When one buys real estate asset, be it land or apartment or commercial space, one looks at it as an enduring asset.
Rome was not built in a day is an adage which has a relevance at all steps. Today, with the information blitz around us, the art called ‘patience’, is at a premium. Instant gratification is the order of the day. And it is not uncommon for the investors to aspire and in fact demand for, immediate price movements in the equity markets.
Look at long term
Why is it that the majority of the investing public has taken to immediate price gains and not looking at equity as a wealth creation asset, standing the test of time. When one buys real estate asset, be it land or apartment or commercial space, one looks at it as an enduring asset. An asset, which one is proud of and can also brag about to peers. When it comes to equity, the desire to make a quick 5%, 10%, 20% gain is all what one is looking at.
Let’s take a look at the growth of Maruti Suzuki as a case study. The IPO was in June 2003 at a price of `125. It listed at `164 and had a listing gains in excess of 30%. There were many investors who took the listing gains, and never to re-enter it, in many cases.
Today, the share price of the same stock (excluding dividends) is over `6,700. More than 53 times growth in 14 years and a CAGR over 30%. Moreover, in the last one year, the share price has gone by more than 75%. In the first 14 years, the share price grew by 30 times and in the last one year, by another 23 times. Any shareholder, who has held since inception is reaping the fruit of patience.
Do remember in December 2008, the stock price was at 515 levels, or 13 times growth in nine years; a CAGR of 33%.
This is only a success story, but then there are other instances of stock going underwater. Hindustan Motors or Premier Automobiles. Both the companies were in the same industry as Maruti Suzuki and today none of them is in existence.
Today, with the internet around, the information blitz is both good and bad. Good because you have data to analyse and take more better informed decisions. Bad — for the same reason, as too much data can cloud the good points and lead to decision paralysis.
If we take the above example, there were enough reasons for an investor to sell at various times, as the Investor has already made profits on the IPO. What stopped the Investor not to sell and book profits and re-deploy in a new stock ?
Majority of the retail investors are averse to sitting tight on the current holdings. The craze for activity is all-pervasive. And coupled with constant newsfeed, peer pressure and greed, the virtue of holding to a stock is a rarity. How do we build this patience? Or can we have patience? Yes, it can be cultivated. Have a checklist in place, detailing the action points on which the decisions will be executed.
In the personal lifestyle, incorporating meditation in the morning ritual, is helpful at the time of decision making. Undertaking this daily, soothes the brain and allows a more rational decision making ability.
The stock-picking skills can be redundant, if its not combined with patience and the ability to ride the gains over multiple time horizons. It’s not necessary that you need to have multiple stocks in the portfolio. A concentrated holding can also work, if you are able to imbibe the art of patience in your investment approach.
-The writer is managing partner of Bellwether Advisors LLP