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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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How Rakesh lost Rs.650 crores?

Posted by Muthu on October 27, 2014

I was reading Rakesh Jhunjhunwala’s interview in the latest issue of Forbes magazine.

Rakesh, aged 54, is worth $1.86 billion (Rs.10,800 crores assuming 1 USD= Rs.60).

This entire Rs.10,800 crores has been built during last 3 decades through investing in Indian equity market.

Though he also trades, most part of his wealth has come from investing in high quality companies for long term.

He is one of the largest shareholders in CRISIL.

In 2005, he sold CRISIL shares worth Rs.27 crores to buy a house in Mumbai.

That house is now worth Rs.50 crores.

The annualized return from his house stands at 7% during last 9 years.

The CRISIL shares he sold for Rs.27 crores is now worth around Rs.700 crores. This works out to a whopping annualized return of 44%

The opportunity loss is Rs.650 crores.

The above incident resonates with what I wrote last month in ‘A real discussion’.

We don’t have wealth the size of Rakesh.

But we miss wealth making opportunity like above by buying a home in the initial part of our career there by losing opportunity to create wealth through equity.

All we should do is to invest in equity in early part of the career and buy the house in the later part.

Since we tie up huge net worth including decades of future income also into the house, we never get opportunity to create big wealth which equity is capable of providing us.

It would be wiser to create wealth during the first 20 years of career through equity and then go for owning a house.

Give it a serious thought.

12 Responses to “How Rakesh lost Rs.650 crores?”

  1. Since childhood we are brought up with the idea of Roti ,kapada aur makaan….the three basic needs to start a family….I see nothing wrong in that and suppose you don’t buy a house ,how much rent would you end up paying during your lifetime,or even in few years.

  2. Abhijit said

    Your this statement “All we should do is to invest in equity in early part of the career and buy the house in the later part.” has given me the much required confidence in my strategy of buying a house. As I am into initial phase of my career, I had decided 2 years back going against everyone to buy house at later stage (with minimum or no Home loan) and invest during initial years in Equities (which is currently paying off handsomely).
    Thanks a lot!!!

  3. Shankarraju said

    Hi Muthu,
    For the people who suffered the disadvantage of being in rented house, while growing up they could have been conditioned that buying an own house at the earliest possible chance. This is huge pressure on anyone which will go away either by “buying house at earliest” OR “to convince ourselves rationally that it is not profitable in long run and not to give-in to social pressure including household member’s pressure”.

    So we being humans a.k.a irrational beings, easing off built-in pressure is the easy choice. But if the person has a house to live comfortably (from parents) then he should buy house at the later part of his/her career.

    This is my humble opinion …

  4. D.Rama said

    Solid eye-opener boss! Also wanted to highlight other pitfalls that prevent young guys from making significant investments in equity in their early part of their earning life:
    1. Life Insurance (of the Endowment/Cash-back/ULIP type): Biggest drain on your resources. I bought a Jeevan Shree paying thru my nose during early 2000s, money which would today have easily bought a whole house!
    2. Lavish Wedding expenses: While parents do pick up the tab, lately its seen that youngsters spend some of their own savings to ensure a ‘memorable’ wedding! This eats into their corpus significantly.

  5. Milind said

    Hi Muthu.Thank You for interesting articles.I am staying with Parents in Old Pagdi house and giving 40% of all that I earn to Mutual Funds as Emi for House.So while I am staying on rent…Money thus saved is not getting into increasing lifestyle but instead getting invested in Growth Instrumment.Please continue to write more frequently.We are Enjoying and learning from that

  6. […] this, note you can be wrong in your sell decision and could end having huge opportunity loss like this, but having no approach to trim in bull market will definitely reduce your overall […]

  7. This is interesting post.

    The best quote is “It would be wiser to create wealth during the first 20 years of career through equity and then go for owning a house.”

  8. Narayan said

    Buying home n owning home n living in own home are priceless.. at the end of day it’s all about 6×3 max but live the life to full potential .. doesn’t mean to live thru debt

  9. ABI said

    Very true.. I feel this many time. My investment (~20lakh cash + Loan) into 2 BHK flat (back in 2010) is still not appreciated much. Had I invested in equity in quality companies I could have bought a 3 BHK house with no debt.

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