‘Investing is simple, but not easy’ is one of the quotes of Warren Buffett. Investing is simple. You have to make the buying decision right and be patient for a few years depending on your time horizon. But, it’s not easy. One reason why it is not easy is that in a lot of cases, the stock immediately falls for some time after you buy it. But, one of the most important reasons why it is not easy is that investors suffer huge drawdowns for long periods of time in a stock multi-bagger journey.
One stock that has suffered significant drawdowns from time to time in its multi-bagger journey is Titan. Titan has delivered 30% CAGR returns from January 2000 to Oct 2021( 250X in 21 Years). But, during its multi-bagger journey, it has suffered significant drawdowns during these 21 years. Here is its journey.
3 January 2000 to 19 October 2001 – During this period, the dot com bubble burst. Dot-com bubble was caused by significant valuations in Information Technology (IT ) companies. However, the crash was not limited to dot com companies. It extended to the broad markets. Sensex crashed by 44% during this period. Titan suffered a highly significant drawdown of 82%.
10 July 2002 to 25 July 2002 – Titan faced some challenges during this period. It announced a Voluntary Retirement Scheme (VRS) for its employees on 25 July 2002. The stock crashed by 41% in just 16 days prior to the announcement.
31 October 2007 to 16 October 2008 – The crash in Titan stock prices during this period was caused by the 2008 financial crisis. Titan stock crashed by 60% during this period of around a year, while the Sensex crashed by 47%. The financial crisis was caused by the bubble in subprime loans in the USA, but the crash extended to worldwide markets. In India too, highly leveraged entities generally fell the most during the crash.
19 December 2002 to 31 March 2003 – During this period the stock crashed by 42%. During 2002- 03, the company had very marginal profits with a Return on Net Worth of merely 2.4%. At the end of March 2003, the company had a significant debt of Rs 467 crore and equity of merely 162 crores, leading to a debt-equity ratio of nearly 3.
6 March 2006 to 22 May 2006 – The company faced some challenges on the profitability front in the first quarter of FY 2005-06. The net profit declined to Rs 4.09 crore in this quarter from Rs 5.02 crore in the same quarter of last year. This implied the net profit fell by around 20% on a year-on-year basis. The share price crashed by 43% during this period due to this reason.
20 November 2012 to 13 June 2013 – Jewelry is a key component of Titan’s sales. The RBI put restrictions on gold imports during this period. Gold could be imported without restriction by jewelers only for exports and RBI banned leasing of gold for domestic consumption. The rules required Titan to pay cash upfront without getting any credit period for gold purchases. These measures would affect Titan’s margins and profitability, which the markets discounted in advance. Titan’s shares were corrected by 36% during this period.
25 October 2019 to 3 April 2020 – There was a crash in the general stock markets due to fears of a coronavirus pandemic. While the Sensex corrected by 29% during the mentioned period, Titan crashed by 41%.
Other periods – Titan’s shares corrected by 33% From December-end 2003 to mid-February 2004. The company’s shares corrected by 31% from Feb-end 2004 to June-end 2004. In addition, from mid-November 2010 to mid-February 2011, shares fell by 31%. From early September 2016 to the later part of November 2016, shares fell by 33%.
Another instance of a stock that has suffered massive drawdowns is JSW Steel. During the 2008 crash, JSW Steel crashed by a whopping 88%. During the 2020 covid crash, it suffered a drawdown of 52%. The stock has delivered a credible 19% CAGR from 1 April 2005 to 31 August 2021. In another instance, Havells has been a multibagger from 1 April 2005 to 31 August 2021 delivering a significant 38% CAGR. But, it suffered a huge crash of 91% during the 2008 financial crisis. The stock corrected by 29% during the 2020 covid crash. Here are some instances of multibaggers suffering significant drawdowns.
|Company||CAGR from 1 April 2005 to 31 August 2021||Drawdowns during crashes|
|2008 crisis||2020 crash|
One thing that is simple but not easy is managing your emotions when the market or your stocks fall. Fear takes over when your stock starts crashing or correcting significantly. It is easy to say – Don’t be greedy. But, managing the emotion of greed, especially in times of extreme euphoria is not easy.
Warren Buffet has said that there are only 2 rules of investing. One is – Never lose money. The second rule is – Never forget Rule Number 1. But, not losing money in the short – run while investing is not easy. Also, even if you make the best decisions, not losing money on some individual stocks is not easy.
The other thing that is simple but not easy is sticking to your circle of competence. There might be a temptation to move outside your circle of competence if other stocks are doing well. For instance, if your circle of competence is old economy stocks, and if new-age technology stocks are performing better, there might be a temptation to buy new-age technology stocks.
So, being a Long Term Investor, If one is Bullish on Business, He should be able to handle volatility like what titan has seen in the past 21 Years, Only and only then does one create fortunes from Stock Markets.
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Very important note: The objective of this blog is to share knowledge and info about multi-bagger ideas/opportunities. Neither is this trading website nor an analyst website nor a Buy/Sell call website. For stock market success, always do your homework, own analysis, and make your own decisions.