Meet the real long-term investors

A friend once riled us by saying that everyone who invests in stocks is actually a ‘trader’ and not an ‘investor’. His argument was that the so-called ‘investors’ are not actually involved with the company on a long-term basis and their sole interest is to exit after earning decent returns.

We countered this by saying that no one invests in stocks for more than five years these days and that capital appreciation is the only reason why one invests in stocks in the first place.

However, we stand corrected. There are some investors who actually buy shares of a company for reasons other than potential stock price appreciation.

Such investors continue to hold on to stocks, long after they have stopped trading on stock exchanges. Unlike the rest of us who feverishly watch the price ticker throughout the trading day, they are willing to stay invested for a really long time.

Goutham is one such long-term investor. His engagement with the stock market started in the late eighties as a sub-broker, when the regional stock exchanges in important cities across the country were buzzing with activity, catering to the investors in their vicinity. The National Stock Exchange’s computer-based online trading and dematerialised shares of today were unheard of back then.

Since trading took place inside the trading ring with an open outcry system, sub-brokers were an important part of the stock market ecosystem.

At present, he is only involved in investing for himself. He does not believe in needlessly churning his portfolio. “I do not believe in trading because trading invariably results in loss,” he says. “If anyone says that he has made money after just three years of trading in the stock markets, he must be a great person.”

Goutham’s portfolio includes companies that are either unlisted or were once listed on regional stock exchanges. With the halt in the operations of these exchanges, there is no official trading taking place in these stocks.

So, what are the stocks that he holds? “Rajagiri Rubber, Highland Produce, AV Thomas and Co, Midland Rubber, Amalgamation Repco, Coorg Tea, Actions India,” he rattles out.

Dividends are one reason why he buys these shares. Some of these companies reward shareholders with a bonus. For instance, AVT gave a bonus in the ratio of 1:4, thereby multiplying his holding manifold.

The company has also rewarded shareholders with generous dividends of 1,500 per cent and 1,000 per cent in the recent past. “I bought shares of Rajagiri Rubber from a broker,” adds Goutham. How about an exit route for these stocks? Since these stocks are not listed, doesn’t the lack of liquidity worry him?

“Not really. Since the companies are good, they will appreciate in value. Enquiries keep coming from time to time from interested buyers. Sometimes the companies themselves approach us to buy back their shares.” Against the sage advice of market gurus: “Don’t get wedded to your shares. Exit when the time is right,” there are still some investors such as G Ramachandran, who believe that buying shares in a company is a long-term commitment.

He has been investing in the stock market for the last 20 years, even as he was involved with his family business of dealing in plantation produce. “If the company is good and is likely to give dividend, I buy the share,” he says. He holds shares of some plantation companies listed on regional stock exchanges.

Ramachandran prefers to do his own analysis before buying a stock. He believes that if the management is good and disciplined, the company shall weather temporary down cycles better and will do well in the long term. “There will be no liquidity in the stock. But that is alright,” he believes. “I hold the shares for their dividends. Probably after five years or so, there is the possibility of the company giving me a bonus. Or the management itself will buy the shares off me after some time,” he says. The key is to be patient, he feels.

Isn’t he worried that he will not be able to sell these stocks if they are not listed on any stock exchange? “I am not interested in selling these shares. Plantation shares are quite rare now. Some day, someone will call me and offer to buy the shares, I will decide whether to sell or not then.” He has been holding shares of Amaravati Paper Mills for the last five years. When asked why he chose the stock, pat comes the reply: “Newsprint demand is good. Therefore, I am holding the company despite it offering no dividend.”

“I enquired with newspaper dealers about the prospects of newsprint. There are so many paper makers — Ballarpur Paper Mills, JK Paper; they might want to take over this company sometime in future.”

He gets his inputs from the company’s annual reports and newspapers that he peruses diligently.

V Nagappan is another investor who is interested in the long-term prospects of the company and not its performance on the stock exchange.

A strong believer of fundamental analysis, he holds stocks such as Amalgamations Repco, Ossoor Estates, Stanes Amalgamated, Rajagiri Rubber, Chembra Peak Estate, and AV Thomas that are not traded on any stock exchanges. “I hold small quantities of such stocks so that I can monitor their finances and advise clients who ask me whether they can invest in these stocks,” he explains.

The promoters of some of these companies are keen on buying back shares of other shareholders. For instance, many investors have received letters pursuing them to sell shares of AV Thomas for around ₹1,700, while its book value could be much higher. The passionate investor that he is, he likes to hold on to the old plantation stocks as they might soon turn into a rarity. He purchased 100 shares of Rajendra Coffee from his brother because the share certificate was almost 60 years old. “It is an antique,” he justifies. He has been holding on to Rajendra Coffee because the share certificate has the stamp of Mysore on it.