Courtesy: getricher.in
If I had the technology to send a message back in time, I would tell my father in 1980 to “Use Rs.10,000 to buy 100 shares of Wipro as an one-time investment and never sell it for the next 30-35 years.” If he had done that his investment would now be worth about Rs.535 crores. Yes, you read that right. Crores, not thousands or lakhs.
If I had the technology to send a message back in time, I would tell my father in 1980 to “Use Rs.10,000 to buy 100 shares of Wipro as an one-time investment and never sell it for the next 30-35 years.” If he had done that his investment would now be worth about Rs.535 crores. Yes, you read that right. Crores, not thousands or lakhs.Rs.10,000 to Rs.535 Crores
Lets just assume that you bought 100 shares of Wipro each at a face value of Rs.100 in the year 1980. Total investment: Rs.10,000. You don’t touch it at all, no profit booking or buying more shares. Occasionally companies provide benefits to its shareholders by way of corporate actions. They could provide bonus shares for shares that you hold, they could do a stock split where a high face value share would be broken down into smaller face value shares but number of shares increases proportionately, etc.
Wipro has done various such bonuses and stock splits in its history of 1980-2014.
| YEAR | ACTION | NUMBER OF SHARES |
|---|---|---|
| 1980 | Initial Investment | 100 |
| 1981 | 1:1 Bonus | 200 |
| 1985 | 1:1 Bonus | 400 |
| 1986 | Stock split to FV Rs.10 | 4,000 |
| 1987 | 1:1 Bonus | 8,000 |
| 1989 | 1:1 Bonus | 16,000 |
| 1992 | 1:1 Bonus | 32,000 |
| 1995 | 1:1 Bonus | 64,000 |
| 1997 | 2:1 Bonus | 1,92,000 |
| 1999 | Stock split to FV Rs.2 | 9,60,000 |
| 2004 | 2:1 Bonus | 28,80,000 |
| 2005 | 1:1 Bonus | 57,60,000 |
| 2010 | 2:3 Bonus | 96,00,000 |
After the year 2010, there were no more bonuses or stock splits. But with just that initial investment of Rs.10,000 (100 shares) you now would end up with 96,00,000 shares of the company because of all the stock splits and bonus shares. Current stock price of Wipro is about Rs.557 per share, as of 7 April, 2014.
Rs.557 × 96,00,000 = Rs.534,72,00,000 or about Rs.535 crores. That is a CAGR (Compound Annual Growth Rate) of 47.39%. Does any of your bank FD give you 47% annual interest rate? It was all possible because of the free shares that the company gave to its shareholders as an incentive for investing in their company. If you immediately needed to liquidate this entire holding today (urgent need for >Rs.500 crores?), you can do it and you would have to pay a grand total of 0% tax on your profits, because long-term capital gains in equity is tax-free.
