Their curiosity takes me back to a quote by Thomas Phelps: “To make money in stocks you must have vision to see them, courage to buy them, and patience to hold them.”
But Phelps’ quote is only half the story, and I’ll explain why shortly.
Consider Gillette, known for its shaving razor blades and now under Proctor and Gamble (P&G). It took Gillette nearly 32 years to become a 100-bagger, yielding a 9,900% return. This translates to an impressive 15% compounded annual return over three decades.
Thomas Phelps, in his book “100 to 1 in the Stock Market,” highlights an interesting backstory about Gillette, which eventually became one of Warren Buffett’s favored stocks.
Gillette’s success story is one of continuous expansion, innovation, and technological adoption. An early adopter of television advertising in 1944, when most brands overlooked the medium, Gillette maximized its visibility. They not only invested in advertising but also leveraged data to identify key buyers. Their innovations were highly anticipated, much like how customers now look forward to Apple’s new launches.
Gillette’s commitment to research and development (R&D) was unwavering, even without immediate competition. This commitment was bolstered by a loyal customer base willing to pay more for superior blades. This focus on R&D created a significant barrier for competitors. Gillette also ensured to patent every technology it developed.
An interesting turn of events occurred in 1962 when rival Tiny Wilkinson Sword introduced a successful set of coated stainless steel shaving blades. However, Gillette had already patented the stainless-steel coating process, earning royalties from Wilkinson’s sales and maintaining its market dominance.
From the 1940s to the 1970s, Gillette’s market share and profitability remained robust. During these three decades, while the S&P 500 index grew eightfold, Gillette soared a hundredfold due to its own ingenuity. Investors who held onto the stock witnessed these compounded gains.
However, by the 1980s, Gillette faced challenges, with declining return on equity and the need for price cuts, signalling investors to reassess the stock.
This brings us back to the importance of patience in investing. More than a century after Gillette’s ascent, we see companies leveraging new technologies to ride massive megatrends. Identifying these companies and understanding their long-term growth and profitability requires patience.
So, is Pidilite poised to be a 100-bagger now?
Phelps’s complete quote gives us a clue: “To make money in stocks, you must have vision to see, courage to buy, and patience to hold. Patience is the rarest of the three.”
Happy Investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com