Looking for 15% returns? Why not look for stocks given more than this?
1 Jan 2017
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How much do you want to earn on your equity investment over the next five years? If you are happy with 13-14 per cent return, there are enough choices. But if you want something beyond that, do not sit on bad investments and avoid overstaying in a rewarding stock.
Market veterans say exiting a stock at the right time is as important as picking a good stock. One must have clear investment goals.
If you aspire to earn 13-15 per cent return, it is the easiest way. Invest in Eicher, invest in Page Industries, invest in HDFC Bank and make a portfolio of a dozen such stocks and there is no need to struggle.
If there is a stock that can deliver 15 per cent return (CAGR) over 40 years, it would give a jaw-dropping 267-times return. And 26 per cent annual return (CAGR) can grow your investment 10,000 times over 40 years.
The easiest way to do that is remember 'Rule of 72'.
According to the 'Rule of 72,' the number of years one needs to double investment can roughly be estimated by dividing the annual rate of return by 72. So if you have invested in a stock thinking it would double your investment in five years (say), you roughly needed 14.4 per cent annual return on your stock investment. If you did not get the return as expected, it's time to reconsider you investment decision.
There are many frontline stocks that have managed to deliver handsome returns over the past five years. They include Sun Pharma, which has given 30 per cent return compounded annually between FY2011-16; Kotak Mahindra Bank and Maruti Suzuki, which have generated 24 per cent returns each during the period. HCL Technologies has offered better returns by rising 28 per cent annually over the past five years.
The fastest gains among them were Ajanta Pharma (up 121 per cent CAGR), Welspun India (up 88 per cent CAGR) and Kajaria Ceramics (up 66 per cent CAGR) among others
While some stocks may have offered superlative returns in the past, one needs to evaluate them over time to see whether they have met the investment goal. If the goal is met, it's time to quit those stocks.