Simple ways to create a fortune
Investing small amounts of money over very long periods of time creates wealth. If you do not understand this statement, read again and again.
It must have been in 2006 when a senior banker asked me to meet his neighbour's cousin. She had lost her father (her mother had died long ago) and was having some problems understanding her late father's portfolio.
She had no clue of her father's portfolio, but she kept saying that he would regularly buy/sell shares and make a lot of fixed deposits.
She was a very well organised person and she made an excel sheet to show the number of shares, but had no clue where the dividend warrants were.
Her father had never spent too much money, but had NEVER asked her for money. She was married to a man who also did not talk about money at home and they led a simple quiet life.
So here I was looking at about 49 companies in which the client's father was holding shares for about 30 to 40 years. The usual -- Reliance, GSK, HUL, HDFC, HDFC Bank, Nirlon, Century, Nestle, etc. Sure there were some duds too. Do not remember their names now.
So I asked somebody in the office to make a valuation...
When she came to me next I asked her "Do you know how much is the portfolio worth?" She and her husband of course had no clue.
I asked them to guess and they said 'about Rs 20 lakh'.
This is how our conversation went:
Client: No Mr Subra we have no clue about my dad's investment, but maybe it is Rs 20L
Me: Well, that is the amount of money he has in fixed deposits, apart from that he has equity shares.
Client: Oh I did not know he had 20L in bank FDs! So my dad was a rich man?
Me: Do you really think that Rs 20L is high? Er, what would you do if you had Rs 30L Mrs Client?
C: Oh I would quit my job and sit at home! May be take a vacation.
PS: She did not need this money, she and her husband were doing well, and she had ESOPS from a good technology company.
C: Subra, really I would quit.
C's husband: I think from the way you are asking, the amount is Rs 30 lakh!
Me: Actually it is a little more than that. Your father had a dividend income of almost Rs 6 lakh, interest income of about Rs 2.5 lakhs, and the bad news is he has not paid income tax for the past so many years!
C: Subra, but now this is getting curious -- please tell me the figure!
Me: Rs 1.7 crore!
Even a CAGR of 12 per cent + dividend re-invested + not paying even the legitimate tax dues was a great combination!
When I was seeing this, markets were still not in a final stage of boom. She was immensely lucky that she was seeing this portfolio at the peak of a boom. She used the opportunity to clean up dramatically and invest in mutual funds.
What it proved to me was the following:
1. Stock picking is about a lot of common sense.
2. Investing small amounts of money over very long periods of time creates wealth. If you do not understand this statement, read again and again.
3. My client's father had held HDFC since 1980. That alone was greater than all the cash that he had ever invested. Sorry ever earned while in service.
4. If he had met a relationship manager or a broker, his portfolio would have been cleaned out long ago!
Photographs: Uttam Ghosh/Rediff.com