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POSTED BY ON November 9, 2010 7:32 pm COMMENTS (23)
I was wondering that what forum members here think about one time investment in 3-4 good large cap stocks for a period of 20 yrs ?
Suppose I have Rs 1 lac today and I take any 5 good stocks and invest Rs 20k each in those 5 stocks and literally look at them after 20 yrs only, in between I do not even review them . Suppose I choose
What do you think will this generate over long term like 20 yrs ?
My guess is that it will beat the index . What do you think and why ? I dont have any reasoning , its just gut feeling .
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Years Year Quantity Rate Rs. Amount Rs. Dividend % Amount Divi. Remarks
1 1980 100 100 10,000 Invested in 1980
2 1981 200 – Bonus 1:1
3 1982 200 –
4 1983 200 –
5 1984 200 –
6 1985 400 – Bonus 1:1
7 1986 4,000 – Split in Rs.10
8 1987 8,000 – Bonus 1:1
9 1988 8,000 –
10 1989 16,000 – Bonus 1:1
11 1990 16,000 –
12 1991 16,000 –
13 1992 64,000 – Bonus 1:1 / 1:1
14 1993 64,000 –
15 1994 64,000 –
16 1995 256,000 – Bonus 1:1 / 1: 1
17 1996 256,000 –
18 1997 384,000 – Bonus 2:1
19 1998 384,000 – 15% 576,000
20 1999 1,920,000 – 0% – Split in Rs.2
21 2000 1,920,000 – 15% 576,000
22 2001 1,920,000 – 25% 960,000
23 2002 1,920,000 – 50% 1,920,000
24 2003 1,920,000 – 50% 1,920,000
25 2004 2,880,000 – 1450% 83,520,000 Bonus 2:1
26 2005 5,760,000 – 250% 28,800,000 Bonus 1:1
27 2006 5,760,000 – 250% 28,800,000
28 2007 5,760,000 – 400% 46,080,000
29 2008 5,760,000 415 2,390,400,000 300% 34,560,000
30 2010 5,760,000 700 4,032,000,000 Amount Earn in ‘2010
Manish, How about this return ?
Reliance growth mutual fund has grown more than 40 times in 15 years
Reliance vision mutual fund was launched on same day , but it is large cap fund .
Just see the difference in NAV of both funds..
So, mid cap mutual fund seem the best investment option.
NOTE (1) Mutual funds are subject to market risk. Previous performance may or may not be sustained in future.
(2) HISTORY REPEATS ITSELF (a) Scam history of uti mutual fund may be repeated (b) Performance history of midcap funds like reliance growth may be repeated.
I think 20 years is too long a time to buy and hold any of the stock you have mentioned. I would rathey say,…keep booking partial profit seems to be a better approach rather than holding everything up for such a long time
:mithlesh
Hi Manish,
I feel that over 20 years stocks are bound to give a high return but then what most people here are saying is correct that its a risk. Again if you are ready to take risk then I would suggest you bet your money on the sectors that you feel has potential to grow then choose the one stock that is the current leader in the market. I like your view on keeping invested for a long time but do checking in between.
As an example of such share: I had adviced my dad to invest in Bharti in January 2003 which he did for 1000 shares @ Rs.22 but later stock went down to 20 levels and our broker told him to sell of the shares after it came to 22 again. That time my knowledge of stock market was not very good so i was not able argue with my dad as to why he should listen to me and not the broker. Anyways the share went upto Rs. 1060 levels in october 2007. Now coming to why you should reveiw your investments from time to time. The price war in telecom sector saw the stock fall from 435 to 290 in october 2009 so if you are active as a smart investor you sell off during such scenario.
Now going ahead I want to suggest you a stocks which i feel is gold:
1. Petronet LNG: Its into import of LNG and is the market leader. Going ahead they are planning a Powerplant also. This was listed in 2004 for Rs.15 and I have been tracking the stock since begining. (Had same problem broker problem and dad sold the shares after it went to 34 from 16 But luckily by 2009 I had my own trading account and I was able to buy this share @36 level 🙂 ) Curremtly trading around 115-125 levels. I am going to hold this stock until it goes to four figure.
Other than Petronet LNG, I see CESC to be a very good stock for long term investment. The stock is currently trading around 370-390 marks. Its into power distribution in the Kolkata and Greater Noida region. Going ahead as and when regions are being opened up for private distribution they will be able to expand to more locations. Recently they emerged as the highest bidder for the Patna circle and the Muzaffarpur circle in Bihar.
Also The Spencers Retail is a wholly owned subsidiary of CESC. So through CESC you able a get into a stock that is both power as well as Retail play both of which are seen a high growth sectors for next 3-4 years. Tough I was tracking this stock for last 2 years or so I finally made a purchase last week.
Other than these there are many more stocks which are very good for long term play like NHPC, COAL India But I dont have any details research about the companies so please study them very well before you invest in them.
Thanks,
Bijay Agarwal
Bijay
Thanks for this detailed analaysis 🙂 . I would try to analyse more on CESC and Petronet LNG !
Manish
Direct stock investing is a dynamic game/strategy.
1. You have 40% weightage over financial sector (SBI and HDFC). do you think that being so focused on a single sector will work for 20 years?
2. Out of the 5 options, 2 (Reliance and Airtel) have underperformed the market. So I will be rather bullish on these 2 because of their inherent diversification as well as recent underperformance for a long period of time in future.
3. Similar opinion in a flipped sense will cause underperformance of the other 3 picks.
So, overall in my opinion, in view of your buying at current levels and supposedly no review for the next 20 years, your focused, poorly diversified portfolio is more likely to underperform.
As far as comparison with Sensex/Nifty goes, since they are dynamically altered and overall have a better diversification, I would say that the index will outperform.
As far as returns are to be forecast, I will leave that to the soothsayers. 😉
If Laziness is the most important thing, a bluechip focused fund is a much much better option.
Ramesh
Thats a detailed analysis . thanks for that . However I just picked some big names and didnt realise that 40% is in financial services 🙂
Manish
I would appreciate to have more views on this topic from our experts.
krishna
HDFC Bank in the last 10 years has given a return of 2560 % 🙂
The real return will be little lower if you add inflation.
Manish…its sounds very interesting …..But I feel that there are chances that your 1 lac can become 1 crore or more …..but eventually its depends on your luck…
I feel its a great risk to put 1 lac but you can have astonishing returns after 20 years or vice versa.
Gettam
Yes I thought so originally , but other experts here dont feel same, you can read other comments to find out how others feel
Manish
Manish while in theory investing in mid cap or small cap would solve the issue but in reality almost same issues listed out for large cap will be applicable 🙂 also one will be a sorcerer if he/she can predict a company’s future for 20 years 😀
I wouldnt put in even in one of these. I would put in actively managed diversified multi-cap MF.
– There are no safe stocks esp for such long period, no matter how safe it looks now. Railroad stocks were considered very safe in 1900, they collapsed from 100 usd to 0 usd by 1940. note : risk is called risk because it comes from unknown place, we cant predict how it comes, eg look at telecom price wars, Per second billing and the hit in stock prices, Nortel collapsed to nothing, 100 year old successful banks collapsed in 2008, no one can say any of these companies will always continue to be the leaders for ever for sure .
– Winners in one bull market cycle are not necessarily the winners in subsequent bull market cycles.
– Large caps are behemoths, a huge part of growth is already over, note stockmarket pays for “growth in earnings”, not absolute amount of current earnings. Small/Midcaps beat largecaps in terms of growth and command higher growth in stock prices .
Ratheesh
Are you saying that one should be investing in Midcap or small cap stocks and that would solve the issue ?
Manish
Manish
– I was not actually saying invest in midcaps by retail investor
– Let us take 99.99% % of investors
– How many of them know to read (if at all they read that is) and interpret Earnings/financial results of companies correctly
How many of them can *afford* to keep up with changing scenarios in same companies, and to correctly interpret them and wisely and quickly take action, spot opportunities etc.
How many of them have guts to stay put on these stocks and dont panic when market acts irrationally.
Answer is only 0.00001% of them . All others are “speculators” at heart, not even traders, in the garb of investors.
– So for them a actively managed diversified MF in SIP is better . Many good MF beat the index easily.
– Also i didnt say invest in a single MF and forget it for 20 years. Fact is there is no magical way to invest in some stocks/MF, put under mattress (demat tress :-)), come back after 20 years and see a fortune. If it happens it is only luck, not skill. MF performance need to be evaluated once in 3-5 years and switch to new winners. (Stock performance even more frequently)
Ratheesh
thanks for your long explaination , All I wanted to know was what others feel about this idea, So if we also incorporate a review every 3-4 yrs , thats should drastically increase the return on can expect .
manish
Manish
“Prediction is very difficult, especially if it’s about the future.” –Nils Bohr
But still let me predict:
1. Minimum 1 stock out of your list will be delisted(vanish) in 20 years.
2. Minimum 1 company will be merged with other co.
3. Hardly 1-2 cos have chance to be part of the index at that time.
4. Portfolio will underperform Sensex by Minimum 25%
Hemant
What implications does point 1&2 have on returns ?
point 4 , why do you think it will underperform , why not outperform ?
Manish
Hi Manish
1st point your money will become 0
2nd point co. will be underperformer in his sector & will be taken by some stronger co.(your return will be below average)
4th point – portfolio will underperform due to point 3 🙂
I am serious about these thing.
Hemant
ok , in that case what tweaks/changes do you think could gives better returns in the strategy i suggested ? The point here is less activity should lead to superior returns over long term, but what changes/actions one should incorportate for it ?
Manish
Hi Manish
Gd morning – looks life has turned 360 degree for you.(itne jaldi net pe) 😉
I partially agree with Ratheesh views – but even keeping same fund for 20 years may not help.
If you are serious about not touching it for 20 years – go for combination of index fund(Sensex & Nifty Junior)
There has no question of beat the sensex .
but I expect 1 lac will be 1 crore,expect situation of 2008.
Are you sure , You say that 1 lac can become 1 crore in 20 yrs , thats 25% CAGR return .
and on the other hand you say it wont beat sensex , which means you expect sensex to give more return than 25% CAGR ?
Manish