Discovering the Magic of Simple Investing

 

A Tale of Wisdom and Growth

 

Investing can often seem like a tangled web of complexities, where the basics get lost in a sea of jargon and intricacies. But amidst this maze, there are three guiding stars that shine brightly: simplicity, common sense, and the compound effect. These principles may seem straightforward, but their true power often reveals itself through real-life examples.

One warm summer evening, I found myself inspired to share some insights with my daughter. Intrigued by the idea of learning something new, she eagerly awaited what I had to say. Without giving away the topic, I embarked on a journey to introduce her to the captivating world of the stock market.

With patience and clarity, I explained how companies transition from private to public entities through Initial Public Offerings (IPOs). We explored concepts like stock specialization, the vital role of brokers, and the workings of indices such as the Sensex, as well as exchanges like BSE and NSE.

Our conversation flowed effortlessly as I encouraged her to think about companies she trusted and relied on in her daily life. Her choices ranged from household brands like 'Doms' for stationery, 'Colgate' for toothpaste, and 'HUL' for household products, to additions like Titan, Himalaya, Tata Consumer Products, and Maruti Suzuki, each enriching our discussion further.

Inspired by her newfound understanding, we decided to create a hypothetical portfolio. We calculated the cost of acquiring one share from each company in 2012, sum of investment came around ₹ 3,764. Despite the market turbulence during the 2020 pandemic, we stayed true to our plan, holding onto our investments without making any changes.

When we checked the value of our portfolio in 2024, we were pleasantly surprised to find it had grown to ₹ 23,306. Even more astonishing was the compounded return over the twelve-year period—an impressive 16%, outperforming benchmark indices that managed only a 12% return.

 

Sr. No.	Company Name	2012	2024
1	DOMS*(2020 Listing)	₹ 1,326.00	₹ 1,500.00
2	Himalaya	₹ 19.00	₹ 23.00
3	Titan	₹ 225.00	₹ 3,700.00
4	Colgate-Palmolive	₹ 500.00	₹ 2,700.00
5	HUL	₹ 400.00	₹ 2,260.00
6	TATA Food	₹ 94.00	₹ 1,123.00
7	Maruti	₹ 1,200.00	₹ 12,000.00
		₹ 3,764.00	₹ 23,306.00

 

This revelation prompted some introspection. Despite my years of experience in trading, I was struck by the simplicity and common sense my daughter had effortlessly applied. Her ability to embrace a long-term perspective, allowing the power of compounding to work its magic, surpassed even my own understanding.

In conclusion, our journey through the principles of simplicity, common sense, and the compound effect in investing taught us a valuable lesson. These principles are not just theories; they are timeless truths that transcend age and experience. As we navigate the complexities of the financial world, let us never forget the wisdom found in simplicity, for it is often the key to unlocking enduring success in our investment endeavours.

 - Ritesh