Education is an important medium of acquiring skills and knowledge. Our education begins at home. Thereafter, as we grow we go to schools, colleges and other educational institutes.
Out of the more than 5000 Companies listed on BSE & NSE, there are always literally hundreds of good companies growing at a Compounded Annual Growth Rate (CAGR) of more than 18 percent.
This means their Net Profits (N.P.), Earning per Share (EPS) are doubling in every 3 to 4 years.
Consequently, their book values (B.V.) and real worth are also growing & doubling every three to four years. Let us take some examples of companies which have given outstanding returns.
i. Infosys
Infosys is a software giant. If you had invested Rs. 10,000/- in Infosys (INFI) IPO in 1993, your shares would have been worth of Rs. 3 Crores today. i.e. growth of 3000 times.
The shares are adjusted for all the bonuses and stock splits. This tremendous growth in share holding works out to be at a CAGR of 40 % means the stock doubled in value every 1.80 years.
In 2007-08 INFI Earning per Share (EPS) of Face Value (FV) Rs. 5 was Rs. 78. It got doubled to Rs. 165 in 2012-13. Dividend of Rs. 13.25 per share was paid in the year 2007-8.
Almost, three times dividend of Rs. 37 per share was paid in 2011-12. The Book Value (B.V.) of Rs. 5 share increased from Rs. 236 in 2007-8 to more than double to Rs. 600 per share in 2012-13.
The share capital remained the same.
It grew at more than 17% CAGR between 2009-10 and 2013-14. Its EPS of Face Value Rs. 2 grew more than double from Rs. 16.75 in 2009-10 to Rs. 37.83 in 2013-14.
Book Value also increased more than double from Rs. 69.86 in 2009-10 to Rs. 157 in 2013-14. Net worth doubled from Rs. 874 Crores in 2009-10 to Rs. 1980 Crores in 2013-14.
The true value, real worth of these shares increased, doubled on their own in 3 to 4 years. There are always hundreds of such examples.
This clearly shows that shares of good growing companies are always growing in real-intrinsic values-EPS, the book values. Hence, they are truly growing Active, Dynamic asset.
So, investment in good, growing equity is investment in an active, growing dynamic asset, always increasing in real value.
When the true- intrinsic- real value of the asset is growing, the market value of the asset is bound to go up sooner than later.
Buying and selling of shares is subject matter of another article.
Let us discuss some more investment options.
Generally the interest rates lead the rates of inflation. This worm of inflation eats into your purchasing power. Hence Debt hardly gives you any returns and if you are a Tax payer, the Returns may be negative.
a. If you choose Debt as your investment option, You should prefer
- Liquid Mutual Funds
- Public Provident Funds ( PPF)
- Govt. Bonds
- Post Office Deposits, and
- Fixed Deposits (FDs) of Nationalized Banks
b. You should avoid Lending to :
- Private companies,
- Small listed companies
- Private and Co-operative banks,
- Individuals
Risk in lending to Govt Post Offices, Nationalized Banks is apparently very little. But, there is 100% risk of getting very little or no real returns.
In this era of falling interest rates, scenario is very grim for those retired people who depend 100% on debt for their livelihood.
So, Debt should not be a real main principal long term investment option. You can invest in if you want safe investment.
