When Virat Kohli leads his boys to a victory at the end he says “our boys need to be mentally tough”. This is so true of sport. Take India’s journey just over 50 years in cricket and we can see ‘toughness’ evolve.

While investing too one needs to be mentally tough. This is because when you are a new investor and are just starting to read the rules and apply them, the market can break the rules for real long times. Say for 5 years the growth shares do better than Value – YOU will start losing patience – simply because the market does not follow ANY rule in the short run. Only in the long run does the market look rational. Value investing is a good example of this. We know, based on years of research, that buying low valuation stocks can reap rewards over long periods of time. It is important to understand, that this strategy is true only over very long periods of time. Value shares can go through lengthy periods of under-performance, and ONLY the investor with the mental toughness to stick with the strategy is likely to come out on top of the market. In case of deep value investing it is likely to call for far more patience.

If you bought say NTPC at a price of 72 – it was a Value stock. It then went right up to Rs. 235 and is now hovering at 170. It has surely not created too much of wealth – the price has remained constant over the past 5 years. I mean it is today at a price less than what it was say 5 years ago. So it has not created any value, right? Well, yes it looks like a value destroyer – the Motilal Oswal Wealth study says so too.

However, as an investor who bought it at Rs. 72…remember you got a fantastic dividend yield of about 5% – after all taxes. Now see the returns in that context – having bought at 72, taken a 5% dividend for the past so many years, even if the share has doubled in say 8 years (9% CAGR) + 5% dividend yield (I am ignoring the reinvestment return) = 14% return.

Believe me, I would exchange an arm and leg for this return on my portfolio over really long periods of time!! However, during the period of holding you will receive a lot of advice saying ‘why utility companies are past – and have no future’ as well as ‘share has doubled in 3 years’ kinda stories. The human brain anyway likes stories far better than the data tables that we are thrown at regularly by fund salesmen.

CAVEAT: This was just a calculation shown to you about how to calculate and see the value that a share can create. Also it takes a lot of patience to invest like this. I have NTPC bought at 72..and have traded in that share many, many times and have fond memories. However, at this point in time, I may have a long or short positions in that scrip….so please do not take this as my recommendation to buy NTPC. I am sorry, but I am not really recommending.