How an investment of Rs.10000 grew to Rs.535 Crores in 34 years

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.

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. 

Wipro Investment growth

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.

Investor or trader: which suits you better?

If you are a new entrant in the stock market, you will come across some stock market jargons which will confuse you. One of them is related to the identity and the behaviour of the stock market participant.

Sometimes a participant is referred to as a stock investor and the next day same guy becomes a stock trader. These two terms are often used interchangeably, resulting in a lot of confusion. We will try to keep this confusion at bay by figuring out the personality and behaviour of stock investors and stock traders here.

Stock investor vs stock trader

We can differentiate between the two on the following parameters:

Return objective and number of transactions

Stock investors and stock traders basically approach the stock market with same objective but employ different modus operandi. Both of them want to maximize their return, but the stock investor tries to achieve this through a single transaction, whereas the stock trader chooses multiple transactions, but in quick succession. The stock investor just buys and holds the stock while the stock trader buys and sells stocks on a continuous basis.

Time horizon

A stock investor has a longer time horizon and is ready to hold stocks in multi-year time frame. A stock trader, on the other hand, has a relatively shorter time horizon and is not willing to hold the stock for more than a month or two. There is a large proportion of traders who do not even hold the stocks post one day or one week.

Selection of stocks for investment

Stock investors consistently look for undervalued stocks for investment. They are very patient and have the tendency to hold stocks till the market realises their actual worth. Stock traders, on the other hand, are least worried about the valuation of the stock. They are simply concerned about the price movement. They are ready to buy an overvalued stock if the price movement suggests so. Similarly, they can short sell undervalued stock if the price movement is in downward direction.

Market segment they are active in

Stock investors are interested in taking delivery whereas traders are not interested in taking delivery. This constraint makes the derivative market more suitable for traders and cash market for investors.

Trading tools

Stock investors rely heavily on fundamental analysis for identifying investment avenues. They employ top down and bottoms up approach together with ratio analysis for stock selection. On the contrary, stock traders use technical analysis to maximize their returns. They are only concerned about historical and current price movements. Based on the price movement, a lot of indicators have been defined using which traders place their bet.

Why should you know the difference?

One should use the above parameters to understand his or her psychology before entering the market. Identifying your personality at the very beginning will enable you to employ the right tools and techniques to be a winner. It's difficult to say which technique is better as we have trend-setting examples in the form of Warren Buffet and George Soros from both the fields. Both of them have made a great fortune following two different paths. Hence, it's not recommended to judge the path as both lead to the same destination. It's only about choosing one based on your psychology. If you are comfortable with speculation, be a trader, and if you are conservative, choose to be an investor