How did you zero in on the concept of a 100-bagger? Why did you choose to make it the subject of your wealth creation study?
This report would most likely have been titled ‘demystifying growth’. But then we came across the book 100 to 1 in the Stock Market by Thomas W Phelps, who is described as a private investor, columnist, analyst, author and financial advisor. Written in 1972, the book makes a strong case for investors to “buy right and hold on”. It offers examples of how over 365 stocks in the US appreciated 100 times or more over the 40-year period ending 1971.
12 years a slave
In India, the average 100X period is 12 years, stocks delivered handsome interim-period returns as well
The importance of this book is that it led us to think about growth and understand the power of growth in investing, particularly in identifying some of the future multi-baggers. This was the starting point for the study. Growth is crucial to investing but is not discussed much in India; there is an incomplete understanding of the subject.
How did you adapt your findings to the Indian context?
Our investing style is primarily concentrated on quality, growth, longevity and price. Of the four, growth is the most neglected variable. For instance, how do we measure growth, value it and decide whether it is secular? Growth is the biggest force that changes the value of a company. Infosys was a ₹50-crore entity that went on to become a ₹2-lakh-crore IT powerhouse. The transformation came about because of the underlying growth in the IT business. Had it not grown, Infosys would not have achieved this size and scale. So, growth is very important. The next pertinent question would be: where do we search for such high-growth ideas? Of all the growth stories, one needs to think which one is going to be around over the next 20-30 years and is currently under the radar.
Could you elaborate on what this framework threw up when applied to the Indian equity market?