Warren Buffett has often stated that his favourite holding period for a company is forever.
This is difficult to do in India as most of the stocks listed are run by promoter families.As time goes by, the original promoter steps down and the next generation takes over.The performance of the company (and the stock) then wholly depends on the capability of this next generation (who are typically sons).
For the benefit (!) of the readers and my own amusement, I have categorized the sons of the promoters into different categories:
These scions have typically been brought up in the lap of luxury and are living their life in the style and manner of the late Nawab of Awadh.Unfortunately, the shareholders of their companies have to pick up the bill.Some examples:
1.This promoter’s son is heavily into party drugs.He ODed recently and landed in a hospital.The matter was hushed up but God save his companies !
2.This promoter’s son belongs to a well known business family.He flies hookers from Russia and East European Countries via specially chartered flights.The bills for the same are expensed to the company !
This reminds me of a well known fund manager.He attended the premises of the company and happened to see these ladies.He was told that they were the employees of the company.He came back and gushed to his HNI clients “Yeh company itni achi hai ki videsh ke log isme kaam karte hain !!”
B. The Debt junkies
These Promoter’s kids have a huge chip on their shoulders.They want to prove a point that they are the best businessmen around.So they strive for a “Growth at any cost ” strategy.To get that growth, they pile on huge amounts of debt which inevitably turns out to be unsustainable and the companies collapse.Some examples are:
1.This promoter’s son wanted to build a company bigger than Walmart.Unfortunately, all he had were some sugar mills.That didn’t deter our man from going on a massive expansion debt fueled spree…the hangover of that party is still being felt
2.This fellow belongs to a reputed business family in Mumbai.Started real estate projects and has around 5L square feet of space under construction.Unfortunately, he is neck deep in debt and is unable to complete any of his projects.He could have started small and would have been very successful but the desire to be the next real estate Mogul of Mumbai cost him dearly.
C.The Quiet Incompetents
This breed of promoters’ sons are incompetent and they know that they are incompetent.Their strategy is similar to the strategy of the Pakistan Govt “Muddle along, and leave the rest to God”
The companies under their watch don’t collapse but they don’t show spectacular growth either
Some examples are:
1.This promoter is the fourth generation businessman from his family.He has attended the best Universities in the US that money can buy.If you had bought his company’s shares when he took over and held on to them, you would have had a 80% erosion in purchasing power.The share prices remained the same but inflation would have destroyed your purchasing power.
2.This fellow is only 23 and he says he wants to pursue his time doing philanthropic activites.That is ok but then maybe its time for shareholders to get out of his companies.
D.The Chips of the old block
This is my favorite type.These people have business running in their blood and are a chunk of the old block.They are hungry, they are smart and are able to take their companies to new heights.
Best examples are Rajiv Bajaj of Baja Auto and Vikas Oberoi of Oberoi Realty.
From an earlier era, I guess Mukesh Ambani,Ajay Piramal,Ratan Tata and Anand Mahindra would be in this category.