I bought HDFC Bank in 1996
In 1996, I was a greenhorn in the stock markets. My guide and mentor then had a few years experience but in hindsight was even more naive than me. I did not know about Beginner’s luck but I had the luck of not just entering the market at a time when sentiments were not great and arbitrages all around but also at the cusp of the dot com bubble.
I was able to buy stocks of quite a few good companies along with a lot more of the bad ones, some of which remain in my custody even today. One such purchase was HDFC Bank. I bought 100 shares which was the minimum lot size in those days for HDFC Bank at around 40 bucks.
HDFC Bank that trades today has a face value of 1 versus the face value of 10 which I had purchased then. Adjusted, my buy price would be 4 bucks. At today’s closing price that would mean a CAGR of 27% over the last 25 years.
The investment of 4000 hence is now worth 16 Lakhs. A very nice sum but one which won’t change the life of any person who has been investing for 25 years. What would have changed is if I had either bought a much higher quantity at that point of time or added through and through the years. Doing neither means that the outcome while extremely satisfactory is nothing really great to talk about.
Tweets of the nature below are common
Bias for some reason is supposed to be a wrong word to use. People I admire seem to suggest that one should not attach biases to such analysis. But biased is what the tweet really is.
At the same time as HDFC Bank and at a similar price I bought another bank – Global Trust Bank. While I don’t own the HDFC Bank stock I bought, I hold Global Trust Bank in its Certificate form. Talk about ignorance.
From CNBC to Twitter, everyone loves to talk about the Winners and why not. Stories of success are always inspiring. Becoming the next Jhunhjunwala is all about buying the next Titan and holding it for a couple of decades.
But when Jhunjunwala bought Titan, the future of Titan was very uncertain. The watch business wasn’t really doing great even though HMT by that time was on the decline. Another listed player Timex was facing tough times as well. When Juhunjunwala bought Titan, Titan had just launched its game changer – Tanishq but no one including the management knew that. Indians for long had bought jewellery from their neighbourhood goldsmith and could Titan change that one wondered.
But they did and that changed everything.
Since unlike Warren Buffett, the transactions and holdings of Rakesh are private, it’s tough to glean how much he invested as % of his net worth. Based on some rough analysis I figure it’s somewhere around the 3% mark. That is what even a simple 30 stock equal weighted portfolio will result in. What worked for Rakesh was that he did not do anything in the stock, letting it go through its twists and turns in his incredible journey. Oh, he also allowed the stock to balloon to what I assume nearly 70% at one point of time. Most financial advisors will sweat with even a 7% exposure let alone 70%.
Compared to the 90’s and the early part of this century, the ability to identify future multibaggers has dwindled considerably thanks to a much larger segment of population now involved in digging up any and every information there is about stocks.
These what if scenarios have given rise to stocks that are identified as the next HDFC Bank, the next Titan, the next Asian Paints but the investors would have been better off with the originals than the supposed disruptors, But the story is sold and retail is generally left holding the bag.
Sixteen years back Hero Honda was the market leader in two wheelers. It is the market leader even today. For the investor though, the stock has generated (not accounting for dividends which do add up a bit) a bit lower than what Sensex has generated. So much so for buying Market Leaders which who generate good free cash flow.
I believe having a good understanding of biases helps understand data better. Selectively looking at the winners and assuming how easy it is to build wealth only leads to disappointment unless you have been very lucky in investing big time into at least a few big winners and then had the balls to keep them through and through.
Good Stories are basically a by product of what Charlie Munger says
“Show me the incentive and I will show you the outcome.
The world of finance is driven by incentives. Understanding that helps one read between the lines.
“It’s good to be cynical,” he said. “That is, if you know when to stop. Most of the things that we’re all taught to respect and reverence- they don’t deserve anything but cynicism.”
― Aldous Huxley, After Many a Summer Dies the Swan
Very fuzzy writing
Grammar is spilling over facts…