Sunday, April 08, 2012

Forbidden Fruits

A few events in the recent past triggered my thought on the forbidden fruits for small investors like many of us. Anil Ambani sold his stakes in NICE (Nandi Infrastructure Corridor) for Rs 300 crore last month, a stake he bought for Rs 44 crore 7 years ago, compounding a return of 32% per year. In the recently listed MCX IPO, the issue which was allotted at Rs 1032, listed on at Rs 1387. The listing gain of 34% is hardly any good news as only a few lucky small investors managed an allotment for the issue was oversubscribed 24 times. Those retail investors who applied 192 shares (maximum quantity under retail category) would have got 8shares. Then who actually made money? The early investors which included Indian Banks and a handful of foreign investors made a compounding return of about 40% pa over previous 4 years. They went laughing with all the money at the cost of retail investors who bought their shares in a hurry at listing. Now you and I cannot do this. This is an exclusive arena for a handful of financial institutions who have managed to keep this treasure trove to themselves. There is no easy way for an average investor with Rs 1 lakh to be an early investor in such issues. Why should it be out of bounds? What can’t sebi come up with guidelines that mandate companies to allow retail investors to be part of an early business story? There are some funds which have tried but most of them have only passed on risky assets as we bear the downside.

Bhatkal Raja however does not get agitated by such unfair advantages handed out. He is a seasoned investor who has learnt not to draw comparisons. He believes 30% return is an exception and any investor who tries to compare such windfall is doomed to be sorry. Raja is right, as in comparison lies the root of all grief. I met Raja during one of my interviews and was impressed by his approach that he has steadfastly followed ever since he started working.

Never invest in a lump sum. Always invest at all times. This is a simple yet highly effective strategy. His investments have compounded at return of 15% pa over last 10 years. He has never missed out a single month of investing which has helped him average his purchase cost. He invests a fixed sum every month for retirement over next 25 years and increases the allocation every year to adjust for inflation. Never invest a lump sum giving in to the arousal of high returns when the markets are on a roll. Nor be disinterested but continue monthly investing when markets get into passive phase.

In my recent meeting with a stock broker I realized how many of them have packed up. The industry is finding it very difficult to stand on its feet due to very low investing & trading interest and eroding commissions. Most investors today discuss about real estate and this has emerged as a proxy of how well people are doing financially. This is an indication that today is a stock picker’s market and evident from the world of stocks available at less than book value.

As long you have an objective and stick to it without faltering or deviating, you are likely to be successful. Many of us are like children in toy shop picking up every toy only to trash it for a better one sighted. Finally we may emerge from the toy shop with no toy in hand unable to make choices or disillusioned. As the French proverb goes, he that seeks trouble never misses.