The Art of Long-Term Investing: A Case Study of Shanti Educational’s IPO
In the world of investing, patience is not just a virtue; it’s a strategy. As the adage goes, “Rome was not built in a day,” and similarly, a stock market investor cannot expect to become wealthy overnight. The journey of wealth creation in the stock market is often slow and requires a conviction in one’s investments, particularly when it comes to Initial Public Offerings (IPOs).
The Principle of Long-Term Holding in IPOs
An IPO provides a unique opportunity for investors to buy shares at the ground level. However, the real potential of these investments is often realized over the long term. Unlike trading, where profits are sought in the short-term fluctuations of stock prices, investing in an IPO with a long-term perspective allows investors to benefit from the company’s growth, dividends, stock splits, and bonus shares.
One of the most crucial aspects an IPO investor needs to understand is that the real money is not in the buying and selling but in the “waiting.” When an investor is convinced of a company’s business prospects, it’s wise to hold onto the stock irrespective of its size. This approach not only shields one from the short-term volatility of the market but also aids in capitalizing on the premium that company promoters offer to their primary market investors.
The Power of Stock Splits
A stock split is a corporate action where a company increases the number of its outstanding shares by dividing each share, which in turn reduces its price but does not affect the company’s overall market capitalization. While the immediate effect is to make the stock more affordable to small investors, it can also be seen as a company’s confidence in its future growth, encouraging more investment.
Shanti Educational: A Case Study in Wealth Creation
To illustrate the effectiveness of long-term investing in IPOs, consider the journey of Shanti Educational, which debuted on the BSE SME platform. The IPO was launched on June 1, 2016, with shares priced at ₹90 each. The offering was structured in lots, with each lot comprising 1,600 shares, requiring an investment of ₹1,44,000, reported by Mint.
Despite a par listing on June 14, 2016, at ₹90 per share, those who held onto the shares witnessed substantial growth over the years. Notably, the company announced a 1:10 stock split in 2022, significantly increasing the number of shares from 1,600 to 16,000 for those who maintained their holdings.
As of the latest trading session, Shanti Educational’s shares are priced at ₹90.17. Consequently, the initial investment of ₹1.44 lakh has burgeoned to ₹14.42 lakh, a near tenfold increase. This dramatic rise underscores the potential gains from holding shares over an extended period, benefiting from both the company’s growth and strategic corporate actions like stock splits.
Lessons for Investors
Shanti Educational’s example serves as a powerful lesson for IPO investors:
- Patience Pays: The most significant gains often come from holding investments over several years.
- Understanding Business Fundamentals: Investors should choose companies with strong business models and growth potential.
- Look Beyond Immediate Gains: Short-term market fluctuations can be distracting. Focusing on long-term potential is key.
- Corporate Actions Matter: Actions like stock splits can enhance the value of holdings significantly.
Investing in IPOs can be a lucrative avenue for wealth creation, but it requires patience and a deep conviction in the chosen company’s prospects. By holding onto investments and taking advantage of corporate actions like stock splits, investors can see substantial returns, turning modest initial investments into significant sums. The story of Shanti Educational is not just a testament to the power of long-term holding but also a guide on how investors can approach IPOs for maximum benefit.
