As a child, I had often heard that money does not grow on trees. One had to work hard for it. There was never a free lunch in life etcetera, etcetera. Then one got caught up in a career, a family, kids, savings and one fine day one realized that money may not grow on trees but it actually grows as a tree would. Caveat, one needed to have the patience to see the tree of money grow from a sapling to a fruit bearing stage. And then lo behold, you may just find it growing on that tree.
In 1991, my parents died under tragic circumstances. I inherited some savings. I was a green horn in stock markets. But, thanks to Harshad Mehta, God bless his soul, he made stock markets like Amar Chitra Katha comics to the common man. Interesting and Available. I also jumped in into the deep end. I knew about profit and loss statements as much as I knew about navigating an aeroplane. EPS and PE ratio could have been terms associated with music systems like PMPO or with Orient Fans like PSPO .
I was into some money and I just picked up a financial weekly paper sold on the streets of Delhi, I still remember the name — The Financial Wizard. On the front page was a screaming “BUY HDFC”. Like a dodo, without knowing a thing I rang up Mr Jaivir at BharatBhushan & Co, Delhi , my brokers and asked him to buy 10 shares of HDFC. It was a Rs100/- face value share and was quoting at Rs585/-. After three months HDFC was at Rs 1500/- a share and I bought another 50 shares. And HDFC declared a rights offer. By Feb 1992, HDFC was quoting at Rs 2400/- . I thought I had made a killing. I sold off the entire 60 shares, pocketed the gains of approx 64000/- and bought shares like GoldStar Steel & Alloys , supposedly a company run by Narsimha Rao’s son and ATV Projects a company owned by an honourable MP. Both of these stocks were also recommended by the same paper–Financial Wizard. So much for the predictions of magazines and papers. Both Gold Star & ATV were de-listed. I lost all the gains I made on HDFC. I still have physical shares of these companies equivalent to ‘raddi’.
But the story I started was about money and trees. So, I got 54 fully convertible debentures(FCD) of HDFC at a price of Rs 750 per FCD as a rights offer. They were convertible into one share per debenture. After a few years HDFC Bank was launched and HDFC gave a preferential offer of 700 shares at Rs 10/- a share. Seems like a fairy tale !!!
I sold off the HDFC Bank shares at Rs 70/- a share and 50 HDFC shares at Rs 3000 . My total capital gains from HDFC were approx Rs 206,000.
If the reader has noted, I was allotted 54 FCDs in rights and sold off only 50. Why? 4 was an odd lot in those days. The market lot was minimum 10 shares. Today market lot, which is the minimum quantity which can be sold or bought freely by a retail investor, of all shares is 1. Odd lots were sold at a discount. Laziness caught the better of me and I let those 4 shares remain with me. Today those 4 shares have become 400 shares. Post bonus and splits. And last I saw, HDFC was at Rs 640/-. (It was only in 2011, when I read the Prospect Theory of Kahneman that I realised that I had sold my winners too soon due to the biases which govern our decision making. That’s another story for another blog).
It takes about twenty years for a tree to mature and give copious shade, fruits and wood. The same time has elapsed between my HDFC buy and today. I had accidentally purchased shares of a great company. If I had the patience to nurture my sapling and not do anything, I would be holding 10400 shares of HDFC(adjusted for rights, splits and bonuses) and 700 shares of HDFC Bank. Total value approx Rs 90 Lacs. In my 26 years of service I have not been able to save Rs 90 Lacs cash so far.
That’s how I believe money grows on trees, provided you do not cut the tree prematurely.
For value investors who have the patience, Piramal Healthcare at current price of Rs 413 and ILF&S Investment Managers at RS 27 could be such saplings which will grow into huge trees with time.