The perspective

Every time a stock hits its lifetime high, the social media starts buzzing with lines such as ‘Just 3 Lac invested in XYZ-MULTIBAGGER company in the year LISTEDDATE would have been equal to YOUCOULDHAVEBEENRICHB*TCH today!’.

When I was a newbie in the markets and came across such tweets, I felt my parents (and by extension me) missed their opportunity of being filthy rich. But once I became a little used to the stocks and their erratic behavior, I realized how smart, albeit unknowingly, my parents were. Let us talk about one of the poster children of such multibagger returns; MRF. Since its listing in the year 1999, it has increased by approximately 4500%. I will throw one line as well. Just one lac invested in this stock back then would have been 45 lac today. But here’s the detail I missed. back then access to markets was not as straight forward as it is today. The maze of brokers, sub brokers and market operators would have been very difficult to navigate for someone like my parents. Not being savvy about financial world, they would have relied on the recommendations of their broker. And we all know how shady that business was for small investors back then.

And looking at MRF today and talking about how great that investment would have been is the epitome of hindsight bias. What if you had invested the same one lac in reliance power? It would have been equal to one thousand. Yes that’s right. 99% of your capital would have been lost in ether. There are countless other stocks which were trading at 1600 once and now quote at 1.6 rs. Many have completely vanished altogether.

There were some logistical issues as well. Shares were issued in physical format, the settlement period was long, minimum margin requirement with the broker was high, etc.

Many can’t afford MRF today. At the CMP of almost 64000 rs, it remains the most expensive stock listed in the Indian markets. When it was listed, it traded at around 2000 rs. But remember in the year ’99, 2000 rs was more than what many people earned in a month.

We all revere Warren Buffet as one of the greatest investors of all time. One of his commandment clearly states that you should only invest within your circle of competence. Tech companies were out of his. Stock market was out of my parents’ and of many contemporary of theirs. So they did what they understood; LIC, PPF, real estate and gold. Is it the optimum portfolio allocation by modern portfolio constructions standards? Not by a mile. But at least they didn’t lose their sleep over what market did…

Disclaimer – The names of the companies are for illustration purposes only.