Chronological Lottery

Chronological Lottery

The history of mankind might have been very boring if it was not for great men and women seizing the opportunities that changed their lives.

Whether it is Napoleon Bonaparte, Thomas Edison, Jamshedji Tata, Walt Disney, Mother Teresa, Steve Jobs or Sachin Tendulkar, who took the opportunity and persisted with their dream.

 It’s not just about being in the right place at the right time; but knowing what to do when you find yourself there.

Warren Buffett while speaking on how he made his billions said, “He  was lucky because he was born in the United States and had an investment career during the nation’s most prosperous decades, an ‘ovarian lottery’.”

The reason behind the phenomenal success of investing legends, like Bill Gross(the Bond King), Buffett, Peter Lynch, George Soros, and even our very own Rakesh Jhunjhunwala, Ramdeo Aggarwal, Ramesh Damani and many more, in many ways, is nothing but their ‘Chronological Lottery’, Being invested at the right place, at the right time, in the right asset class.

No one can take away the genius of the investing legends, but these legends themselves have never shied away from acknowledging, the role that being at the right place at the right time played in their success, and they  were very early to act on their lotteries.

Hundreds and thousands of ordinary people, who invested in the Japanese stock markets in 1960s, made a ton of money.

That too not for a few years but for decades, right from 1964 to 1989, the Japanese market, Nikkei, moved up from 1357 to 38916, a growth of 29 times in 25 years. Our very own Sensex went up 390 times in 40 years creating several multi millionaires during the journey.

 Companies like Canon, Toshiba, and Sony were among the top 10 recipients of patents from the US Patent and Trademark office in 1960s. As they exported their products globally, their profits exploded.

By early 1989, Japan accounted for 45% of the global market capitalisation, followed by the US at 33%, and the UK at 9%.

 The book,Making Money in Japanese Stocks”, published at the peak of the Japanese stock market, in 1989, points out:

The stock of Sony went up 8.4 times from under 700 yen in early 1966 to 5,850 yen in October 1969. 

Honda Motor went up almost 8.6 times from 130 yen 1971 to 1,120 yen in 1973. 

Fujitsu went up 7.8 times from 101 yen to 795 yen in less than two years. Even investing in the benchmark index, the Nikkei, would have fetched them upwards of 2,500% over 25 years! 

The investors who got in at the start of the Japanese bull market created wealth that would last generations. 
Being at the right place at the right time allowed ordinary investors to enjoy the fruits of their Chronological Lottery. 

Is India today on the cusp of a chronological lottery? 

Over 2,000 years ago, India contributed about 33% of the world’s GDP.

Experts believe that India is on the verge to repeat the history because our economy has the potential to grow many times bigger from here in the next 15 years!

Last time when India went through a massive period of change, regular Investors had a chance to turn Rs 1 lac into Rs 44 lac, or into Rs 1.08 crores, or even into Rs 4.89 crores in less than 25 years. 

Though India got independence in 1947, the year 1991 was the year during which India was reborn; 1991 brought about the economic freedom that Indian businesses were yearning for.

The opening of the economy in 1991 showed us, for the first time ever, the kind of wealth that Indian businesses could potentially create.

Companies that benefitted from economic liberalisation created massive amounts of wealth for their shareholders over the next 25 years.

The BSE Sensex was around 1,000 in 1991and after 28 years of 1991 reforms, the benchmark index was up more than 39 times!

However many individual stocks did much better.

Investing just Rs 100,000 in Ambuja Cements in 1991 would have given Rs 44,48,000 in 2017.

Investing Rs 100,000 in L&T in 1991 would have given Rs 1,08,25,000 in 2017.

And, if a person had invested just Rs 100,000 in Dr. Reddy’s Labs in 1992, it would have given him Rs 4,89,48,000 or 4.89 crores in 2014.

MRF stock went up 1506 times,Asian paints went up 380 times from 1991 to 2017.

However only a very tiny proportion of Indians benefitted from it; Less than 5% of Indians ever participated in the stock market boom over these 25 years.

Most did not recognize the life changing opportunity that came their way, and even those who did, were too fearful and did not have the conviction and persistence to act on it. This was also due to the fact that the journey of the market was not linear but very volatile.

In these 28 years since 1991, The Indian market also witnessed several major Corrections and Bear markets, the major among them being the crash in 2008 due to the Financial market crisis, and the Dot com bubble burst, The Harshad Mehta &Ketan Parekh scams etc. But, despite these corrections and bear markets, the market grew by around 39 times in these 29 years.

The chance has still not been missed, We strongly feel that  Indians’ claim to “Chronological lottery” is ahead of us and not behind us, the next decade is going to create wealth in the Indian stock Market like never before.

To further illustrate the point, Lets study the change in the two leading markets, i.e. the US & China when their economies moved from $ 2.5 Trillion to $ 5.0 Trillion, to get an idea on how our market may behave during this journey.

As is visible from the above chart, the U.S. Economy doubled from $ 2.5 Trillion to $ 5 Trillion in ten years whereas the Chinese Economy took less than four years. During the journey the Dow witnessed one of the fastest growth rate of 11.13% CAGR whereas the Chinese stock market, The Shanghai Composite, grew by a CAGR of 47.52% ,before the 2008 crisis mellowed the growth down to 6.99%.

Indian Economy is expected to grow from $ 2.5 Trillion to $ 5 Trillion in 7-8 years and this change itself should propel the Sensex to a much higher level in the next few years.

Study of Data related to growth in Indian GDP and relationship to growth in the Sensex clearly shows a direct correlation; albeit the Sensex always tends to grow at a rate which is much higher than the GDP growth.

In 1991, when the liberalisation started, Indian GDP was $ 250 Billion and Sensex was at 1167, in 28 years, GDP has gone up by 10 times whereas the Sensex has gone up by more than 33 times. Similarly at the turn of the Century in 2001-02, Indian GDP was $ 500 Billion and Sensex was 3469.35; in 17 years since then, GDP has grown by 5 times and Sensex has gone up by 11 times. As we move from a $2.5 Trillion to a $ 5.0 trillion economy and our economy is likely to  double by 2026-27, the Sensex is also expected to move in the same direction albeit at  a faster pace than the GDP.

There are major structural changes which happen in consumption patterns when the economy moves from one stage to another. Infrastructure spending increases, private capex takes place to create new capacities, Discretionary spends increases manifold as the % household spend on basics like food, clothing & shelter comes down. Affordable housing, FMCG, Autos etc. are the sectors which benefit. As you will see in the chart below, the Indian potential to consume and reach up to the next level is tremendous.

The speed of change has increased tremendously and growth is on its own momentum. Macros, Liquidity and sentiment will count but markets will continue to flourish due to a variety of reasons.

Formalisation and financialisation of the economy due to greater compliance by businesses, the demographic advantage, Digitisation, rapid urbanization, increased literacy, etc will be just some of the factors which will boost growth in the economy and a sustained Bull market. Nearly two out of every three bank accounts opened in the world between 2014 and 2017, were opened in India. Four-fifths of Indian adults had bank accounts in 2017, compared with just 53% in 2014. 
More than 30 Million additional IT returns have been filed in the last couple of years,

However the growth in the market will not be a linear one, but volatile and those with conviction and long term horizon will benefit the most of this “Chronological Lottery”.

The market is  going to continue to reward the structural compounders and punish the laggards and those where there is even a whiff of Misgovernance. 

We are in for some really interesting and exciting times ahead. It is advised to traverse this journey with the help of a Financial advisor who can help you achieve your goals and make your journey smooth.

Get ready for the journey to take advantage of the “Chronological Lottery” and the next pilgrimage to meet the “wizard of Omaha” may well be to a remote Bhavsari or Pathankot or Dibrugarh.

Happy Investing!

Stay Blessed Forever

Sandeep Sahni

Note: All information provided in this blog is for educational purposes only and does not constitute any professional advice or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.About The author

Sandeep Sahni

Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class of 1988). His also an alum of Shri Ram College of Commerce, Delhi University (B.Com. Hons. Class of 1985.)

Sandeep’s investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management.

He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money.

Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals. 

Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance.

He also writes a well read blog; 

https://sahayakgurukul.blogspot.com
https://www.sahayakassociates.in/resources/our-blog

He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation.

He can be reached at:

+91-9888220088, 9814112988

sandeepsahni@sahayakassociates.com 

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