[Disclaimer]: In this post, I have highlighted my broader logic towards stock market investing. This blog shouldn’t be considered as stock advice or investment philosophy recommendation. The purpose of this blog post is not to boast about my successes or weep over my failures. The only purpose of this post is to show how a sound logic coupled with market understanding can help you grow your money.
If you are from a middle class Indian family where one or both the parents spent their entire career in a 9 to 5 job, there is a high probability that you would have been warned by them to stay away from the stock markets.
In fact, I know few people in my parent’s age group who call stock market as “Satta Bazaar” (a gambling place) because of the fear that it’s all luck in stock markets.
For them, investing in equity is a sham in the name of “get quick rich scheme”.
However, there is more than what meets the eye here.
The same people who consider stock market as a gamble have never put enough time to understand the basics of investing or to research about the good businesses that exist in India.
Unfortunately, they have passed the same belief to the next generation.
More than that, they tried their hands once or twice in the stock market by following a research tip from a friend, only to burn their hands badly in the entire pursuit.
The purpose of this post is to break this very myth that stock market is a gambling place.
I will show you with examples that if you understand the market well and invest in right opportunities, you can make quite a lot of money.
Ok, no false promises here.
Idea is not to earn hell lot of money but beat the inflation adjusted returns. A windfall is just a byproduct.
And all you need to do is put in an effort to understand the functioning of the economy, the business and the stock markets, just like I have been doing for the past couple of years.
Remember, it’s not a “get rich quickly” scheme.
Understanding stock markets takes patience and time; nevertheless that’s not an impossible task.
If I can do it, so can you.
Before I discuss my stories, let’s understand the 4 metrics I have repeatedly used in the rest of the blog to measure my success:
- Purchase Price stands for my Average Purchase Price of that particular stock. I have attached screenshots against every stock as a proof.
- Market Price stands for Current Market Price of that particular stock as of 1st June 2018.
- CAGR stands for Compounded Annual Growth Rate i.e. how much my investment grew year on year, compounded. A negative CAGR means a loss.
- XIRR stands for Extended Internal Rate of Return, it’s basically something like CAGR, but when there are multiple investments across a time frame. A negative XIRR means a loss.
Without delaying any further, here are my success stories:-
1. Stock Name: Hero Motocorp
Purchase Price: INR. 1754 Market Price: INR. 3500+ Return (XIRR): ~14%
I purchased Hero Motocorp way back in 2013.
If you were born in the ‘80s, you would understand the privilege one carried if he owned a Hero Honda motorcycle.
The same privilege I now carry because of the wealth this stock helped me made.
My trigger point for investing in this stock was the observation that all the incumbents (like Bajaj, Kawasaki, Honda etc.) were introducing lower cc bike models, a market where Hero was the market leader.
Clearly, everyone was targeting Hero’s market. But no one had as strong credentials as Hero.
Bajaj’s flagship product was the Pulsar range targeted towards the urban youth, Kawasaki had Splendor which was a higher priced product and same with Honda’s CBZ that was targeted towards the urban youth.
So it made sense to invest in the market leader. And the way incumbents were targeting Hero’s market, the reverse was also true.
In all, Hero looked an attractive story to me.
Result: The consumption story picked up and my investment in Hero has more than doubled in a span of just 4 years.
2. Stock Name: Ashok Leyland
Purchase Price: INR. 52 Market Price: INR. 150+ Return (XIRR): ~40%
In the year 2014, I had to shift my apartment twice.
The common thing during both the shifting exercises was that the movers and packers company had an Ashok Leyland Truck with them.
Both the times, I happen to strike a conversation with the driver to understand the difference between Tata trucks and that of Ashok Leyland.
I got a very good feedback for Ashok Leyland in both the instances. This feedback was coming straight from the horses mouth.
At the same time, I also happen to go through a news where Ashok Leyland had won a big order to supply buses to a state transportation department (I guess it was Delhi but I don’t clearly remember).
The competition was with Tata Motors, Eicher Motors and Swaraj Mazda.
That was my trigger point to buy Ashok Leyland. They had a great product in hand and they were going aggressive in both the domestic and the export market.
Result: Over the years, Ashok Leyland has actually gained market share in Indian Commercial Vehicle segment, mostly at the expense of Tata Motors. This reflected in the share price as well and as of now, my present value in the stock is 3 times the original investment amount, in just a span of 4 years.
3. Stock Name: Power Grid
Purchase Price: INR. 86 Market Price: INR. 200+ Return (XIRR): ~18%
Power Grid was the first stock I purchased in my life.
The logic was simple: it’s a Public Sector Undertaking responsible for planning, executing, owning, operating and maintaining the high voltage transmission systems in the country.
As India develops and power reaches to the hinterlands, this company will get more orders, more revenue and more profits.
The growth looked immense.
Result: True to my hypothesis, PowerGrid showed a steady but phenomenal growth over the years. It has been 10 years since I purchased this stock (though I sold a few in between) and have generated decent returns.
4. Stock Name: Mphasis Limited
Purchase Price: INR. 442 Market Price: INR. 1100+ Return (CAGR): ~30%
I started my career as a developer with CSC and post MBA, I joined HCL as a presales consultant. The role at HCL involved bidding for multi million dollar IT projects in the Western markets.
Most of the times, we would come across TCS and Infosys as our competitor. However, at times we do crossed our way with Mphasis, Hexaware and NIIT.
These companies were a new breed of IT companies who were hungry for growth and the aggression showed in their sales approach to the deals.
That was my trigger point to invest in Mphasis. I was already invested in TCS and Infosys, but the growth had slowed there, thanks to the base effect.
Result : Mphasis stock price has doubled over the years and is making me smile till this date.
5. Stock Name: Finolex Cable
Purchase Price: INR. 203 Market Price: INR. 680+ Return (CAGR): ~36%
Frankly, I don’t remember why I purchased Finolex.
But whatever may be the reason, it is one of the star performers of my portfolio which has generated a return of 36% year on year.
6. Stock Name: Voltas
Purchase Price: INR. 219 Market Price: INR. 530+ Return (CAGR): ~28%
Voltas is a company that benefited from the Indian middle class story.
As more people shift to middle class, improvement in income and lifestyle happens and the demand for white goods increase.
Voltas, a Tata company, has a strong brand name when it come to air conditioners. Till few years back, air conditioners were a luxury, now they are a necessity.
That was the logic I followed when I decided to invest in Voltas.
Result: The market of white goods in India expanded as a whole, it was a no brainer. Though the competition has also increased, Voltas has hold to its ground and is one of the top 3 considerations for an average person who is out in the market to buy an AC.
7. Stock Name: KEI Industries
Purchase Price: INR. 121 Market Price: INR. 480+ Return (CAGR): ~138%
One of my friends who is into equity research suggested me to buy KEI Industries, with a target that the stock will double in an year.
Coincidentally, I had a cousin who is into electrical goods business. A quick chat with him and I got to know that Kei is the defacto brand for cables and wires when it comes to industrial projects (like offices, warehouses, retail stores etc.).
However, their focus on retail segment was next to nil.
But then came out the secret that the company is trying to increase its brand visibility and pushing the product in retail channels as well.
Result: Given that the company had a strong brand name in one market segment but not in another, there appeared to be a good growth potential. The hypothesis eventually got true and the stock price increased by more than 3 times in a span of a single year.
8. Stock Name: Biocon
Purchase Price: INR. 325 Market Price: INR. 650+ Return (CAGR): ~112%
I have always been a fan of Kiran Majumdar Shaw and have been tracking Biocon since a long time.
My window of opportunity appeared in July 2017 when there was a news related to USFDA raising concerns on one of Biocon’s plant.
The stock got a good beating and witnessed heavy selling because the market expected the earning would take a hit because of the FDA concern.
I took an opposite and a long term view that Indian pharma majors have lot of firepower in them, plus US FDA news is a temporary phase. The bread and butter of our pharma companies comes from US and eventually, they have to comply to the standards set by the agency – they just don’t have any other choice.
Result: Eventually the concerns by US FDA were addressed and stock price happened to double in a span of less than an year. A happy me 😊
9. Stock Name: Avenue SuperMart
Purchase Price: INR. 299 Market Price: INR. 1570+ Return (CAGR): ~503%
D Mart’s parent company is a typical example of how a good stock makes money beyond anyone’s imagination.
I made money in this stock because I was lucky enough to get the stock allotted during the IPO proceeds.
The IPO of Aveneue Supermart was a super success, thanks to Ramesh Damani’s backing as the promoter of the company and strong numbers projected by D-Mart (for comparison sake, the retail margin of D-Mart is even better than that of Walmart).
Result: The allotment of the stock happened at Rs. 299 and the current market price is Rs. 1500, i.e. an appreciation of 5 times in a span of 1 year. Can you beat that?
While I sold few shares at around Rs. 725 to safeguard my principle, I am still holding the stock in my portfolio.
10. Stock Name: Apex Frozen
Purchase Price: INR. 175 Market Price: INR. 556+ Return (CAGR): ~437%
Apex Frozen is a company that exports sea food (like fish, shrimps, lobsters etc.) from India.
I am not sure why I applied for the IPO since I didn’t understand even an iota of their business model.
However, I am glad I applied and was lucky enough to receive one lot during the allotment stage.
Result: The stock has appreciated to 3 times its allotment value in a span of 1 year.
Till now, you have read only about my success stories.
However, the picture is incomplete without knowing about my failures.
All the below mentioned failures happened due to one single reason: I was trying to factor in a news item and playing for the short term.
Luckily my losses are not that much and overall, my success stories (and profits) outnumber my losses, thus resulting in an increase in my networth.
1. Stock Name: Ashiana Housing
Purchase Price: INR. 184 Market Price: INR. 150+ Loss (CAGR): – 40 %
I was reading an analyst report before the 2018 annual budget.
The report mentioned high probability that the government will come up with some scheme to boost affordable housing in urban areas.
One of the beneficiaries of this scheme would have been Ashiana Housing which is into construction of affordable homes in the Mumbai region.
Result: Govt. never came out with such scheme and the stock price is moving downhill since the start of 2018. I think my purchase price was also not right and it was stupid of me to buy the stock at such an expensive level.
I am still holding this stock and will wait for some more time before I book my losses.
2. Stock Name: India Cement
Purchase Price: INR. 180 Market Price: INR. 130+ Loss (CAGR): – 38 %
Again, I bought this stock after reading an analyst report which talked about the extra capacity that India Cement has added. This is to fuel the company’s growth outside its home state of Tamil Nadu.
While the information appeared like a good story, I missed on the point that cement is a cyclical business with lot of government involvement and price controls.
Result: Again, my entry point in the stock was at a time when it was touching its 52 weeks high. After budget, cement sector as a whole went into decline and India Cement followed a similar trend as well.
3. Stock Name: Jain Irrigation Systems DVR
Purchase Price: INR. 91 Market Price: INR. 60+ Loss (CAGR): – 63 %
Jain Irrigation System manufactures irrigation equipment like drip systems, sprinkler systems, irrigation automation systems etc. It’s huge manufacturing company with 32 plants and a good hold in Maharashtra.
I was playing on the short term news expectation that Union Budget 2018 will come with a package to boost the agriculture sector and Jain Irrigation would then happen to be one of the beneficiaries of such a package.
Result: Against my hypothesis, no package was announced in the union budget and the stock is on a downward journey since then.
Over the years, I have realized that I am good in predicting long term macro economic indicators and identifying stocks that will benefit from the growth story.
Also I taught myself how to look at the financials of the company (yes, the MBA degree did help but not to a great extent). Basics like levels of debt, PE ratio, y-o-y cash flow statement & balance sheet and annual reports were always referred to drive inferences and understanding of the business.
At the same time, I have also realized that I am extremely bad with short term news flows and predicting the stock price movement in the immediate time frame.
That’s what you can see in the 3 failures I mentioned above. All the investments made with a hope of riding a short term news flow just went down the drain.
However, the point I want to drive here is that when you deal in equities, your chances of being right have to be more than your chances of being wrong.
Eventually, your networth should increase in the long run irrespective of the number of times you win or lose.
If your net worth is not increasing on year on year basis, may be you should spend more time in understanding the right picks or move to mutual fund investments.
This was all about my story of investing in Direct Stocks. I would like to know your experiences and the results you have achieved as part of your investment journey.