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EXPERT SPEAK

Dear Investors

Warren Buffet has said “If you are not prepared to hold a stock for 10 years, don’t hold it for 10 seconds.”
And what do you do? If you have bought the stock in the morning you want it to go up by 5% on a daily basis. Well!  I wish that could happen.
We are seeing more and more interest of the retail investors as the markets are going up. I have a friend named Rajubhai, to whom  when I told to invest when the markets were low, said, “ Arey Anup bhai!, abhi paisa nahi hai” or “Abhi toh market khatam ho gaya hai, apun toh abhi Ek property mei invest kiya hai dou saal pehel, aur abhi 20% profit mei builder hi wapas maang raha hai.”. Now the same Raju bhai is getting interested and saying, “ Arey Anup bhai, kya daam ho gaye, ek saal pehele jo stock sau rupye me mil raha tha, aaj 350 ka bhav hai, yeh daam meh kaise leh, woh jo property liya tha uska builder ne abhi tak koi kaam bhi nahi start kiya hai, aur profit toh chodho, aasal bhi nahi mil raha hai. Bahut paisa atak gaya hai.”
 
The above story is true not only for Raju bhai, but all the friends I know off who have invested in the stocks or Property. Now let’s look at these two asset class separately and analyse them.
Real Estate is a good asset class and generally it is seen that people who have created wealth from real Estate have encashed on assets created by their forefathers or held by them for a long period of10 years and more.  The returns in real estate are in the range of 16% to 19% when held for a long time. The example I can give of is the flat my father bought in 1969 for Rs 70,000 is today worth Rs. 6 crores which gives it a CAGR of 16.13% in 45 years. There could be exceptions but generally this is the case. I have not sold it yet and have spent lakhs in its maintenance and renovation.  When I try to sell it, don’t know how easily it will sell and at what rate.  Let’s take another case, where I had booked a property in the suburbs in the slow period of 2008. The builders have still not started work and we have paid almost 80% of the money. How do I value this asset? How do I exit this asset? What returns do I calculate on this asset?
 
Now let’s look at Equities.
Equities give an average return of 17% to 18% CAGR, over a long period, plus dividend of 1.5% totaling to 18.5 to 19.5% CAGR. An example, BSE SENSEX  in  Dec 1979 was 119 and in end Aug 26638 giving CAGR 16.72 plus dividend of 1.5%  totaling to 18.22% CAGR in 35 years plus other corporate benefits. Equities are most easy to invest, very easy to handle, especially after dematerialization and the most important aspect; it is Tax free in the long term.
In equities also there are exceptions, for e.g. Rs.10000 invested in Wipro Ltd., in 1980 has become Rs. 558 crores, which translates into a CAGR of 47.58% for almost 35 years. (The detail working of the same is available. Please email to info@sre.co.in). In some cases people have lost their entire investment.
 
 Friends,  you may make your own calculations of the growth for the investments you have made in real Estate vis a vis Equities.
 
I am a man of Equities and would always advocate Equities and SIP i.e. Systematic Investment Plan with a diversified portfolio in the frontline stocks. These provide consistent return, free of any fear of non completion of project, encroachment, maintenance cost and legal hassles etc., and above all, tax free.
 
Anup Gupta
 
Equity Investments are subject to Risk. The views expressed in the above article are my personal views. Investors are warned to take their own investment decisions and understand  any investment product before investing. The writer, SREIL , its directors and any of its assigns will not be held responsible for any loss occurred to the investors based on this article.