Seeing lots of posts regarding success stories of Infosys, Wipro, Eicher Motors circulating these days. Does Long-Term Really Pay You Off?
Stock Markets are fascinating. Indian Stock Markets can compete with the rest of world for the success stories, scandals, intrigue and the tales of disasters.
It is said that Stock Markets are the barometer of a nation’s economic progress. It is often debated but the majority argument favors this statement.
The stock market has given returns which are higher than any other asset class.
Then there are the great stories of Infosys, Wipro, Eicher Motors giving unimaginable returns on investment.
But there are two sides to every coin.
The Story Nobody Likes To Tell
In the NIFTY index, there are 50 stocks ( NIFTY actually means NSE FIFTY ).
These stocks are based mainly on market capitalization. When a constituent loses value significantly, it is removed from the index and replaced by another stock. No one talks of these stocks which got removed.
They were the stars of the day at some point of time and are duds today. Those were the investment ideas of that time and relegated to horror stories now. I will talk about this aspect which no one talks about.
The Wealth Destroyers:
These stocks may be not in favor presently but were the flavor of the month at their prime. They were part of the NIFTY index or otherwise very highly regarded and traded. Today they are shunned and forgotten, but there are real people holding these stocks wondering how they will ever recover their money. NIFTY going up does not have a meaning for them.
On Jan 08, 2008, the stock traded at a lifetime high of Rs. 844.70. Today it is at 18.
2. Suzlon Energy:
The huge fall in this stock made me look for other similar stories.
It was added to NIFTY in 2006. In 2008, it traded above Rs. 2000 and then there was a stock split. The comparison is made taking into account the effect of splitting.
The lifetime High- Jan 09, 2008 — Rs. 412.88
Today it t is at Rs 7
It was a NIFTY stock in 2008. It was valued highly and was at a high of Rs. 546.80 on January 2, 2008.
What is the current price?
It is around 1% of the high price.
Can the investor ever expect to make good their losses?
From a high of Rs. 1225 in January 2008, it trades for around Rs. 208 today. Appears better than the others listed above, but 80% loss is not something to be taken lightly.
Even if it goes up by 100%, it will be nowhere near 1225.
5. Himachal Futuristics:
In December 2000, one of my friends bought for Rs. 1560 on one day and sold for Rs. 1605 next day. A day later it was Rs. 1675. He blamed himself for not making a profit.
A few months later was shocked when he saw a price of Rs. 90 in April 2001.
Today it trades at around Rs. 26.
Do you know what was the highest price?
Rs. 2578.05 on March 08, 2000.
In 18 years, the value of the investment has come down to about 0.5%
A stock value cannot fall 100%, but it is as near as you can get.
6. Jaiprakash Associates:
It was part of NIFTY. A big conglomerate in construction, power, and cement business.
In January 2008, the high was Rs. 339.
Now it trades for Rs. 13.
Why This Story Needs To Be Told?:
It is a widely held belief that in the long run, markets give good returns.
This belief is true.
But the indices do not give the true picture.
In most of the above-cited cases, the high price was in January 2008 ( except HFCL ) when NIFTY was around 6100.
Today, NIFTY is at 11570 but these stocks are at just at a fraction of their highs. Market has gone up but they continue to be laggards.
I have listed only a few. There are hundreds of such horror stories.
The index is adjusted by removing or adding stocks. An investor is not so agile.
You can lose money even when markets are going up.
What should be done to avoid such situations?:
Hindsight is always twenty-twenty.
We need a good foresight.
No one knows that an INFOSYS will
multiply a thousand times and HFCL will reduce to a half percent value. In the year 2000, both were the future stars. What a contrast today?
Protect your portfolio, like index protects itself. And take action earlier than the index does. In a long-term portfolio, get rid of the stock, when it has fallen by about 15–20% of your purchase price.
There will be a pain at that time, but not the endless pain which the investors of Unitech, Suzlon, JP Associates are enduring year after year.
I can not suggest that you should stay invested in Blue Chips.
All these were Blue Chips in their prime.
Indian stock markets are wonderful. There are success stories, but so are the doomsday tales. All make for fascinating stories.
There are inspiring stories of Rakesh Jhunjhunuwala, but the sordid saga of Harshad Mehta also looms in the background.
Do not let the euphoria of the bull market impact you. Pay heed to the beaten down cases also. Learn your lessons from them.
A balanced view will make you a better investor and trader…..