My Initial Investment

It was September 2018 that I made my first investment of 80 shares in Dewan Housing Finance Corporation Limited (DHFL) at a rate of 409.55 per share. I bought another 100 shares over the period from September 2018 and January 2019 at an overall average of 309.16 for all the 180 shares which makes the investment 55648 worth of my hard earned money. The shares had fallen by about 42% on bond default concerns. I assumed that DHFL has value as company and a sudden fall should not have ideally happened. There were close friends who had loans from DHFL and were regularly paying it back.

When Cobra Stung DHFL

Cobra Post released a sensational news item in January 2019 claiming that DHFL Wadhwans have defrauded the company of more than 31000 crores. Now I did hear about Cobra Post with earlier TV Sting operation but somehow I felt that this news had not looked at all the facets and there is still value remaining in DHFL as a company. I never thought that someone will kill a golden goose 🦆. Also I had few friends who had taken a loan from DHFL and religiously paying it back like every common man. So the retail portfolio of DHFL was something that was still paying it back. Now its not that I would have not invested had Cobra Post released this news earlier or I had looked at the Balance Sheets and other financial statements to double check any of the claims. The name Cobra Post also did not help :). DHFL become one of the first and largest NBFC to put under the IBC and the corporate insolvency resolution on 3rd December 2019 by the National Company Law Tribunal.

This was not the first time that a stock that I had invested was going to zero but the quantum of investment was low and hence the loss was less than 10% of what I had lost and I continue to be the shareholders even when these two firms have not been traded on the stock market for years now. The shares that I own are Kingfisher (King Of Good Times) and Gammon (A company that I have seen in the interiors of Arunachal Pradesh constructing roads and bridges in difficult conditions)

Thinking, Fast and Slow

Daniel Kahneman bestseller Thinking Fast and Slow is something that I had read after two failed attempts. Now its not that I have learned all the biases that human mind has or have been able to use System 2 thinking. But one thing that came out very well was the loss aversion. I sold all my 180 stocks at 25.6 on 16th January 2021 with a loss of 51K and I have to agree that it pained a lot. Here is the value function plot from the book.

The value function here show the graph to much steeper in the loss quadrant when compared to slope on the gain quadrant.

Now fortunately I had other investments that saved my day and I was more than happy to sell other holdings that reduced my loss quite a bit. And the gains that these holdings gave me did not give the similar quantum of pleasure as the pain that I felt when I was selling DHFL at loss. I felt that once the NCLT is closed and the share price will bounce back. I was thinking so much positive but then when I saw that Banks are taking a huge hair cut as well as Fixed Deposit retail holders were losing some part of their principal also. That is when I realized the delisting of shares is going to  happen or at least the share holding structure is going to change quite a bit. Piramal Housing came out to be the winner on the NCLT process but until now things have not been made clear as to what is going to happen to the equity shareholders.

This is my story of how I lost the invested capital and one thing I have learned is never invest in companies with dubious managers or promoters.

 

Update (9th June 2021):

With writing on the wall now that the DHFL shares will be delisted and will have no value for any shareholder. Even with this becoming shares exchanged hands and hit upper circuits. This can be attributed to lack of knowledge or willingness to loose money 99.9% but gain a lottery 0.1% chance.

Story ends on a sobering note.