As an investor, one of the key objectives is to maximize returns on our investment capital. However, it is not uncommon to find ourselves stuck in stocks that do not yield any significant returns for extended periods. In this blog post, we will discuss Apar industry as a classic example of long-term hold stocks and explore the importance of efficient capital allocation.
Apar Industry: A Rollercoaster Ride
Let’s consider a real-life example. Apar Industries, a player in the power industry, is a case in point. In the Mi 20 portfolio and other portfolios, Apar Industries has been a consistent presence. However, it hasn’t always been a smooth ride for this stock.
Apar Industry has had its fair share of ups and downs over the years. From 2005 to almost 2013, this stock remained relatively stagnant. Many investors grew frustrated during this period, questioning the wisdom of holding onto a stock that seemed to be going nowhere.
However, in 2014, the stock experienced a remarkable rally, skyrocketing from Rs100 to Rs800. Investors who held onto the stock during this period saw their investments multiply in value. Unfortunately, the joy was short-lived as it collapsed back to near 300. It was a significant blow for those who had put their faith in the stock.
Despite this setback, Apar Industry miraculously rebounded and embarked on a non-stop rally from 300 onwards, eventually reaching 5000. The stock seemed unstoppable, leaving many investors in awe of its performance. This rollercoaster journey is a testament to the unpredictability and volatility of the power industry.
The Frustration of Long-Term Holds
As an investor, it is crucial to evaluate the opportunity cost of holding onto such stocks. While waiting for a long-term hold to show signs of growth, one could miss out on potential opportunities in other moving stocks. This is where efficient capital allocation comes into play.
Efficient capital allocation involves strategically utilising investment capital to maximise returns. It is about recognizing when it’s time to move on from stagnant stocks and redirecting capital towards more promising opportunities. By doing so, investors can minimise the opportunity cost of holding onto stocks that are not producing significant returns.
In Mi20, we entered Apar Industries somewhere in the range of 1200 to 1300 only to witness a fall shortly after. However, we quickly reentered the stock near 2500, displaying our ability to adapt and capitalise on opportunities. Since then, Apar Industries has experienced a significant rally and is currently valued at 5300.
This case study highlights the importance of efficient capital allocation. By recognizing the stagnation in the initial investment, investors were able to exit the stock and allocate their capital elsewhere temporarily. However, they kept a close eye on Apar Industries and seized the opportunity to re enter when it showed signs of momentum. This astute decision-making has resulted in substantial returns for those who practised efficient capital allocation.
The case study of Apar Industries further reinforces the significance of efficiently utilizing investment capital. Recognizing stagnation and adapting to market dynamics allowed investors to seize opportunities and generate substantial returns. As investors, we should strive for efficient capital allocation to maximize our investment potential and ensure our capital is always working towards our financial goals.
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