“IF YOU INVEST FOR 40 YEARS…” DECODING THE WIPRO LOGIC!

As you may know, WIPRO turned Rs 10,000 invested in the company into Rs 500 crore in 2019. And that became an example to lead by. Let’s face it, that's a lot of wealth. But is that really doable? Or sustainable? Let’s break it down in this article.

It's not just WIPRO that has created tremendous value for its investors, there are many other examples as well, like:

• CIPLA: Investments of Rs 10,000 in 1979 fetching 95 crore

• INFOSYS: Investments of Rs 10,000 in 1992 fetching Rs 1.5 crore

• RANBAXY: Investment of Rs 10,000 in 1980 fetching Rs 19 crore

• HDFC BANK: Investment of Rs 1 Lac in 1995 fetching Rs 8 crore

Despite some examples of people who held stocks for 35-40 years and created massive wealth for themselves, a basic question that needs to be asked is - Can a common man do it?

We see two problems with this.

1. The survivorship bias

We pick Wipro as an example to demonstrate survivorship bias, since it has already worked for 40 years; it is very easy to look back and say if you waited for 40 years, 10,000 would become 500 crores.

But if you watch closely, you are simply looking at the statistics.

There are plenty of examples like Reliance Capital, Unitech, and Cox & Kings that have destroyed all the wealth in so many years. But how will you pick WIPRO in 1980 with so much confidence for the next 40 years? It is impractical.

2. What about holding your emotions for 40 years too?

Who really invests and holds for 40 yrs?

There are promoters of the company who hold for so long. There is possibly a tiny minority of people who might have done it successfully whose example we see on the internet. It's almost impossible for most people to control their emotions when the stock goes up or down so drastically.

Looking at a common man with emotions, let’s say:

• You invest Rs. 10,000 and it grows to 1 lac in 1 year, what will you do? Sell off or hold?

• If you hold it, then what if that 1 lac becomes 5 lacs in the next 2 years? Now what will you do? Sell off or hold?

• If you hold it, what if that 5 lacs now becomes 1 lacs and drops in value by 80%? Now what will you do? You will wait? Wait for the 1 lac to come back to 5 lacs again? What after that? Will you sell off or hold?

Generally, people are quick to sell when prices increase by 10%, and we're talking about keeping stocks for 40 years, in which machines and robots can stay calm and not react; we humans cannot! Not that there aren't people who keep stocks for 20-30 years, but it's not as simple as it seems.

Enjoy the journey of equity bull runs and keep using the money

For a normal brain, it makes no sense to buy and hold for 40 years, even if you have the right stock and patience. It makes more sense to take profits from time to time and put them towards your goals. What about going on vacations, buying a house, travelling, and using it to buy stuff. Who wants to die with Rs. 500 crore in their bank account?

It is important to have a diversified portfolio, meaning you are betting on a variety of stocks instead of concentrating on just a few. Therefore, have realistic expectations of stock investing and don't put too much faith in these examples.

You should only use these examples to reassure yourself that your portfolio should contain equities because they have great wealth-creation potential.

Feel free to share your thoughts below.

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