Since time immemorial we have been advised by all the eminent Gurus that equities have to be held for long periods of time for compounding to work its magic and catapult us to great riches.
Warren Buffett, the World’s greatest investor, encapsulated the entire wisdom in his pithy quote “Our favourite holding period is forever”.
Mohnish Pabrai enlarged on this theme by explaining that the best investors in the World are “dead people” because they do not tinker with their investments. “Investors shoot themselves in the foot by being active” Mohnish Pabrai said in his trademark drawl.
Raamdeo Agrawal drew from his rich experience in preparing the Wealth Creation Studies to explain with practical examples how stocks turn into magnificent 100-baggers by the sheer passage of time.
We also saw the fascinating story of Sharad Banavadikar, a lay investor like us, who bought stock in MRF and held on to it through thick and thin. Today, his paltry investment has grown 2000x and transformed into a magnificent fortune.
Now, Motilal Oswal has done a lot of number crunching to predict where the Sensex will be in 2030, just 15 years from today.
First, he points out that in the last 36 years (since the Sensex’s launch in 1979), the Sensex has grown a mind-boggling 380 times. A paltry investment of Rs. 1 lakh in 1979 is worth Rs. 3.80 crore today. The surprising part is that these magnificent gains have been achieved even though the Sensex has grown at a relatively modest CAGR of 18%. This shows the power of compounding over long periods of time!
Next, Motilal Oswal draws from a number of authoritative data sources to make the point that the future is very bright for the Indian economy and that it will soon be a powerhouse juggernaut.
By 2030, India will be a 6.6 trillion dollar economy and will be the third largest economy in the World, Motilal Oswal opines. He explains that even if we assume that the Sensex will grow at a modest CAGR of 14-15%, it will be at a stratospheric 1,50,000 by the year 2030.
This means that our money will grow 7x in 15 years i.e. an investment of Rs. 100,000 today will be worth Rs. 8,13,706 over 15 years at a modest CAGR of 15%!
It goes without saying that if the Sensex (which is packed with a number of junkyard stocks) is to compound at 14-15% and soar to 1,50,000, individual stocks will compound at a much faster rate and do far, far better.
On the all-important question as to the stocks that will take to this path of riches, we can peep into the portfolio of the MOSt Focused Midcap 30 Mutual Fund. The portfolio is packed with 20 powerhouse mid-cap stocks. Each stock boats of top-quality management, proven track record and dominance in the market place. These stocks are well placed to withstand the vagaries of the market place and emerge winners over the long-term.