August 14, 2015

The madness for growth

Let me share some actual data, without sharing the name of the company initially

One year return = 69%
5 year return = 75% CAGR

I don’t know about others, but in my universe this kind of performance is something to kill for. At the same time, one has to be insane to expect this kind of growth forever. If one my positions were to deliver this kind of performance, I will consider myself lucky (not smart). 

However I would not run around looking for such companies prospectively as they are like shooting stars – be glad you saw one (or hold one), but do not sit on your terrace forever waiting for one.

If an investor has an investing lifetime of 30+ years, even a 20% return will make him or her insansely rich. A 75% per annum return for 30 years ? look at the numbers below for comparison
1 lac becomes 2.37 Crs after compounding at 20% for 30 years
1 lac becomes 1,95,497 Crs after compounding at 75% for 30 years

However investors keep chasing these shooting stars

And what happens, when they are disappointed, even temporarily?

So what is the name of this mystery company? Its symphony limited

Below is the chart of the company for 5 years

The madness of growth
Is the name even important? This is not a one off case. Look for any company – good, bad or ugly. If the company shows a couple of quarter of growth, the stock price shoots up with no link to valuation, quality or sanity.
On the other hand if the music stops, even for 1-2 quarters, the response is brutal. The herd which rushed in blindly, now heads for the exit.

I don’t think this can be called investing – it’s a mad hunt for growth.

For the slowpokes like me, it is better to just sit and watch. The risk here is that the retail investor will again repeat the same lessons of the past – Buy high and sell low.
Added note: I have taken symphony limited as an example. I am not discussing the merit of this company as an investment. I may or may not hold this stock in my portfolio. The warning holds – if I discuss about gold, real estate or goat, I may or may not be buying or selling it. So please do your homework if you plan to buy anything discussed here, including the goat!

Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.


Aravind said...

Well written. But you missed a simple point about consistency, over which you are banging your head in the post. Its not a trend its a reality, its a social need and if its a cloth, people have used it from eternity and will use it to eternity, if its a cooler like you exampled, then people may use it in the time line from 1900-2100, not after and never before I can assure you. I have taken wide limits for the range too. Hence investing is about longevity in my perspective. Obviously this rate of growth of Symphony cannot be sustained, if non converntional sources of power come in and A/C tech becomes cheaper...

Lucky said...

On goats (and monkeys):
One day a man appeared in a village and said that he would pay a thousand rupees for each monkey that the villagers could supply. The villagers caught all the monkeys in the neighbourhood and sold them to him. Soon a second man appeared and offered two thousand for each monkey. Since all monkeys were with the first man, the villagers had no choice but to try and return his money and take the monkeys back from him. However, the man refused. The villagers hiked up the price to Rs 1500 and then to Rs 1900 but he still refused. The villagers were at first puzzled by this refusal of the first man to make profits but they figured that there must be more buyers who were on the way to the village to offer higher and higher prices. So they hiked up the offer and bought back the monkeys for Rs 3,000. The two men then went away and the villagers then started waiting for more buyers. They waited and they waited but no one ever came.

Nearby, there was another village where exactly the same story happened, in the same way, except that the animals in question were goats. Here too, the villagers waited and waited but no one ever came to buy their goats at a higher price. However, there was a big difference. In the first village, everyone soon realised that the monkeys were a nuisance. They shouted and shrieked and bit people and were worse than useless. In the second village, the goat-owners were better off. The goats could be milked every day and the milk was good and healthy. When the goats eventually grew too old to be milked, the villagers could kill them for mutton.

Even though goats and monkeys had both been extremely overpriced, the goats turned out to be not such a bad deal. However, the monkeys were a complete disaster. The monkey-owners had to eventually abandon the animals in the jungle and try and forget about their losses.

And that's the difference between having bought overpriced goats and overpriced monkeys. Just like the stock markets.

PS: I think Symphony is a goat. Overpriced or not is a different matter :-)

Rohit Chauhan said...

Hi aravind
you are missing the point of the post. i am not arguing about the merits of long terms investing or symphony or anything similar

This is what i am saying - people are chasing short term growth and trading in and out of it. This usually is not a good way to make money or create wealth in the long run


Rohit Chauhan said...

Hi lucky
very good story ..and i like analogy too :)


meet sugat said...

Monkeys can be sold to circus or zoo ?

Kinshuk Chandra said...

Awesome posts...reminds of the human nature of greed and short termism :)

Pranav Pratap Singh said...

Thanks for great posts Rohit and Lucky!

Unknown said...

Dear sir,
Ur view on mic electronics??

Unknown said...

Hi Rohit,
Going through all your old post one by one tto learn the thought process. In one of your post dated Oct 5 2005 Title New section on Investment related spreadsheets.. From where can I download the spreadsheets that you have mentioned. Unable to find the link. Would you be kind enough to share the xls on my mail or some goggle doc link.