. Someone would say beating the market year on year is the ultimate objective whereas someone would define it to be able to make a quick 20-30% on invested capital. However, I define the ultimate objective in investing is to own stocks in a company which you don’t need to sell to book a profit. The stock should just lie patiently in your demat, going up atleast 10-20x in 10 years and returning multiple times of the original capital as yearly dividends.
Now you’ll wonder, does this thing really happen in the real world to people like us. The answer is, yes it does. It not only happens to someone like a Rakesh Jhunjhunwala who owns over a Billion dollar stake in Titan at an average price of less than 10rs and whose annual dividend would be much higher than the amount he invested. It happens to people like us too. Look around for people who owned small shares of Hero, Reliance or TCS and forgot to sell. The shares have gone up more than 500x each with an annual dividend much higher than what they put in to buy those shares.
Also, investing is not about beating the market. This is the one myth which needs to be busted and buried. I’ve gone up more than 5x since the end of 2019 and over 3x since August 31,2020 at a consolidated portfolio level. If I was just trying to beat some arbitrary index, I’d have less than half my net worth today. I stumbled upon this fact almost accidentally. Those who know me closely know that I keep a journal. Going through old logs, I realised my portfolio has gone up more than 100% annually in each of the last two years, of course with some additional capital which I invest. However, this proved to me that going up from 1x to 4x is real and doable.
Our mind is accustomed to thinking in straight lines in terms of growth. So if we have 10l, we think it might grow to 12/15/20 in some years. However, compounding is a different beast. It begins to grow exponentially which our mind can’t fathom. So for someone investing 10l, it’s extremely different to think how her portfolio will look when it crosses 1cr. Similarly, we can’t even imagine what can happen if some of our stocks go up 10-20x.
I’ve previously discussed what Nick Sleep achieved in Amazon or how Jhunjhunwala simply sat on Titan and became the billionaire he is today. This thought was recently reinforced by a brilliant book called the 100 Baggers (image below)
I strongly recommend everyone to buy and read this as soon as possible. The idea enumerated is how we should aim to own stocks which can possibly go up more than 100x from their initial invested price and how this is the best way to generate wealth. Like Mohnish Pabrai said recently in a recent video- the idea is to find a CRISIL and go to sleep for ten years. Once you own something which has a huge runway ahead, the best thing is to leave it alone.
Another book by the same author which I’m reading is called Invest like a Dealmaker. The idea is that while valuing a company, you should look for what another company or a person would pay to buy the entire company in question in a private transaction. This helps you to think in terms of owning minority shares in a business and not just look at the quoted stock prices we observe on our screens.
My learnings over the past two years have been to identify businesses which have a huge runway ahead of them in a growing India, are on the right side of technology and fall either in a rising consumption by a richer Indian middle and upper class or higher investment by the same people. This helps me avoid a lot of companies and saves a lot of work. Further, by using the art of negation, I also avoid anything which I can’t understand without a calculator or with my already developed knowledge base. If I have to read computer programming to just understand a company’s business model, I’m best served by avoiding the stock.
On top of this, which I have articulated in earlier blogs, what I now am looking for is businesses to own forever. Of course, forever seems too far stretched but the idea is to not even worry about price movement, favorably or adversely. I was actually happy when TaMo recently fell 30% as it helped me add to the already built position. Similarly, I fail to understand how ISEC is available at this price. All of the stocks I currently own, including Hero are here to stay.
So combining the two, we should aim to look for businesses which can flourish over the years so that not selling remains the best idea. Further, in order to get over the anxiety of stock prices going up and down on a daily basis, we should always value the stocks as minority ownership stakes in living companies so that our vision aligns with those of the management. I was very happy when a few days back my father told me that we may possibly have to never sell BSE. He owns few shares and has seen it grow 5x from his price. I fully agree with him and like I always say, my BSE shares are not for sale.
PS: Here’s an update on what I wrote about Hero in the last blog- The IT raid story died soon enough and if there’s one news we all must follow is that of EV two wheelers of a lot of brands catching fire across the country in multiple incidents. This makes life of someone like Hero Moto much easier as who would buy an Ola or Okinawa which catches fire. Trust is the most important constituent in mass EV adoption. Also, Ather is almost 40% owned by Hero and there have been no such incidents reported against Ather. Thus, my thesis stands.
Life is all about Compounding! 