Don't depend on your luck

For your wealth to grow and take care of you, use the right strategy.

This is the story of the Majumdars, starting from the 1980s. Mahipat Majumdar was a lawyer, an employee at a multinational company. His younger brother Dhanpat Majumdar was finding it difficult to make ends meet in a chartered accountant firm in the Fort area, Mumbai. While Mahipat resided in the posh Chowpatty locality and travelled in a white Fiat, Dhanpat lived in a chawl on Kalbadevi Road where the rooms were small, but hearts big.

In time, Dhanpat developed an interest in the equity markets, like many of his colleagues who gathered near the Lalit restaurant during lunch time outside their office, watching the happenings in Dalal Street. Dhanpat had observed that his colleagues lost money while trading on market tips. So, he opted for another investing route. He went to Bombay Stock Exchange’s library to read up on the historical price data of shares and company balancesheets. Pretty soon he realised the only way to make money in the stock market was to buy lagdi (blue-chip) shares in small quantities at every level and hold these for many years.

Dhanpat pleaded with his broker to give him odd-lot shares, since he could not afford market lots. Through sheer discipline, he bought a few blue-chip shares at various levels over many years. He also applied for initial public offerings of lagdi companies like Colgate-Palmolive whenever there was an opportunity. His ‘takia kalam’ became ‘Jyre pan chance male to lagdi lo’ (buy blue-chip shares whenever you can).

Meanwhile, fortune took a turn for the worse for Mahipat’s family. He met with an accident and passed away. His widow received a generous claim from the employer as well as the insurance company. She invested all the money in bank fixed deposits (FDs) and UTI’s Unit-64. Initially, the income earned from bank deposits and dividends from Unit-64 helped her meet her daily expenses and educate her son and daughter.

Over the years, expenses grew, as did the growing needs of Mahipat’s family. Rising inflation meant although the interest earned from bank FDs was regular, it was not adequate. The Unit-64 dividend was coming out of her own capital without her even realising it. Eventually, Mahipat’s family sold their Chowpatty flat and shifted to Borivali, a distant suburb, to fund the son’s education and daughter’s marriage. Dhanpat Majumdar retired as an accountant with a modest salary and good wishes for a lifetime of hard work. However, his bits-and-pieces investment in lagdi shares helped him meet his family’s rising need of moving from Kalbadevi Road to Vile Parle, his son’s education and daughter’s marriage.

The contrast between Mahipat and Dhanpat’s fortune cannot be ascribed to plain ‘kismet’. The lady luck favoured Mahipat with good education, job and income. Even in calamity, the lady luck did not desert him. Dhanpat, on the other hand, just followed one gurumantra — invest in quality companies at every price point and hold it for the long term. He fought against his lack of education, which led to a low paying job and lower income through his life, with just one formula to see him through it. He compounded his wealth so well that luck did not matter.

MORAL
Take care of your wealth, so that it can take care of you when required. To be wealthy, you either have to be lucky or be ready to work hard in growing your wealth bit by bit. At times, being lucky may not be enough if the income does not get converted into wealth. Remember, access to water (income) does not mean that you will get ice (wealth). Water (income) can easily evaporate. Constant cooling (discipline) is required to convert water to ice (wealth) and keep it in that state.

Read next fortnight’s column for how Dhanpat defined lagdi.

The writer is president, Axis Bank