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Opportunity Cost

Mistakes are an integral part of our life, and when it comes to the stock market, these are even more common. The goal is to reduce these mistakes as much as possible. I have  missed several opportunities in the last 3-4 years that had cost me to gain a significant amount of money. When I look back, I regret not recognizing those opportunities at the right time.

The Case of Zomato: A Lesson in Hesitation

One of the biggest opportunity costs I have paid was missing out on Zomato. When Zomato launched its IPO, I was completely uninterested due to its high valuation and lack of profitability. I started tracking it from its listing price of ₹126, but I found the valuation too high for a serious investment.

From July 2021, the stock began to decline, reaching ₹40-50. I observed it closely, analyzing its balance sheet multiple times. I still remember listening to Samir Arora in an interview mentioning that Zomato was a good buy at that price. At that moment, I was 80% convinced that I should invest. However, I failed to act and didn’t buy a single share.

From ₹50, Zomato’s share price skyrocketed to ₹302, achieving a 6x return. Had I invested even ₹1,00,000, it could have turned into ₹6,00,000 in a short period. Even investing just ₹10,000 could have grown to ₹60,000. Missing this opportunity was a costly mistake.

Indian Railway Finance Corporation (IRFC): Ignoring a Hidden Gem

Another painful lesson came from Indian Railway Finance Corporation Ltd. (IRFC). I was among those who thoroughly researched this company, collecting everything from balance sheets to employee details. It is one of the best government finance companies, operating with fewer than 100 employees in a duplex building in Delhi, solely managing railway finances.

Throughout 2022, I closely watched IRFC, with its price fluctuating between ₹20-24. I considered buying it multiple times, but my skepticism towards government-owned companies held me back. I assumed it would remain stagnant like many other public-sector stocks.

However, IRFC’s stock soared to ₹217 in just two years—a 10x increase. Had I invested ₹1,00,000, it could have turned into ₹10,00,000. Even a modest ₹10,000 investment could have become ₹1,00,000. Moreover, IRFC provided a 100% dividend yield on face value, meaning that a ₹20 share returned ₹2 as dividends.

Understanding Opportunity Cost in Investing and Life

The stock market is a place where we all make mistakes and learn. Every mistake carries an opportunity cost—the potential gain we miss by making the wrong decision. While my money may have grown through other investments, missing out on 5x or 10x opportunities was a significant loss.

However, opportunity cost extends beyond investing. In life, every decision we make involves an opportunity cost. For instance, taking a gap year in education may not just cost time; it could mean missing out on numerous opportunities that arise within that year.

The Mathematical Expression of Opportunity Cost

Opportunity cost can be represented mathematically as:

Opportunity Cost= RMPIC-RICP

Where:

  • RMPIC = Return on Most Profitable Investment Choice

  • RICP = Return on Investment Chosen to Pursue

Conclusion: Learning from Mistakes

Mistakes are an unavoidable part of investing, but limiting them is the ultimate goal. As legendary investor Rakesh Jhunjhunwala once said:

“Learn from your mistakes and don’t be afraid to admit when you’re wrong.”

Recognizing and understanding opportunity cost can make a huge difference in both investing and life. The key is to take action at the right time and not let hesitation prevent us from seizing profitable opportunities. Happy Investing.

-Shaishab Pran Bora

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