India’s decade started decades ago, and perhaps is going to be decades long…
how to ride this multi-decade trend. To make my argument, I will flip this and suggest what not to do instead. First, a big mistake one is prone to make in times like these is to start looking way out into the future and estimating how successful Indian companies will be.
This fits in especially well with small and mid-cap companies. It’s easy to visualise a small company’s market cap go from 250 cr to 2,500 cr (10x), as compared to a ₹10 lac crore market cap of a large company goes to ₹100 lac crore (10x). As a result, portfolios naturally gravitate towards this segment of the market.
If history is any guide most such punts are nothing but spectacular failures. Why? Because for a company to realise the opportunity it takes a lot to go right, and that’s not guaranteed. If you don’t agree that’s only because the failed companies are not staring you in the face every day.
They have disappeared! Second, another big mistake is to lever up to amplify the already amazing return potential India offers. Debt in investing for most people is not a wise idea at all. It’s poison.
Not only could it amplify losses, one bad trade could significantly eat into your accumulated wealth. Recently Charlie Munger conceded that if Berkshire Hathaway had taken on some debt, returns would have been higher. But the fact is that it takes special skills, and an iron clad balance sheet to be able to make leveraged bets.
Most readers of Contramoney would perhaps not qualify (if you have a Berkshire like balance sheet, my apologies). Third big mistake is to assume that all will be good, always. The eternal bull.
Read more on livemint.com
