Secrets of Long Term Investing

In the last two lessons we have seen strategies to make money in short and medium term. Short term investing is quite stressful; we will be anxiously glued to our computer screen for any sharp price movements. In long term investing, the anxiety is reduced considerably as we allocate much time to understand and research the company before committing any capital in it. The objective of long-term investing is to invest in outstanding businesses with outstanding managements. As quipped by Warren Buffet “When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever.” 

 

Long term investing is inherently simple — we buy slices of companies in the hope that their revenues and profits will continue to rise and the share prices will follow.

But how can we avoid the frustration, impatience and stress that investing also seems to bring? The answer is simple. Here, we completely understand the opportunities and risks associated with the selected company. Once we are clear about it, we can wait for a decade or more to get exponential returns.

Before we embark our selection process, I have to confess you that this is not the only strategy to select a company. There are plenty of ways to make money in the market. This is just one of the several methods which can be adopted to find the money bags in the market.

Now let us take it up with an example.

Today’s video is to explain about finding the Disruptive company.  Disruptive means that it is going to change the traditional way that an industry operates, especially in a new and effective way:  Effectively disruptive companies is also associated with secular growth for several years or decades. In other words, we are going in for finding “Disruptive Money.”

Growth is of two types. 1. Cyclical and 2. Secular.

A cyclical growth is a type of growth that is sensitive to the business cycle, such that revenues generally are higher in periods of economic prosperity and expansion and are lower in periods of economic downturn and contraction. Metals, housing and commodities are some of the example of Cyclical business.

Secular growth, on the other hand, happens when a nascent technology displaces old business models and technologies and is expected to grow exponentially. Two factors contribute to an industry’s secular growth: one, the entirely new demand created owing to the innovation and two, the replacement demand from the old business model.

To understand it clearly, we are taking up pipe industry. Before the year 2005, the water pipe Industry comprised of only two segments: GI Pipes and the PVC pipes each had its own advantages and disadvantages. By the end of the year, a new technology was introduced by a relatively small company called Astral Poly which introduced a CPVC technology into the market. The advent of the new technology solved all the problems created by GI & PVC pipes, thus emerged as the leader of the piping industry.

GI Pipes corrodes over time while PVC pipes melts when hot water is passed. Astral pipes not only overcome these cons but it also had other list of advantages like:

1. Tough, Rigid Material
2. Easy, Cost Effective Installation
3. Unaffected by Chlorine
4. Lower Thermal Conductivity
5. Chemical, Fire and Corrosion Resistance
6. Low Bacteria Build Up
7. Over Forty Years of Proven Performance in the advanced countries

Besides the company had the right kind of collaborations; they are the First licensee of Noveon, USA to manufacture and market CPVC in India. They also had a techno-financial joint venture with Specialty Process LLC of USA, which provides them the required technical expertise for manufacturing CPVC pipes and fittings

Buffett once quipped “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”. Disruptive companies do not come very often but in a growing and emerging economy we can often find great innovative companies. The secret of making big money in the stock market is identify commit capital to the revolutionary companies who are disrupting and creating new marketplaces that will have huge growth ahead.

Astral polytechnic grew strength to strength from the 2007 till now.  Because of the disruptive nature it attracted more dealers and distributor strength across the country. The business grew from few hundred crores to few thousand crores in a span of 8 year. In an efficient market, stock prices would be determined primarily by fundamentals. In this case of Astral the stock has grown by 200 times in the last decade. In case you would have Invested a Lakh in that company in 2008, it would have become 2 Crores now. This is the secret of finding the disruptive money.