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This Stock is up 30,000% – So Why is my Relative Not Selling it?

What would you do..?

…if the stock you purchased is up more than 30,000% from your purchase price?

A common and a sensible reaction would be to sell it immediately & celebrate. If I would have been in your place, even my first reaction would have been the same. And more so if this appreciation had taken place over a very short period of time. 

But this particular one took almost 25 – 30 years.

And the stock I am talking about is Hindustan Unilever (HUL).

One of my relatives called me up last night for a general chit-chat. Since he is into long term investing, or rather passive & lazy kind of investing, we generally end up talking about stocks much more than anything else. And this time was no different.

He told me that since markets had run up so much due to election-induced-euphoria, many in his friend circle were asking him to sell this ‘mega-multibagger’ now. As mentioned above, he was referring to the shares of HUL which were a part of his portfolio. Adjusting for various bonuses, splits and dividend re-investments in last few decades, his average cost per share worked out to be less than Rs 2.

And the stock is currently trading at around Rs 580!

And as mentioned in the title of this post, this amounts to a un-booked paper profit of more than 30,000%

Now the question is, why isn’t he selling his shares? That to after a rise of more than 30,000%!!

In 2013-14, HUL paid/announced a dividend of Rs 13 per share.

So what does this information have to do with the decision to sell (or not) a stock which is already up more than 30,000%?

This means that my relative is earning a monstrous dividend yield of 650% per year, i.e yield-on-cost. Yield-On-Cost is the dividend yield of a stock on its purchase price.

Dividend Stock Wealth
Sometimes, its the only button you need on your Wealth Keyboard



For a stock having an effective purchase price of Rs 2, a dividend of Rs 13 every year means a yield of 650%. And since HUL generally pays dividends which increase with time, it is highly probable that this yield-on-cost will continue increasing in future too.

Now where else can you find an investment, which pays 650% every year?

And that is the reason my relative is not selling his shares. The logic which he gives is an extension of previous statement. If he sells his shares of HUL, it would be impossible for him to find an asset class which would provide him with such phenomenal annual returns.
Returns Assets India
Comparison of Annual Returns by various assets
** HUL in this particular case
And this makes a lot of sense.

Though I call myself to be a long term investor, I still think that it is really, really tough to buy stocks and keep them for more than 25-30 years. Really, I am proud to be a relative of this person. 🙂


You can read my article on the concept of Yield-On-Cost in world famous value investing website Old School Value here.
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Is it a good time to buy / accumulate shares of SAIL – Part 1

In one of our previous posts, we mentioned that we avoid highly cyclical stocks. The reason being that we are not good at evaluating cyclical businesses and because these businesses have unpredictable earnings and cashflows. Instead we prefer sticking with known great businesses & simple companies.

But, just a few days back, a highly cyclical business caught our attention. The business was Steel. And the company was Steel Authority of India Ltd. (SAIL).
steel authority of india logo sail
Steel Authority of India Ltd.
We found SAIL available at Rs 68 apiece (March 15, 2013). This seemed a little too cheap at first. We then checked the historical price movements and found that it was indeed available close to its multi year lows [see graph below].

sail - stock prices over the years
SAIL – Trading close to its Multi-Year Lows
Now, a price close to multi-year lows can mean few things: Entire economy is in midst of a once-in-a-generation-recession OR Company has everything going against it OR Company is nearing bankruptcy (or similar financial outcomes). But as far as we could make out, neither is India facing a really big crisis, nor is SAIL nearing bankruptcy.

And the graph below clearly shows that though slow, the sales are increasing. Also, the operating and net profits are falling in last few years. That is a red flag. But considering that entire economy is struggling to gain momentum, a cyclical business like steel is bound to pay the price with declining profits.

sail - Net sales profits trends
Increasing Sales & Decreasing Profits
Once we had it confirmed that SAIL is not about to close down, we decided to check simple parameters like Book Value, Price to Book Value Ratio & Dividend Yields. And what we saw only confirmed our initial thoughts. The stock is trading not only close to its multi-year lows, it is also trading at valuations (P/BV) which have almost never been seen before for this company!!

SAIL - Price to book value
SAIL is available at its lowest P/BV ever!!
We also found that in past, book value per share had almost always acted as a very strong support for the stock price. But same has changed recently. The stock has consistently traded below its book value for last 18-20 months. It may be due to negative sentiments attached to commodities and economy in general, but we are not sure.

SAIL - book value per share trends
Consistently increasing Book Value (2002 – 2013)
We analyzed the stock on another parameter which we love a lot dividends. And once again, we were not surprised. Being a PSU, it has been quite generous with its dividend payouts. As of now it is available at mouth watering 4.2% Dividend Yield. Historically, it has had an average dividend (%) of 28%, which seems sustainable in the long term.

SAIL Dividend History
SAIL is a consistent dividend payer : Presently available with a yield of 4% +
So we come back to our original question?

Is it a good time to buy / accumulate shares of SAIL?

We feel that though a lot of indicators point that it may be a good time to start accumulating this stock, a little further analysis might be needed before deciding to start accumulating this stock. 

We take up the second and last part of our analysis in our next post.

Disclaimer – Created positions recently in SAIL.

Disclaimer – Author had a short stint in steel industry.

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Multibagger of Long Term Investing

Wouldn’t you be shocked if we told you that someone has turned Rs 10,000 into Rs 3,69,00,00,000 (Rs 369 Crores) in 32 years?. And that too by doing nothing in stock markets!! We bet you would be… 🙂


Your next question would definitely be – Who has done it?

Our answer is that we don’t know. But we are pretty sure that promoters of company would be one of them. They would have held shares for 32 years and made a killing. By the way, turning Rs 10K to Rs 369 Cr is same as growing your money 49% year on year for 32 consecutive years. Even great Warren Buffett managed a ‘paltry’ 25%…  So even if we told you earlier that you cannot become Warren Buffett, here we have data, which suggests that you actually can!!

(In comparison, banks pay 8% per year on deposits)

So now you’ll ask – How has it been done?

Before we answer this question, we would caution you that data given below has been collected from various sources and may or may not be correct. So, take it with a pinch of salt.

The company is WIPRO. Suppose you invested Rs 10,000 in its shares in 1980. You would have got 100 shares @ Rs 100 each. Now shares of Wipro have gone through multiple splits & bonuses. So we adjust them as and when splits & bonuses happened.

1980 – Bought 100 shares @ Rs 100

1981 – 1:1 Bonus = 200 shares

1985 – 1:1 Bonus = 400 shares

1986 – Stock Split to Rs.10 face value = 4000 shares

1987 – 1:1 Bonus = 8000 shares

1989 – 1:1 Bonus = 16,000 shares

1992 – 1:1 Bonus = 32,000 shares

1995 – 1:1 Bonus = 64,000 shares

1997 – 2:1 Bonus = 1,92,000 shares

1999 – Stock Split to Rs. 2 face value =9,60,000 shares

2004 – 2:1 Bonus =28,80,000 shares

2005 – 1:1 Bonus =57,60,000 shares

2010 – 3:2 Bonus =96,00,000 shares

Value of one Wipro share is around Rs.385.

So as of today, your investment of Rs 10k is worth a staggering Rs.369 crores!!

And we are not finished yet. If you know about benefits of dividends, you would realize that Wipro has been a regular dividend payer. Last year it paid Rs 6 per share as dividend.  So you would have earned  Rs.5,76,00,000 (Rs 5.76 Crores) last year alone as dividend income. Just imagine how much you could have made from dividends alone in last 32 years. 🙂

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