Tuesday, December 30, 2014

Power of equity is the least understood






Film actor Rajesh Khanna bought a bungalow in iconic Carter Road in Mumbai for Rs.3.5 lakhs in 1970. His heirs sold it recently for Rs.85 crores. The property has multiplied by 2428 times or an annualized return of 19.38% over 44 years.
Samudhra Mahal in Mumbai is another expensive property. A flat purchased in 1970 at Rs.700 per sq.ft was sold at Rs.1,18,000 per sq.ft in 2013. Money multiplied by 168 times in 43 years. This works out to an annualized return of 12.66%
In 1963, Godrej paid Rs.1 lakh to buy his first house, a 2916 sq.feet apartment at Usha Kiran, Carmicheal road, in Tony South Mumbai. In 2011 he sold it for Rs.25 crore. Money multiplied by 2500 times over 48 years or an annualized return of 17.70%
In Dalal Street, Mumbai, a sq.feet was Rs.100 in 1980. After 34 years, it sells at Rs.27,000 per sq.ft. Money multiplied by 270 times in 33 years. This works out to an annualized return of 17.90%.
The first three properties can be bought and owned by cream or elite of the society who are worth at least tens of crores, mostly hundreds of crores.
A financially middle class person could have bought the property in Dalal street , with whatever money available at  disposal. You can buy it even now.
A Virtual Property
The last property is Sensex, which can be owned from anywhere in the world.  A sq.feet is a metaphor for one unit. If dividend yield is also included (assuming 2% CAGR), Sensex would have delivered 20% annualized returns over last 34 years, higher than the most expensive prime properties in the country.
Returns far superior to Sensex
Many mutual funds and stocks have delivered returns far superior to Sensex.
Power of equity is least understood in this country.
You have to just withstand notional loss (Don’t book the loss. That is ,do not sell at rates lower than the cost price) in portfolio during bear markets,
not to worry about daily price movements, you can make much better money than what can be made out of the best of real estate deals.
Give at least the same importance to equity as you give to real estate.
You don’t mind holding real estate for 20 or 30 years. Do the same for equity ignoring bull and bear markets, notional profits and losses.
Many of you must have been investing for last a couple of years. Keep the course for at least another 15 to 20 years , ignoring market fluctuations. You would be amazed at the fortune created for your retirement or to pass on to your children.

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