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BW Businessworld

Stocks For All Seasons

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With the stockmarket dropping to new lows and thousands of crores of investor wealth evaporating practically every day, it would seem an odd time to bring out a special issue on "Companies That Make You Rich".

But it is precisely when the equity markets are down in the dumps, as they currently are, that it makes sense to analyse the companies that have given superlative returns over the long term, and which have outperformed their benchmark indices more often than not. During a raging bull phase, almost any stock will make you money, but many of those investments turn sour as soon as the market dips. On the other hand, a great long-term pick may not be the best performer in any given year, but will probably reward you far more than seasonal favourites if you hold on to it long enough.

A caveat: as any stock market professional will tell you, past performance doesn't guarantee future returns. Having said that, it is also true that the historical price performance of different stocks can help you create a shortlist, which can then be investigated further if you are trying to build up a portfolio systematically.

This year, the exercise to identify the best performing stocks over 10 years, 5 years, 3 years and one year was conducted by senior editor Mahesh Nayak, working under the guidance of deputy editor Srikanth Srinivas. Mahesh and Srikanth first divided the universe of listed companies into four different classes, based on their revenues. This was done so that one would not end up comparing apples with oranges. After that, they applied a number of filters to make sure that all stocks being considered were regularly traded. Then they checked for consistency — they looked for stocks that had outperformed their respective indices for the majority of the years under study.

Apart from looking at pure price appreciation, Mahesh also created a separate list of companies that have a great record of paying dividends to their shareholders. And finally, he also came up with a list of stocks that have been the worst performers and which have lost their shareholders money over the long term.

Some of the stocks in the best performers list have probably had their best years already, but quite a few names in the list are likely to give great returns even in the future.

(This story was published in Businessworld Issue Dated 28-05-2012)