The myth of investing in small companies and hitting the jackpot

Most people have heard about the story of, if you had bought Infosys shares at the time it went public and just held them, it would have made you x lakhs through dividend, stock splits / bonuses and appreciation. Example here

It is the traditional rags to riches story. However, I have a few major issues with the argument.

1) What never gets told is the number of companies that never made it big. There are lots of statistics that most of the start ups fail. I have a few friends who bought into small companies and the companies have just gone bankrupt. Unproved companies can go both ways. That is exactly why they are "Unproven"

2) The romanticizing of the story has people convert Rs 10,000 in today's terms. If I had 10,000 to invest in a unproven company in 1980 I would have already been in the top 1% of the country's earners. In 1980 people still talked in 4 annas and 8 annas. In 1992, we still had 5ps and 10ps coins. I remember saving them for Bubble gum and other small stuff. 10,000 was a princely sum.

Extending the idea above, to make any meaningful returns on 200% or 300% increases, the initial capital commitment is high. The 10,000 in 1982 (noted for Wipro) is 78,500 now. The 10,000 in 1992 for Infosys is approximately 60,000 now. ( For the mathematically inclined, the inflation index I used is here

3) As anyone who has traded in the market will tell you, the moment your investment doubles or triples, it is a little difficult to stay unemotional. We think of the spectacular crashes that have happened and cash out with handsome gains of 200 - 300%. The problem is that seeing the investment go to 600% causes us to look back at 300% with disdain. No matter that 300% bought us 3 times as much as what we could have hoped to buy. We feel stupid and foolish at missing out 600%

Thus take a closer look at numbers offered to you and don't blindly follow the herd. Definitely aim for the stars. But realize the dangers lurking along the way. While I am a staunch supporter of the buy and hold strategy, I think the investment in small companies is over rated.