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?