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Consistent Wealth Creators

For consistent wealth creation over very long periods, look for leaders in non-cyclical businesses that deliver high returns on net worth.

Highlights & Insights
  • There was only one IT company in the top 100 wealth creators during 2000-05, compared to 27 for the period of 1995-2000. Thus, investing at exorbitant prices is a major source of wealth destruction e.g. fad investing in IT companies in 2000 at unprecedented high levels of valuation.
  • The 10th Study introduced a new concept – Most Consistent Wealth Creators, i.e. companies that appeared the maximum number of times among the top 100 wealth creators in the 10 studies. If there was more than one such company, the one with the highest 10-year stock price CAGR would be declared the Most Consistent Wealth Creator.
  • In 2005, Hero Honda (now Hero MotoCorp) was the Most Consistent Wealth Creator with a 10-year return CAGR of 41% (including reinvestment of dividends).
  • The key observations of the top 10 Most Consistent Wealth Creators were:
    1. Nine out of top 10 companies were consumerfacing companies;
    2. All businesses were non-cyclical in character;
    3. All companies were leaders in their respective business segments; and
    4. The companies were highly profitable in terms of return on net worth.

Walking The Talk — The Contemporary Context

Kotak Mahindra Bank

  • Kotak Mahindra Bank is a classic case of Consistent Wealth Creation – fairly non-cyclical business, led by owners with a growth mindset.
  • Over the 10 years ending March 2017, Kotak Mahindra Bank clocked PAT CAGR of 25%, which has translated into stock price CAGR of 22%.

Kotak Mahindra Bank, a consistent wealth creator, registered PAT CAGR of 25% over the 10 years ending Mar-17, which has translated into a stock price CAGR of 22%.

Consistent Wealth Creation – QGLP in action

  • Concepts like Consistent Wealth Creation have contributed significantly to reaffirming and reinforcing the QGLP philosophy.
  • Consistent wealth creators offered empirical evidence that supernormal stock market returns come from companies, which demonstrate QGLP features – Quality (high RoE), Growth over Long periods and reasonable Price in year of purchase.
  • Thus, the reverse should also hold true, i.e. QGLP in action will lead to Consistent Wealth Creation.