Stockbaskets are ready-to-invest basket of stocks which are curated by experts to suit varied investment needs.
When you hear about equities, you instantly think of holding it for a long term. “Buy and Hold” is the ideal mantra as legends such as Warren Buffett, and Philip Fisher have followed the same ideology since time immemorial. But how many investors actually follow it? There are famous quotes stating the same “Our favorite holding period is forever”, “If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes”, “If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never.”
However, the reality is completely different as investors get carried away with news and short-term movement in stock prices, which proves to be harbingers in their path to wealth creation. And this very thing is the first mistake investors make as statistics suggest that the average holding period for most companies is below 2 years – Eg. For Jubilant FoodWorks – Avg. holding time-frame is 1.99 years, for PVR it is 2.02 years, and for Bata it is 2.42 years.
This made us dig deep and ponder as to why most retail investors lose money and destruct wealth. We performed a detailed study on all NSE stocks right from inception and the facts are astonishing. 80% of stocks do not beat the expected return requirement of 15% or more from equities.
What is more disturbing is more than 55% companies have given negative CAGR returns while more than 70% companies never beat FD returns. This shows that less than 1 out of 5 stocks actually generate the returns to justify the risks of equity that investors take. If these are the chances of making decent returns, then the ordinary retail investor is facing heavy odds against him to make decent money by investing in equities. This is probably the reason why investing population has not increased much over the last decade.
The probability is heavily against an investor as there is a likelihood of over 80% that an investor is sitting on a losing stock and this very data can be verified with facts – There are over 31 lakh investors invested in Reliance Power, over 13 lakh in Reliance Communications, over 10 lakh in Suzlon, while Hindustan Unilever has only over 3 lakh investors, and Colgate, Dabur have around 2 lakh investors. The variance in the number of investors holding strong wealth creators and wealth destructors is HUGE! It is, therefore, important to educate and guide investors towards the right set of stocks which are not businesses with a low return on equity, poor cash flows, low margins and large discretionary products but are fundamentally sound and are true to their value.
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Selection is the second mistake investors make. A winner always has to bet selectively as it is a tricky art with less than 20% chances of success. Therefore, a basket approach to investing provides the necessary discipline, risk management and diversification on the entire investment instead of considering stocks in solitary. Stockbaskets are ready-to-invest basket of stocks which are curated by experts to suit varied investment needs. Since 95% of retail investors lose money in the stock market due to faulty picks and not holding stocks for long enough to see the magic of compounding, these curated baskets will prove to be a boon for anyone looking for the right kind of approach to investing on D-Street.
Investors can make structured investments in the form of a basket as it ensures stability and an implicit discipline to remain invested for at least 5 years in a well-diversified portfolio of great companies. Also, investors will then start thinking in terms of merits of a part stock as a whole rather than unnecessarily getting attached to a stock. In comparison to other asset classes, if an investor had invested a corpus of Rs 1 lakh in April 2007 in the Top MNC Lite Stock Basket, for instance, then he would have made approximately 20% per annum till July 2019. However, investments in one of the top mutual funds, gold, real estate or other investment options would have made lower returns compared to Stockbaskets. Hence, it is better than any other investment option in terms of high returns with minimum risk. Investing is largely about managing emotions, having discipline and ability to sit on great companies for a longer time-frame and StockBasket indeed ticks all the right boxes. If you want to create wealth just as the Dalal Street legends did, then change your approach and invest in baskets to be a part of India’s growth story.
# Top MNC StockBasket and in mutual fund category HDFC Top 100 are taken for returns comparison purpose. Past performance is no guarantee of future returns. Investments in securities market are subject to market risk. Please read all related documents carefully before investing.
(By Umesh Mehta, Head of Research, Samco Securities)
(Disclaimer: These are the views of the author. Readers are advised to consult their financial advisor before making any investment)