How your family can own 70% of India, thats right 70% of all listed and unlisted companies
I recently read about an entry on Kudva’s blog here and reminded me of Jeremy Siegel’s book here which has the most publicised record on stocks over past two centuries. In a nutshell, “If one had invested 1 million US $ in 1830s or so in Dow Jones Index/ equivalent index and held on until 2002” that money would be 8 trillion $ or about 70% of US market cap at the time or thereabouts.
Plenty of business people had that kind of money. It would be roughtly equivalent of 50 Crores in today’s value which many individuals possess.
I have an entry on the case for how much one needs to retire from job one would like to leave here (5 Crores only for those who have 10 lacs INR annual expenses, increasing expenses by inflation will be taken care of by underlying businesses). I hope no wise person would waste all their life and energies on wealth aggrandisation for the lack of any other ambition.
As per following calculation, whether you want it or not, if we become a half decent, average stock picker, even index replicating like SENSEX, then there is a very high probability that we will end up with over 200 Crore INR over next 40 years. (10,000 Rs savings per month at 20% compounding per annum ). Sensex has done better than that over past 30 years. I won’t go into how much your children may end up with if they continue with your investments.
If you can convince your four to five generations to keep money in Nifty fifty/ BSE sensex and eventually in top 500 companies, you will control major holding in it in couple of hundred years. One could argue the merit in it or fact that if five families tried to do it in parallel then they all will end up with only 15% of India’s material wealth.
Summary on this topic from Jeremy Siegel’s book:
The returns are computed by investing in the whole market, i.e. all listed stocks,
in weightage of their market caps, whether they survive or not. If one had invested in all listed stocks in proportion of their market cap, certainly not the best way, returns by equities would eclipse every other asset class.
Years of return computed : 1802 through 2001 for US markets
Real post inflation yield on stocks 6.7% to 7% over this 200 year period
Its dramatic if you factor in changes that happened, agri to industrial, to service to technology based economy. Change from gold to paper money standard, world wars..
Rate of real rise between 1946-1965 – 10%
Rate of real rise between 1966-1981 – -0.4%
Rate of real rise between 1982-1999 – 13.6%
Rate of real rise between 1982-2001 – 10.5%
Stocks have taken on average 10 years to double your purchasing power compared to 100 years for T Bills.
LT Govt. bonds have 3.5% real returns from 1802 – 2001.
In 1958 yields for the first time in 60 years were lower in stocks than LT Govt. bonds and stayed that way for next 50 years, person who wanted to be conservative would have just waited.
Above is true for German, US, Japan and UK market in terms of returns in Govt Bonds vs. Stocks from 1920s
In 1871 two actively traded stocks were Bank of New York and Bank of United States, Alexander Hamilton and his secretary at Treasury manipulated the price, thus was born antecedent to NYSE circa 1892.
By 1802, 300 companies had listed stock but less than 10 had frequent trading. Initial listings being transportation, canals, wharves, bridges, then financial companies.
Stocks always beat bonds if holding period is more than 20 years even if you buy at peak.
Best % / Worst % returns if Holding Period is 1 Year
Stocks 66 / -38
Bonds 35 / -21
T Bills 23 / -15
Best % / Worst % returns if Holding Period is 2 Year
Stocks 41 / -31
Bonds 24 / -15
T Bills 21 / -15
Best % / Worst % returns if Holding Period is 5 Year
Stocks 26 / -11
Bonds 17 / -10
T Bills 15 / -8
Best % / Worst % returns if Holding Period is 10 Year
Stocks 17 / -4.1
Bonds 12 / -5.4
T Bills 11.6 / -5
Best % / Worst % returns if Holding Period is 20 Year
Stocks 12.6 / +1
Bonds 8.8 / -3.1
T Bills 8.3 / -3.0
Best % / Worst % returns if Holding Period is 30 Year
Stocks 10.6 / + 2.6
Bonds 7.4 / -2.0
T Bills 7.6 / -1.8
Coming to original answer:
Investing in whole market from 1802 to 2001
Stocks 1 $ ==> 8.8 Million $
Bonds 1 $ ==> 13,975 $
Bills 1 $ ==> 4,455 $
Gold 1 $ ==> 14.6 $
Thus, 1 million $ is equal to 8.8 trillion $ i.e. 70% of entire market cap of US.
1 million $ in 1802 is equivalent to 15 Million $ in 2001 US money buying power.
Dow Jones does not include dividends. Wilshire 5000 is broadest index available with 6200 firm (NYSE has 10,000 stocks if you exclude 20,000 penny stocks)
S & P 500 has 84% of market cap of WILSHIRE 5000
S & P 500 in 1957 had roughly 90% value of all NYSE shares
S & P 500 in 2001 had roughly 80% value of all NYSE shares
Conclusion: Stocks are more conservative than bonds, person investing in bond is speculating with purchasing power of money. Stocks have power to turn 1$ into millions by forbearance of generations.
Gold is a sure fire formula for buy and hold investor to get poor unless one is using dangerous leverage. This is what Buffett has to say about Gold
“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”
You can make an impact on the world with your will through this avenue, you can make India, USA, World take the direction of your desire in a few hundred years from now, hoping that your family will continue to uphold your wish. Certainly it would be idiotic to accumulate so much suffocating wealth. Let us also not forget that all this material wealth is on that small particle of dust on cosmic scale.