Tuesday, 28 June 2016

Investment & Consumption balance for changing quality of life for better

Investment & Consumption balance for changing quality of life for better

Colgate, Nestle, Godrej, Maruti, Tata, Dr. Reddy’s, SBI, ICICI bank
Well most of you must be familiar with these brand names and a majority might also be user of their products and services for as long as as you can remember.

Have you ever thought that besides being a consumer of these products if you would have also invested in their stocks and being owner in these companies too by owing their shares, how it could have changed your life?

We present you few of these stories which will break your all myths about long term equity investment in good quality companies or in portfolio of good companies.

Maruti 800 car cost in year 2003 was approx. at Rs. 2 lakhs.
If the same amount was invested in Maruti Suzuki IPO @ Rs.125 per share in the same year, the current value of that investment would have grown to a whopping sum of Rs. 66 lakhs.
(As per current share price – Rs.4162)

Refer to below graph that shows how Maruti stocks have grown over the last 12 years.

Maruti Suzuki stock is just one of the many examples which shows that investing in consumer goods can create wealth over a certain long period of time. There are so many companies that have given outstanding returns to their investors like Wipro, Infosys, Reliance, etc.
No, we are not saying that you spend only on necessity goods and stop spending on lifestyle and status products. The idea is besides being a consumer of these products we should also make profit by investing in these successful companies.

We just need to identify the “multibagger stocks.” These are companies offering great products and   have higher growth and profit making potential for e.g. Windows, iPhone, Netflix etc.
Off course there is no guarantee that if you stay invested in a stock for 30 years you will also make crores of rupees. But if an investor does fundamental research about the stock, follow market movements diligently and stay invested with patience he can definitely create wealth for himself.
It’s wise to invest in companies/industries familiar to you. Understanding their nature of business will make it easy for you to analyze its growth potential.

“Investment is process of investing money with an aim to gain returns in future. This return may be form of interest, income, appreciation in value over a certain period of time.”

Both investment and consumption require you to part with your money. However the difference is:

Let’s have a look at another example:
Year 2001 à
Mr. A bought Royal Enfield bike (manufactured by Eicher motor) for Rs.55000.

Year 2001 à
Mr. B invested Rs 55000 in Eicher motor stock   @ share price of Rs. 17.50

No. of shares purchased = 3143 shares
Year 2016 à
No appreciation in value of physical asset / bike instead its depreciated every year by approx. 10% of more
Year 2016 à
Eicher Motor’s share price as on date is Rs. 18623.
Current value = 5.58 crores. (= 3143 units * Rs. 18623)

“If you buy thing you do not need’ soon you will have to sell things you need”
 -Warren buffet

This is so true in terms of our current life style driven by consumerism and instant gratification to one self. There is hardly any demarcation between necessities/consumer goods and luxury goods.

For a financially secure future one has to maintain an income, investment and consumption balance.

Well after reading this article please don’t start trading or gambling in stock markets, we @ http://www.fernwealth.com  are there to assist you with financial planning and for long term wealth creation.

Nidhi Srivastava
Manish Kr Pandey

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