Making Investment Cost Zero
This is interesting. You may think that how it
is possible to make investment cost zero. This can be done in reality. When the
markets are bottoming out and rising to mark the beginning of the run up, the
stock prices rise 20% to more than 120% in few weeks and months time period.
This is basically because the stock prices are already ruling at multi months
and in many cases multi year lows. The stocks which were in triple digits are
now available in double of even single digits! These stocks and even the better
ones out of this lot attract a lot of investment and trading attraction.
So the prices rise in a manner as told earlier
in this paragraph. Now, when you are entering in markets at an early stage of
the price rise cycle, You get the stocks at good price. Suppose you invested
Rs.1 lakh in 10,000 Lanco Infratech shares at Rs.10 and it rose to 20 rapidly
then you can offload 50% i.e 5,000 shares and thus get back your original
investment amount. So now the rest of 5,000 shares that you hold are absolutely
cost less as your original investment capital is out of them. Now whatever
monetary benefit as to bonus shares, dividends, or price rise you get is
absolutely free is can be measures as ‘infinite return’ on investment, as your
investment is practically ‘zero’ in it!
Another way your cost of investment can be
zero is to hold blue chip investment for a longer duration. For e.g. those who
are holding reliance industries or grasim or even hind unilever for that
matter, for more than 10 years now are indeed holding it for free. Because the
price appreciation, dividends and bonus shares etc. in aggregate have given
them more than their investment amount.
So, the conclusion is that the advice to pull
out sum of initial investment capital after rise in share price can be a
general advice to retail and fearful investors. While the cost of investment
long term investment in large cap, blue chips, and value investing stocks
automatically becomes zero over the longer term if invested at good valuations.
This concept can be explained in some more
ways. Any ways, this concept is one of the very essential practicals that an
investor should be aware of.