Failed Shares like a Failed Rocket: Series -1

After discussing Financial Freedom Series, I assured you, we will be discussing about few companies, which went like a rocket and later came back to square 1!

If investing in any FFS or like shares at any point in time (not considering very recent investment), even at peaks at past (like tech stocks at 2000) you will be at profit now. Even though few shares may be overpriced as different parameters, they still helped the investors make money, mainly because the business ‘moat’ it had. That means if business and the underlying system is fine, it will generate money (no matter its overpriced or not) – just a business like Coca – Cola.

Now I would like to pen about few picks - as a short series of few stocks- which went 100 times or more in the past, but presently giving returns less than an FD even to the initial investor. These companies were not all bad, but the business strategies failed along with extreme overvaluation.

One such pick is Bajaj Hindustan, India’s largest sugar producer, returned negative in the last decade.

We can check the details, and what made this share to fail like this.

Last decade Price Chart

 Effective Price of BH Vs FD Return

(Price adjusted for stock split)

From the above graph it’s clear that an initial FD holder is well positioned than an BH investor. And what is worse is that, a majority of investors invested after 2003 are in deep loss up to the maximum of -96% !!

What went wrong?

   1 . The government policies and regulations is the number one culprit. Govt. thinks controlling the sugar price is more important than controlling petrol price! Illogical cane price policy made the situation more dangerous.

2. Bajaj Hindustan’s plans to enter in to thermal power generation misfired badly. Even the next major competitor Balrampur Chini was able to sustain better than BH, just due to staying ground. BH’s too much aggressive ambitions made their balance sheet bleeding. And inorder to survive, they finally sold their thermal power plant dreams.

Future out look

1. It will be very difficult for BH to survive, if Govt. is not going to act properly. Also some form of one time subsidies along with sugar de regulation is the only hope.
2. Govt. decision related risks are more and may be in future too, as Govt. changes, policies also may change.
3. Only green light is valuation wise, stock quote reasonably low. But remember this also; ultimately zero is the lowest level a stock can reach!!

Conclusion

Even though we need to invest long in sound companies with great  business, we need to review our companies and investment decision periodically to see the company is not moving in extreme stormy water.