Tuesday, March 16, 2010

You Better Start Beating Inflation Fast!

I loved your advice on our last post and it was well taken. Thanks for all the lovely e-mails. It is always nice to see so much goodness and kindness and makes me smile. But lately inflation has been robbing a lot of people of their smiles.

Inflation in India today is almost 15%-20%. I’m not talking about official figures, but real world figures. Look at prices of anything that you use in your daily lives and compare it to what it was one or two years ago. Think about how much you spent every month two years ago – and compare it to what you are spending now. Most likely that you are spending at least 20% more now.

For most people high inflation is a bad thing, simply because they have their money in assets that don’t go up faster than inflation. Inflation, affects people with money much more than people with no money. If you have any savings, please spend a few minutes to seriously think about it. Because if you don’t, your money will simply be worth much less after a few years.

I’ll share a true story. Somewhere in 2001, if I remember correctly, two of my relatives, both brothers got around Rs. 50 lakhs (post-taxes) each from the sale of some ancestral property. One of the brothers, invested that money in a property of equal value while the other invested it all in a single stock. Both of them of course had and continue having their regular source of income and funds.

The brother who invested in property is decently satisfied today. He gets a regular rental income and the property today is easily worth Rs. 1.5 cr. Of course he has to take care of repairs, tenants, maintenance, etc. But still overall, he has done much better than keeping his money in a bank FD.

The other brother had decided to invest all his money in a single stock at around Rs. 30 a share. To most people it might sound risky and illogical, but his logic was that he had researched the company very well and believed in the company. He knew there would always be chances of a loss, but he was willing to take it. Also the fact that this money was inherited and in the form of a bonus, allowed him to take more risks. He didn’t mind investing for the next ten to fifteen years.

Now over a period of almost 9 years, the same stock he had invested at Rs. 30 is worth around Rs. 1,800. In these 9 years, he virtually did nothing. He didn’t even bother looking at stock prices one a year. He didn’t have to search for a property, go to the sub-registrar, pay stamp duty, find tenants to earn dividend, he did not have to bother about maintenance work on property and didn’t have to fear about fake property documents, scams, etc.

His initial investment of Rs. 50 lakhs today is worth Rs. 30 crores. This excludes the regular income he has earned in the form of dividends. If he was to sell and make a profit of Rs. 29.5 crores, he will not have to pay a single rupee as taxes. Long term capital gains on the stock market are completely tax free. He can sell at the click of a button, unlike his brother who will need to vacate the tenants and then try and find a buyer, go to the sub-registrar, etc.


1. Invested Rs. 50 lakhs in Property 9 years ago = Rs. 1.5 crores

2. Invested Rs. 50 lakhs in a Stock 9 years ago = Rs. 30 crores (Tax Free)


Anybody from the world of stock markets will already be knowing this company. But the beauty is that even if you are not from the world of stock markets and investing, it is almost 100% certain that you know this company and you would have very well known about it in 2001 and even before 2001. I knew about this company every since I was a child, in fact even my grandfather used to use products made by this company. Today I use products by this company every single day. Even now I am using one.

I’ll keep you a bit curious till my next post to tell you more about this company. We can all learn from such examples how we can detect and invest in companies that have the power to change our financial future and beat inflation hollow. In the meantime, try finding out more about this company, go through balance sheets, financial statements and try to understand business models. Any guesses what company this is?

Yogesh Chabria

21 comments:

K. Jhaveri said...

Excellent post about the reality of today. Inflation is killing the common man, and a bank FD earns nothing. Truly glad to have read this as I am inspired to invest in assets that will give me good returns.

This company I think is Pantaloons?

Raghav said...

I'm surprised how the brother who invested in property even made so much. Will he be able to easily see the property at this price - I highly doubt it. Stocks have always rewarded much more than any other asset and are best way to beat this inflation created by chor politicians like Mayawati who wears garlands of hundreds of crores.

Satish Patel said...

It is Titan Industries.

Suresh Kumar said...

I think it is Pantaloons(Big Bazaar)

Pratyush Singh said...

I think its Titan Industries...

Rahul Kumar Paliwal said...

Its is indeed Titan. Amazing stocks. Do Yogesh has any service to identify any such stock?

sanjeev said...

It's Titan industries.

Vishal said...

Hindustan unilver

Naresh Pisharody said...

One would have gained today about 3900%. if we had bought Titan in 2001. Another company that comes to my mind is Nestle. They have an excellent consumer monopoly and an ability to price. Who can not know or have eaten maggie noodles? What do u say YogeshJi.

Naresh Pisharody said...

VishalJi,
It can never be HUL. This stock would have made you richer by only 10% over the entire 9 years period (I am not saying CAGR). There can't be a better example of a stock which is in a more competitive space whith minimal stickiness or recall, or pricing power. imagine how many times they are made to lower prices in a fierce competitive battle with P&G. All this time while the cost of making has only increased. But wonderful learning since I thought of it only after you mentioned. Thanks

Harmesh said...

Nareshji, you are right and so are others it is Titan. I had purchased it at Rs. 40. Put around Rs. 5 lakhs and still hold it. I still continue wearing a simple Titan watch on my wrist.

What about Financial Technologies?

BLV said...

All is well that ends well! But, to a middle-class person like me, its a huge risk...to put all money in just one stock. period. I don't think anyone should advise anyone else to do so. No matter how good a company and its fundamentals is. Its not like there is only one company in the world with great fundamentals. A person who knows the value of money would atleast put his eggs in 10 baskets. Who knows he could have made 50crs now! :)

Jagan said...

Yogesh ji,

Indeed a great post! Well explained the art of investing and the smart choices to be made in simple terms.
I believe the stock in which other brother invested is TITAN which is trading at 1800+ & was 30+ in 2001. Indeed a great business and hefty returns way down the line for its investors.

But I am sure, identifying TITAN's present potential around 9 years back was not as easy as now me saying TITAN. Salute to those who invested in TITAN when it was quaoting TWO digits. I still wonder today and browse through the companies' list and balance sheets to find next TITAN for coming 10 years. Hope I can identify few with utmost confidence. I welcome everyone who can help in finding those future welath creators/ multipliers!.

Thanks,
Jagan

suchet said...

Procter & Gamble

Amar said...

TITAN INDUSTRIES

It cant be hindustan uniliver (safe business and i think stock price for HUL was same as 10 years back)

Regards
Amar

Aju said...

I think Its P & G

Anonymous said...

Talking and writing is very easy, but what about fear and greed which runs the market dont you think we all carried away with the above thought which previal the market. Imagine satyam saga genius people in the market were saying that it will go to zero but that didnt happen,but the same people are recomminding that particular share.I profited that different issue.
New generation are not going to wait for so long we are not in the year of 1950 America. Whatever we get the profit make the maximum as everbody know that market is run with the cartel people.

suchet said...

My other guess is Bajaj Auto.

C.C.Gemini said...

Ridiculous to think of any person investing 50 lakhs in one company.i guess Mr yogesh this is your made up story.Nine years back Titan watches were the worst in the market inspite of it being a TATA brand.It was almost on the verge of closure.I guess that man was an insane TATA fan If your story remains an honest one..

Anonymous said...

Hi,

Plz, tell me the art of finding such stocks.

Rahul Kumar Paliwal said...

Hi Yogesh,
Waiting for your blog and updated view on Gold.