Coming back from my Earlier post regarding "Lynch's guide to Indian Stocks", I have missed something that Mr. Lynch always told that just because stock has gained in price does not mean that the stock is expensive and is not a reason of not investing, and vice-versa. He advised to look into Walmart stock (WMT), where the stock has generated promising returns for its shareholders y/y consistently.
I had assumed that after PE fund invest in the company, they reap major benefits than the shareholders who have participated in an IPO. I have been proven wrong by this scenario.
Take an example of Bharti Airtel Ltd.
-Warburg Pincus had invested $292M in 1999 for ~19% stake, and exiting from the investment in 2005 at $1616M, making cool profit of 5.5 times in the span of 5-6 years, which is damn good
-Now enter the retail long-term shareholders at Rs.45 via IPO at P/BV of ~2 (the company was not making profit during that time). If the investor had tremendous faith in the fundamentals and had stick around with the company for another 6 years (same as the PE fellow), then the CMP of ~534 as on Oct08, when the markets crashed to the new lows, the stock would have generated staggering return of 12 times-more than Warburg Pincus returns.
Of course this is a hind sight bias, but I have to admit my original these is incorrect and Mr. Lynch is 100% right for this part.
1 comment:
As Walmart has generated promising returns for its shareholders, than what has happened to them now? Why do they have bad time roaming around them?
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