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Wheels Of Fortune

You must have heard your rich uncle go on about how he suddenly hit gold thanks to that one stock he bought some ages ago. Yes, we all know that one relative! If only it was as easy as he makes it sound, wouldn’t we all be cruising on some private island away from the likes of Uncle Richie Rich and his snooty family?

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MRF tyres is one example of such a company whose stock rose from Rs. 500 in 1990 to approximately Rs. 73,339 in 2017 which means that its price rose by almost 147 times in the past 17 years.

But what are the possible reasons for this, let’s find out:

#1. It is limited edition: Which essentially means there are only few shares up for grabs

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There are only 3 million MRF tyres available for trading. And lesser the number of shares more will be the share price. Let me explain that a bit more:

  • Suppose a company lets say ZARA is valued at Rs. 1000.
  • Divide that company into 10 pieces. Now each piece’s value is 100 INR.
  • Instead of 10 pieces, cut it into 100 pieces. Now each piece’s value is 10 INR.

Each piece here refers to a share of the company. MRF tyres has decided that its company has to be divided into lesser number of shares instead of more number of shares. And that’s why the share value is so high. The reason MRF did this is because it wants investors who will stay for the long run and not speculate (i.e. buy and sell shares within a short span). That’s why unlike other companies MRF doesn’t issue more shares or goes for stock splits.

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#2. It has achieved so many milestones:  

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The second reason MRF tyres share price has increased so much is purely because of its progress. In the past few years its annual revenues have risen from $1.4 billion to $3.1 billion in 2016. According to experts they are the only Indian tyre company to show double digit growth for a long time, keeping a focus on building a good dealer network and prices under check

The company which started out by making balloons and contraceptives has become a leader in the Indian tyre industry today. Here are a few secrets behind its progress:

  • Its focus on exports
  • Incorporation of new technology 
  • New ways to connect with customers. Example: Its commercials revolve around sports or patriotism that help create an emotional connection with people.
  • Its wide range of products: Tyres, conveyor belts, paints and other ventures like Funskool.

#3. It is everyone’s favorite: 

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MRF has become a market leader in the motorcycle and car sector, controlling 24% of the Indian tyre industry. Despite availability of cheaper Chinese tyres it still enjoys dominance here. Its the only company in India that offers a complete range of tyres for all vehicles. Also it does not depend on multi brand outlets to sell their products instead they have their own exclusive stores. MRF tyres has worked with almost all car companies and has associated with celebrities like like Brian Lara, Sachin Tendulkar and Steve Waugh, making it a people’s favorite. 

If the company was such a success why didn’t people profit out of it like Uncle Richie Rich?

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Here’s why:

When it comes to multibagger stocks like MRF only a select few get lucky. That’s because they follow a strict ‘buy it and forget it’ strategy.

For the others (like us) following such a strategy is pretty tough because financial investments like shares are transparent unlike physical investments like real estate or gold where you can’t constantly track prices or sell them easily.

With shares one can see a price rise or fall on a second to second basis and easily sell it on an exchange. So the minute share prices fall people want to sell them to avoid making any loss. And when share prices rise (even a little) they would be tempted to sell it off and make quick profits. 

Only some investors continue to invest in the same, understanding the fact that the growth graph will never be a straight line. There will be so many up and down.
The one who truly understands these principles and fundamentals of investing will know how to control the situation and profit out of it. 


MRF tyres is the perfect example to Warren Buffet’s investment strategy: Buy, Hold and Don’t Watch Too Closely. To be a successful investor you should be in it for the long run (Cautionary warning for all
 commitment-phobics).

Either you’re all in or all out, there’s no in between. So this year try looking out for such multibagger stocks and invest in them. 

 

 

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