Thursday, September 27, 2018

Missed Opportunities...

To make money in stock market, you need to do two things. One identify opportunities and two, play long term. Despite my professed knowledge of Stock Markets and investments, I sucked at both.

Consider the facts.
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In 2004, I was working for India's largest IT consulting company. And we were implementing the project for India's leading Watches and Jewellery manufacturing company.

In the year 2005, my company came out with its IPO (Initial Public Offering). The shares were priced at 850 rupees and there was a discount of 5% for employees. In addition, the company was giving very good financing options to the employees to purchase its shares in the IPO.

Since I was the 'expert' on share market, my team members asked my opinion.

"The share is highly priced. There is limited upside from here. It could also fall below the IPO price after listing. I wouldn't by it in IPO. I will wait for market to identify its value", I expounded my wisdom.

I completely overlooked the employee discount and the excellent financing options.

To be fair to me, I walked the talk. I did not buy the shares at IPO.

Fortunately some of my colleagues saw me through for what I was. An empty windbag. They invested in the share of the company.

How wrong was I?

Since the IPO, the company shares have gone up manifold. An investment of 80000, to buy 100 shares in 2005 is worth 16,00,000 at today's rates, a cool 20 bagger (a share which has given 20 times returns) in about 13 years !

Another painful memory is about missing the opportunity to invest in the shares of my customer. This company was India's largest Watch maker and was venturing into Jewellery business. The business was about to explode and I did not see that.

The share was trading at 50 with a PE multiple of 150, which meant that the market was factoring the earnings explosion. This company was from India's largest and most trusted business house and had some marquee investors.

I was there, doing ERP implementation for this company. I knew the people and I knew the business.

I could see the enthusiasm and excitement in the eyes of workforce. I knew that the business house had a history of creating sustainable businesses....

I knew everything that was there to know from an investment perspective.

But I just focused on high PE.

I had read that a high PE is not good. A PE of 150 meant that it will take 150 years for the investment to be paid back, the 'books' told me.

I did not have 150 years.

What I missed was the implicit expectation of 'at current earnings'. The books did not factor in earnings explosion of a franchisee business as the GDP of country grew at a rapid rate.

Had I invested 5000 rupees on the shares of my client in 2005, I would be sitting on another 50 bagger by now !!

In his book, 'One up on Wall Street', Peter Lynch explains why a common man can become a better investor than the expert. "You are more familiar with your company, you customers and the market. You can see the excitement and enthusiasm of workforce. You can see the long queues before market can spot them. You can identify a good business it it starts its first franchise. if you take advantage of these opportunities, you can become a successful investor", he says words to that effect.

I was right in the middle of two great investment opportunities and missed both of them !!!

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