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How Rakesh Jhunjhunwala lost Rs.650 crores?

Image result for power of compounding rakesh jhunjhunwala house

In 2005, one of India’s most well known investor Rakesh Jhunjhunwala sold some shares of CRISIL for purchasing a house in Mumbai. The amount received on selling the shares was Rs 27 Crores. The house today might be worth Rs 50 to 60 Crores. This means a compounded annual growth of 7% to 9.5%.

Now what would have happened had he not sold his shares in the company?

Not sure if he purchased that house for living purposes or for investment. Had it been for living purposes, it’s possible that he would still be staying in a house on rent(!) And assuming he paid a rent of Rs 2 Lac a month, till now he would have paid close to Rs 2.1 crores as rent itself. Seems horrible… right?

But what happened to 27 Crores worth of shares then?

The shares are now worth a whopping Rs 700 Crores!! A growth rate of more than 43% every year!!

Now we are not experts like Jhunjhunwala or Buffett. We may not be able to find multibaggers like CRISIL. But we can find mutual funds which offers reasonable growths…isn’t it? Any reputed well diversified equity mutual fund scheme would have given returns in excess of 15% in last 10 years. And that is more than what real estate offers.

Now does it not make sense that early on in our financial lives, we should invest as much as possible in equities? If not directly, then through mutual funds? Returns are far more than what average real estate offers over the comparable longer term. And you also don’t have to remain stuck with paying EMIs for decades. Why not stay on rent and invest the remaining amount? ….(Only a food for thought, and we know its controversial and linked with human emotions! …but atleast we can think of having atleast some investment in Equities/Mutual Funds and wait to see the magic of compounding!)

 

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