How long to be invested in a Blue Chip Stock?

When we meet the oldies of stock investing, there are always talks about some of their investments which they don’t remember the time they had invested in, but, now the valuation is so high. When a person hears such conversations, he immediately thinks that, if he invests in such Blue Chip stocks, he will be earning awesome profits, more important, that he is not required to do any work to earn this fancy return.

Is it true that, investing in Blue chips and leaving them for ever will fetch super doper returns?

At least I don’t agree with this term, the other day I had one of my clients who is having investment in Colgate, holding some 2000 shares currently, this investment was made in 1983 when Colgate issued shares to the public, the investment was very minimal.

Today the value of this investment is about 42 lakhs. Colgate was not a Blue Chip in the 80’s. It was a good company, it went through challenges too before it became a good stock. Once the stock became fairly priced higher, they started tracking it on a regular basis, so that, if they found it uncomfortable holding the stock, they were in a position to liquidate the holdings.

If the performance would have dropped, they would have liquidated and realized the profits, whereas the uptrend continued and so is the holding intact.

Take another case, Gujarat State Fertilizer Corp, this stock was the bluest of Blue Chips in the 90’s, it was priced at ₹40 in those days and it had all the reasons to be in the SENSEX at that time. The company had very less competition as the Fertilizer market was a regulated market, prices were dictated by the Government.

This stock moved out of SENSEX in 1996, and later the performance of the stock price was not very encouraging, though the company did fairly well on its business growth.

If someone had held on to his investment in this stock, buying a Blue and forgets it for years, today the stock price is ₹ 40. What gains were made here? Zero returns in 26 years.

Companies that belong to the regulated markets never grow in value, or the Government does not allow them to grow. Stock like NTPC, Power Grid etc., will not give any good returns, even though they are listed in the Indices of the country.

What this means is, Equity returns are the highest among any other asset class, but, the investments have to be monitored on a regular basis. Once you find that you were wrong on your decisions or the performance of the company changes, not fitting to the prevailing business environment, move out & invest the funds into a company that is doing what it has to in the current economic environment.

There are no free lunches, you need to work for your gains. If you are smart, you make the best.