I can tell you from vicarious experience that delivering a talk to a bunch of IIM students is definitely not a walk in the park. These students do their homework on the subject before they come to listen to you. Also, they have a razor-sharp intellect and are able to pick up nuances and contradictions in your talk. Further, the students are trained not to accept anything at face value or as the gospel truth but to question and cross-question it till the logic becomes bare. So, if you are not thoroughly prepared and quick-witted to answer the barrage of questions that will be fired at you, you are in for a rough time at the hands of the students.
Basant Maheshwari, our friendly neighborhood stock wizard and author of the best-seller ‘The Thoughtful Investor’ found himself in this unenviable position when he landed up in Ranchi to deliver a talk on ‘Investment strategy’ to a bunch of bright-eyed and knowledge-hungry IIM students.
However, to his credit, Basant held his ground and came out of the inquisition with flying colors.
Basant made several interesting points in his talk. One of the seminal issues that he raised was that we should ask ourselves whether we are seeking to make ‘Quick Money’ or ‘More Money’.
Basant explained that there are basically two types of stocks one could invest in. There are stocks that appear to be on ‘steroids’ with the ability to deliver quick-fire returns in the short-term. These stocks have a lot of risk attached to them. In contrast, there are stocks which appear to be sluggish but which can be trusted to consistently deliver a moderate return of 20-30% over several years in the future with minimal risk of capital loss.
Basant pointed out that while the stocks-on-steroids provide a lot of excitement, they invariably run out of steam after the initial burst. In contrast, the slow-and-steady stocks continue to churn out returns for decades to come.
Basant made it clear that he is not enamored by the stocks-on-steroids. Instead, he prefers stocks that deliver a consistent rate of return. At 30% CAGR, the investment more than doubles in 3 years. In 10 years, it grows 13 times and in 25 years, it grows 705 times, he exclaimed, much to the astonishment of the IIM students.
So, while you can make “quick money” with the stocks-on-steroids, the “more money” comes with the slow-and-steady stocks, Basant emphasized.
Basant also made the important point that one has to balance risk with reward and ensure that the risk of a loss of capital is minimized to the extent possible. So, if one has the option of investing in a blue-chip company for a 25% return and of investing in a dubious company for a 40% return, one should choose the blue chip company because the reward of a potential 40% from the dubious company carries the heavier risk of a permanent loss of capital.
Basant further explained that with the stocks-on-steroids, one can never allocate a large part of the capital because you never know when the story could run out. Also, you have to keep a vigil and constantly look over your shoulder for lurking dangers. The result is that you end up with a highly diversified portfolio which dilutes your returns. In contrast, you can invest a large part of your wealth in the slow-and-steady stocks and be assured that compounding would work its magic on your portfolio. You can also afford to maintain a concentrated portfolio.
Unfortunately, Basant did not name any stocks. However, my guess is that he had in mind his all-time favourite stocks like Page Industries, Hawkins Cookers, Repco Home Finance, Gruh Finance etc. These stocks are growing at a steady clip of 25 to 30% CAGR and will not spring an unpleasant surprise on you anytime in the foreseeable future.
In contrast, the stocks-on-steroids could be Avanti Feeds and RS Software, both of which have delivered mind-blowing returns in the recent past. However, the moot question is how much of capital can you really entrust to these stocks given the inherent vulnerability in their business models. In the case of Avanti Feeds, a climate change, floods, disease etc can torpedo the business while in the case of RS Software, an adverse decision by Visa, its major customer, can send fortunes tumbling over the cliff.
So, if one is investing for the long-term and is desirous of creating serious wealth, one is better off with the slow-and-steady stocks is Basant’s timely and valuable advice.
however one must not invest blindly in reputed stocks. for eg., larsen & toubro, an evergreen stock for long term passive investors, has given a profit of 800% for the period 200-14; however for the period 2009-14 it has given a profit of only 31%. the gist of the matter is that one must keep his eyes wide open & keep booking partial profit regularly, whether in the slow & steady stocks or the “steroid” stocks
sorry… its for the period 2004-14
That’s a matter of strategy.
Ashujeet ji – Thanks. Can you suggest me how to earn regular profit in your recommended stock. My contact No – 9810426877.
That is why they say “Speech is silver,silence is Golden”.
The moment you spell out a word, it works in the opposite direction. The analyst carefully avoided naming the hares and tortoises. It is the LION(investor) , who has to decide.
Like the king of the jungle,
Search for the food(stocks with good potential)
Walk slowly( before accumulating)
Prowl upon( the stocks that can be grabbed)
Eat only what is sufficient for your hunger( sell it after sometime so that the next in line enjoys), leave the bones
Sleep(Keep quiet ,without touching your stocks for a considerable time)
Watch out for that BIG ELEPHANT( not BEAR?)!!!!!
Enjoy! It is your own Kingdom….
Only when you become old enough, you need Jackals…….some intelligent animals can take you even to a well and say another king exists…..don’t kill yourself…….
Hahahahahahaaaaaaaaaaa!!!!!!
Well said Murty..nicely written..liked it!!
Beautiful story analogy Murthy.
well anytime anywhere you see on net mr basant maheshari latest pick repco home finance doesnt he hold any other stock to name
repco he is holding since ipo i.e nov 2012 at 170 rs
oh, what does he mean by steriod? wasn’t ttk prestige, jubilant on steriod once upon a time…it still continues to be today, not all want to invest in stocks like page industries or hawkins…..why bring avanti and rs software ..it could very well be the next page industries
rs software has broken into another payment network recently, please dont group rs software and avanti as steriod group stocks without any proof!!!
What proof ? Both RS Software and Avanti have blazed through the past two months. RS was at 300 level and Avanti around 900 in July.
hello abhi, some people come to public and speak without any clue, dont go for biased statement, http://www.youtube.com/watch?v=gYP1GKDuOIc
listen carfully, they have another giant like VISA in their pockets, maybe rupay.now this is proof!!! not rubbish
Hello Ajay. I can’t see the video on this internet connection, but based on the current facts the present article is right, and RS Software’s biggest client is Visa. Perhaps it may have other things in the pipeline, but so far they have not materilized yet, so why factor in those things e.
I must add here that Mastercard used to be the #1 about 30 years ago in several countries, but now Visa has taken over. Companies change, stocks change, and I don’t want to gamble my money. Just think, what if a company like Infosys or TCS enters this space . What then of RS ?
The positive side is that when two entities merge,both will be benefited.Imagine getting 2 Infosys shares or 3 TCS shares for every 5 RSS shares! If they merge.
, or RSS is bought by one.
Also, if Infosys or TCS wanted to get into this space, they would not think of eating such a small fry. What is the Market Cap of TCS or Infy? And where is RSS? Not even a 1% or INFY’s cash reserve! Even if they want to eat the small fish, they can not wipe the company …they would use RSS expertise…..
Ya, small fish is always swallowed by the bigger….but by the time that time comes, let This rocket surge ahead…..
Why would Infosys or TCS buy RS, do they have no other work other than buying up small companies whose prices are rigged by DK and gand 🙂
Take it easy
Bhs
you should be ashamed of using vulgar language, shows who you are! disgusting mate
Read it as Gang and not Gand.
Typo & not Brevity.
Bhs
abhi,murty,
please visit rs software website, visit news/events and see the latest video poste d on the company website.
i have accumulated rs software from all levels/ range and this being in payment industry will go somewhere beyond even page,hawkin,repco etc , they also have tech savy modi government on their side.you see there is an era for every industry, 2008-2013 was the consumer boom in stock market, things will change as these are extremely overvalued for no reason, 2014-2024 front runners will be these stocks…payment industry has a very long way to go, also auto, pharma…yes its completely wrong to say these stocks are steriods, they may be very well the next 100 bagger stocks.
Hi Ajay, Murthy & Abhi,
Don’t get carried away with what is written on RS Software website, the fact is that they don’t really implement or develop or run any kind of payment processing software or services, all that they do is QA & Testing (Quality Assurance) in Payment & Security domain, and they were doing this for 20 years now.
This is pure price rigging and I don’t see any fundamentals behind this rise.
BTW online time will tell, if the markets fall then RS will be the first guy to collapse.
Wait and watch.
Bhs
markets wont collapse for the next 6-7 years, also all smallcaps will fall in that case, waiting for good dividends and results on oct 17th
>>>markets wont collapse for the next 6-7 years
This is quite a bold statement and I hope so.
“Spending an hour trying to predict the future movement of the stock market is an hour wasted in your life.”
Bhs
what does he mean by dubious company? In 2006 page industries was also considered dubious by many, avanti is dubious? rs software is dubious? man ask him to get a life.He is marketing everyone to buy his portfolio stocks?
Basant did not name any stocks as the article makes clear. Avanti Feeds & RS Software are good stocks but they have had an incredible run up in a short while. A lot of expectations are riding on these stocks. There is little margin for error. A slight disappointment or bad news could lead to a savage sell-off. We need to be aware of this risk factor when deciding how much capital to allocate to these stocks. That is the context in which these stocks are referred to.
arjun, margin of error could also be lurking in other stocks like repco, pageindustries, hawkins.expecting the run to continue in avanti,rs software and moldtek.
I differ with Mr Maheswari. Not all stocks that are steady will give that kind of returns. We have to get one thing clear. Ppl who made it big in the Stock market are risk takers, more appropriately, calculated risk takers. They have an adaptable strategy. Too frequent use of the words “magic wand”, “radiant charm” etc on this website actually gives a false perception. The above mentioned stocks where Dolly Kanna invested heavily into were strategic calls keeping their growth and rerating possibilities in mind. So point no
1. Stocks which have rerating possibilities. Eg: RS Software, Arvind, Pc jewellers e-Commerce stories).
All the Dolly khannas and Damani have an adaptable strategies. When a stock doesn’t work out, they have a back up stock which they quickly work into. So point no
2. Adaptable strategy. You need a strategy. It’s not like you blindly invest into itc and it’s going to give you 100x in 25 years. Heck, I don’t believe in earning money for my future generations. If I do my work and take all the risks, I deserve to enjoy the freedom money gives me and that’s not after 25 years.
Basically, investing into stock markets is very similar to basket ball. If you wanna throw a slam dunk, you need to put into practice the work it demands. Sorry for the long post.
Sunil, very well written and an excellent post.
well written sunil, yes i agree the very words magic wand,witchcraft, charm//gives false ideas and seems like a trap to the average investor, these are words which one should avoid.RS software and other e-commerce companies are set to go forward and are very well poised to capture the growth coming days.
As far as Mr Maheshwari is concerned, he got inside pantaloon/page and made a 20 -30bagger out of it during those days, he has already invested in the small caps and made big money, now these companies like page hawkins gruh fin have already given multibagger returns, going forward an investor can expect a gain of only 20% compounded growth, why should we settle for such low growth better to stay invested in bank fixed deposits!!! i think every investor should stay diversified into small cap and midcap…and largecap once you are old and want to avoid any surprises. Maheshwari’s idea of creating wealth will create wealth after 50 years no doubt, by that time we will be old and our kids are sure to enjoy that money, not us, having said that i have made a 5 bagger this year and just bought a house.
No one wants to be the richest man in graveyard.
pantaloon retail was carrying heavy debts when it was a microcap, balance sheet was worse than a *dubious* company, during those days investors like shivanand Mankekar had bought huge shares in these companies which turned out multibaggers…sometimes theories and books dont work out in stock market.In words of vijay kedia- no academic qualifications can guarantee success in stock market….no one theory works.
130Cr. Population, 2.78 Cr. DMAT Accounts, only 1.47Cr Active.
Very interesting info on demat accounts, but how is it related to the subject of the post ?