ET Wealth Expo: Vijay Kedia explains why investors need patience, says some crops take 5 years to grow

Investors need patience to create wealth in the stock market, according to Vijay Kedia. Explaining why investors should not expect stocks to deliver returns immediately, Kedia compared investing with farming, where some crops take several years to grow before they yield results. He said investors must have a clear destination and understand how long they are willing to wait to achieve their financial goals.

Speaking about the qualities required to succeed in the stock market, Kedia identified three: knowledge, courage and patience. While investors need knowledge to identify companies they have conviction in, and courage to act on their decisions, patience is equally important to stay invested through periods when stocks do not deliver returns.

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Kedia explained patience through the example of a farmer. He cited the Chinese bamboo tree, which shows no visible growth above the ground for around four to four-and-a-half years after being planted. However, once it begins to grow, it can reach 50–60 feet within five to six weeks. He said the tree can have a life of around 50 years.

The comparison, he said, highlights why investors must be clear about their destination. If they aim to create wealth over the long term, they need to be prepared to wait rather than compare their investments with stocks that are delivering quicker returns.

Kedia also said patience depends on the destination an investor has set. He compared it with travelling by flight: someone taking a three-hour flight may become impatient after two or two-and-a-half hours, while someone on an 18-hour journey would not feel impatient after just two hours. The time an individual is prepared to wait depends on how far they intend to go.

Kedia said identifying multibagger stocks is not easy and there is no single principle that works in every market condition. However, he emphasised the importance of a company's management, which should be honest, hungry and smart.

Honesty is important because the management should create wealth for shareholders instead of focusing only on making money for itself. It should also have the ambition to grow the business significantly over the next five to 10 years. Being smart is necessary to navigate changing business conditions and unexpected developments.

He also shared his SMILE formula for identifying companies: small in size, medium in experience, large in aspiration and extra-large in market potential. The company's product should have a large addressable market, giving the business enough room to grow.

According to Kedia, investors should assess how much a company can grow over the next five to 10 years. A company that is growing at only 5–10% may not have the potential to become a multibagger, while a business with the ability to expand significantly could offer that opportunity.

He said investors should also look at factors such as revenue growth, profit margins, cash flow and debt while assessing a company. A company's earnings per share alone may not tell the complete story; investors should also keep an eye on changes in the number of shares.

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Kedia cautioned that a stock does not become a multibagger overnight. He said some of his holdings had taken around three years to start delivering returns. Investors should therefore be prepared for periods when a stock does not move, provided the original investment rationale remains intact.

Kedia advised investors not to be afraid of making mistakes in the stock market. However, they should ensure that a mistake does not end their investing journey and that they do not repeat the same mistake.

He said investors should learn from their own experiences as well as from the mistakes of others. Keeping a record of investment decisions, what went wrong and why a particular decision was not implemented can help investors understand their shortcomings.

He also urged investors to prepare for difficult market conditions and take only as much risk as they can afford. The objective should be to ensure that one mistake does not leave them unable to participate in the market again.

Reflecting on his experience in the stock market, Kedia said he wished he had understood certain lessons earlier in his investing journey. He shared these through his songs, advising investors that futures, options and leverage are not suitable for everyone and that they should stay away from penny stocks.

He also emphasised the importance of investing regularly, including when markets fall. His message to investors was to treat investing as a business rather than gambling.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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