I recently met someone on a flight. When I asked
about his investments, he looked at me suspiciously and said, “I don’t
invest in equity any more, I’ve always lost money. But gold is doing really
well.”As you can imagine, I spent the next few minutes converting him to my
firmly held belief that the best way for investors to get inflation beating
returns is through equity investing. I hate to admit it but I don’t think I was
successful.But here is a fact for you:
- Rs 100 Invested in equity 30 years ago would
have grown a 100 times
- The same Rs 100 in any other asset class would
have grown 22 times, at most.
Every article you read and investment program you
watch on TV will tell you that you should be investing for the long-term. There
are two reasons for this:
1. Wealth creation takes time
2. Equity returns are not fixed and you must be
prepared to stay invested for a few years to get better than average return.
Note 1: The chart ends on March 31, 2012 (financial
year). As on December 31st, 2012 the Sensex return was even more: 112 times!
Note 2: The impact of taxes is not considered.
Equity has no long term capital gains tax. All other investments except PPF
attract income or capital gains tax – further lowering the return.
So one should definitely invest in Equity and even
delay buying property.
Rakesh Jhunjhunwala is popularly known as
Indian Warran Buffet, is worth $1.86 billion (Rs.11, 346 Crore @ 1 USD = Rs.
61).
This entire Rs.11, 346 Crore has been built during last 3 decades through investing in Indian equity market, clearly shows how big equity market is either one give time or get advice from the financial advisor to get the best return.
Though he also trades at times, most part of his wealth has come from investing in high quality companies for long term and sticking on to this even the intermittent falls.
Conviction is more important, than what we know about anything!
Jhunjhunwala bought Titan shares in 2002-03 at an average price of around Rs 5; the stock then rose to touch Rs 80 and later fell to Rs 30, but he did not sell a single share. “That Rs 30 is nearly Rs. 400 today. And when it fell from Rs 80 to Rs 30, I lost Rs 300 Crore of value in my portfolio. But I never sold as I thought that neither EPS [earnings per share] nor PE had peaked and there was a lot of growth still to come.”
Jhunjhunwala plans to give away Rs 5,000 Crore or 25 percent of his total wealth, whichever is lower, to philanthropy when he turns 60 onJuly 5, 2020. And Jhunjhunwala’s track record would validate the
chances of both targets comfortably.
This entire Rs.11, 346 Crore has been built during last 3 decades through investing in Indian equity market, clearly shows how big equity market is either one give time or get advice from the financial advisor to get the best return.
Though he also trades at times, most part of his wealth has come from investing in high quality companies for long term and sticking on to this even the intermittent falls.
Conviction is more important, than what we know about anything!
Jhunjhunwala bought Titan shares in 2002-03 at an average price of around Rs 5; the stock then rose to touch Rs 80 and later fell to Rs 30, but he did not sell a single share. “That Rs 30 is nearly Rs. 400 today. And when it fell from Rs 80 to Rs 30, I lost Rs 300 Crore of value in my portfolio. But I never sold as I thought that neither EPS [earnings per share] nor PE had peaked and there was a lot of growth still to come.”
Jhunjhunwala plans to give away Rs 5,000 Crore or 25 percent of his total wealth, whichever is lower, to philanthropy when he turns 60 onJuly 5, 2020. And Jhunjhunwala’s track record would validate the
chances of both targets comfortably.
He is one of the largest shareholders in CRISIL. In
2005, he has sold CRISIL shares worth Rs.27 Crore to buy a house in Mumbai.
That house is now worth Rs. 50 Crore.The annualized return from his house
stands at 7% during last 9 years.
The CRISIL shares he sold for Rs. 27 Crore is now worth around Rs. 700 Crore. This works out to a whopping annualized return of 44%. The opportunity loss is Rs. 650 Crore, in addition to that 40 Crore worth of dividend.
We don’t have wealth the size of Rakesh at any point of time, but we miss wealth making opportunity like above by buying a home in the initial part of our career there by losing opportunity to create wealth through equity.
All we should do is to invest in equity in early part of the career and buy the house in the later part. Remember, your father never bought property in the beginning of his career.
The CRISIL shares he sold for Rs. 27 Crore is now worth around Rs. 700 Crore. This works out to a whopping annualized return of 44%. The opportunity loss is Rs. 650 Crore, in addition to that 40 Crore worth of dividend.
We don’t have wealth the size of Rakesh at any point of time, but we miss wealth making opportunity like above by buying a home in the initial part of our career there by losing opportunity to create wealth through equity.
All we should do is to invest in equity in early part of the career and buy the house in the later part. Remember, your father never bought property in the beginning of his career.
Since, most of our earning goes into the EMI of the
house; we never get an opportunity to create big wealth which equity is the
only asset class capable of providing us.
