You would have heard the term “Butterfly Effect” from someone or read somewhere, particularly to refer the sensitive dependence on initial conditions. This explains that a minor change in one state of a determining nonlinear system can result in large differences at a later stage. The Butterfly Effect is a thought developed by the American meteorologist Edward N. Lorenz to emphasise the likelihood that small causes may have significant effects. It simply refers that small decisions can have big impacts down the line.
Vikas, who is one of the bloggers at dhandhoinvestor.com is a firm believer of Value Investing. He believes on the investment philosophies of Sir Warren Buffett. He has learnt investing in share market and mutual funds via the theories and guidelines outlined by some great investors. Let us unfold a few sides of his life to know what events played big role at a later stage of life though seeming quite small while in actual existence. In short, let’s reveal the butterfly effects of Vikas’s Investing journey.
DISCOVERY OF THE STOCK MARKET
My journey to the introduction to stock market begun in my college days. This is I believe one of the most prominent butterfly effects of my life which still holds the core of it.
During my IIT days, I was not new to internet but yes really fast internet was something fascinating. My hostel roommate used to play a lot of games online. I too searched for a game for myself and came across Dalal Street Investment Journal (DSIJ) online stock market & Virtual Money Game. In this game, I used to get a sum of INR. 10 lakh virtually to make my investments on the gaming platform. This virtual money was used to buy stocks of companies that were virtually trading on the platform.
Future First Pvt. Ltd. was running similar type of platform. There too I could only invest in commodity, crude, oil and future market etc. I was learning the basics on how to make investments on a trading platform in reality. I was learning new concepts for evaluating which share to be chosen on the basis of several parameters learnt. That was a journey full of learning for me.
There came a competition announcement in my college, and I couldn’t resist myself for not taking part in the same. It was organised by Future First Pvt. Ltd. which is a company that provides research and advisory services in global derivatives markets. And, guess what I topped that competition for the first time from my branch. It was a booster for me in a lot many ways.
LEARNING: Though I loved every minute spent while playing the online trading game on DSIJ. I could gather, I was not much interested in commodities. I was able to understand the business dynamics etc. but did not like the commodity or the future markets. This experience gave a fruitful lesson for my lifetime. It taught me that I LOVE BUSINESS. I loved reading on businesses, understand their management’s decisions, their ups and down (and the reasons behind the same) and up to some extent I was able to analyse their financials too (though as a beginner only).
FIRST FEW PANICKED SALE OF STOCK
Way back in college I learnt investing online, but via virtual money. Now was the time to invest some real money when I was in my first job. Let me remind you, I began my investment with only INR. 1000/-
Why do I keep saying and reminding this (even to myself), because if I could save and invest money; anyone in the world can. I started to read a lot about Warren Buffett, the God of Investing. Just like any other investor, I too have made wrong choices due course of my investing journey. But always learnt few lessons which could not have been taught to me by any book or philosophy. I’ll brief on few of my mistakes and learning learnt here,
Maruti Suzuki India Ltd. (MARUTI): Almost six years ago when I had begun investing, I had bought few shares of MARUTI at INR.1500 only. Right now, I’m adding “only” to it, but at that time frame this was like OMG INR. 1500! Since I was new to investing and was not understanding the importance of long term holding for greater benefits etc. I sold off all the shares I had of MARUTI at INR.2000. This was my first PANIC SELLING!
You must be thinking I made a good sale (at a profit of INR.500 per share), then why am I calling it as a wrong decision of mine? Because the same share reached even to INR. 10000 later on. If I would have stayed with this company for longer period of time, I would have made huge profits. I was not at a profit of INR.500 per share, instead I was at loss of INR. per share (which is huge!).
LEARNING: If you have invested in good companies, believe in them (not blindly, keep a regular read on their quarterly reports for their financials). Do not panic at a stage when the shares are down, they’ll rise if they’re fundamentally good. In fact, when it falls buy it in good quantity and hold it for long time. Compounding is what will benefit in longer run. Keep reviewing the company’s performance quarter by quarter.
Suzlon Energy Ltd. (SUZLON): I was intrigued by this company for its promises made in the annual reports. I started to buy Suzlon’s shares at INR. 12 when the renewable energy sector was at boom. Sometime later Mr. too made an investment in Suzlon’s share at INR. 18 per share.
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It took me some time to understand the fundamentals of the company, and by that time I had accumulated a lot of this company’s shared. I observed during one of their conference calls, that whatever promises they make are never being followed in reality. I immediately decided that I should quit this company’s shares as the management isn’t trustworthy. So I quit by making a profit of INR 2 per share.
LEARNING: We should never be barging behind a big investor blindly. Even a big investor sometimes enters wrong deals. One should avoid such “Hot Stocks”, which are a talk of every news channel. Also, one of the greatest learning that followed was: Never to go with a debt company. Suzlon had huge debt and always made promises for repaying back but God knows when they shall be debt-free.
Amtek Auto Ltd. (AMTEKAUTO): I had begun to buy this share when it was around INR. 120. It kept doing well for few quarters and even reached to INR. 150, when I booked some of the profits as well. All of a sudden a news flashes in that AMTEKAUTO has defaulted their bond’s payment. With the flash of this news, the share crashed down to INR. 50 in a single day.
While buying this company, I considered their debt to equity ratio too which was fairly good. But the problem was they kept acquiring businesses and the loan surged a lot. They possessed a lot of assets but did not have real cash in pocket i.e. a sound cash flow was missing.
LEARNING: A clear and loud message came out from this experience, “look for companies having no to low loans and have good cash flow”.
FINDING THE GEM
Deepak Nitrite Ltd. (DEEPAKNTR): I was keeping this company on my radar since a long time but I wanted to invest in the same only after being sure of its fundamentals. When I was assured of their commitments and adhering performances, regular growth, no to less debt, deliberate management choices and good cash flow I decided to make their shares’ purchase. And, I’ll say this has been my best buy ever till date. Almost four years ago I began to buy DEEPAKNTR shares. Initially I bought them at INR 65 per share and then the prices slashed down to INR 55. I again bought it when it slashed down to bring my average price to INR 59. It has shown good growth by the time and when it reached to a level, I started to book profit at INR 80-90 just out of fear of not losing it all. My average price still was maintained at INR 70.
There came a time when its share prices touched INR 300. And I could observe there is no turning back from there. Meanwhile I kept on investing in this share (even bought at INR 180-200 per share). Still, I’ll proudly announce that my average price for DEEPAKNTR is below INR 100. Today the price is around INR 280 and his holds 25% of my portfolio.
LEARNING: When you believe in the company, keep averaging out your buying price whenever you get a chance by the market’s lows. Invest for long term, compounding is going to give great results.
CASHING OUT A CHUNK FOR THE BETTER GOOD
Someone has very rightly quoted, whatever happens in life happens for a reason. I had to start a business in the Education industry and needed some immediate cash. Selling off Suzlon Energy was the first thing that popped in my mind. I was anyways not convinced with their business ethics or style of working and was (may be) seeking for a solid reason to quit their shares.
I found a rock-solid reason to cash out my INR 10 lakhs from Suzlon Energy and invested in a business which is earning me good money. That money would otherwise would be lost with Suzlon, which is trading these days at INR 5 per share. So, sometimes stepping firm and exiting at an appropriate time is also very much significant. You must be able to do your research and decide for when to exit.
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Since many a times it’ll happen that such small incidents will leave a big impact on your future. Sum of such small events draw up a big and successful life’s painting. The decision of taking out my money and investing in something which too was risky (the education business), has reported well till date. Hopefully the future shall bring even better ways for diverse investments which are further fruitful.
These Butterfly Effects have added a lot to my life’s learning. And, obviously have made my portfolio grow day by day. Such butterfly effects only have made me capable of having multiple sources of income today. I can confidently say if these small incidents would not have happened to me, I would never have achieved what I have today. A well-structured investment portfolio to live a wealthy life, a business in education industry and blogging.
It happens with all of us, that we see or treat an event momentarily. We many a times fail to see the long term impact or choose to ignore but every incident acts as a butterfly effect in our life. The same applies to investing as well. Today, and for the generations ahead us, we need to make sure that investing is clear in purpose, stranded in the facts, and followed with the topmost potential competence.