Have you heard of a Multi-bagger? What is a multi-bagger stock? Well, if you are interested in the Stock market then you must know what it is.
Here, in this article, we are going to discuss about how you can pick a multibagger stock? And also we will teach you some techniques and methods by which you can pick them among 1000s of other stocks.
What is a Multi-bagger?
Let me tell you a Multi-bagger stock is the one that provides returns that are several times the amount invested in it or we can say at least three digits growth in a relatively short duration.
For example, let’s say you purchased a stock at a price of Rs.100 and it climbs to Rs.1000 in a short span of time, then it is called a multi-bagger stock.
Bajaj Finance, Kotak Mahindra Bank, Havells India, Deepak Nitrite, and JSW Steel are proved to be the best multi-baggers in recent years. If you did a minimal investment of Rs. 10,000 in any of these you could have made anywhere between 8 to 10 Lacks in 20 years.
Usually, these businesses tend to have some unique qualities which separate them from peers, these can be strong financial performances, reliable and capable management or efficient capital allocation strategy, etc.
One important note is that these names were not created overnight. They took several years and decades to establish themselves as respected and known names in their respective fields.
Because what usually beginners and immature investors do is they sold the share with a minimal 10%-20% return or even in loss sometimes because of the fear.
It is important to understand that in order to achieve multi-bagger growth one must be patient and disciplined. You can verify that when these businesses were not big names, they showed immense promise and growth potential.
Investors who were able to spot them and decided to remain invested with patience and discipline are rewarded heavily.
So the important question that now needs to be answered is, “What makes a stock a multi-bagger and how to find multi-bagger stocks?”
While there is no guarantee of assured returns once you enter the stock market, there are vital signs that can help you pick a multi-bagger.
6 Most Common Characteristics That Can Help You Pick Or Select Multibagger Stocks
It can be very hard for a company to make consistent profits without a wide range of products or services as the markets are becoming more competitive.
If the company is continuously introducing new products or services with required changes according to the demand, there are increased possibilities of growth.
Let’s take a recent example ITC is simultaneously entering into new product lines because of increased restrictions of governments on tobacco and sin products. This is one of the major characteristics of a multi-bagger.
Behind every success story of a company, there is strong management. No business can survive and grow without a capable management team. In order to invest in good management one should be aware of the board members, chief officers and etc.
Checking their history is also advised. Also, you can look at multiple aspects such as how the company is aligned toward the government policies and regulations. Verify how many shares are pledged of promoters. Also, be updated with actions taken by them.
To invest in a high-margin business is another simple answer to the question, ”how to pick multi-bagger stocks” Look for businesses that have high-profit margins.
Generally, multi-baggers command high margins either because they command a leading position in the industry or due to a lack of competition.
In India Insurance and financial services, companies possess the highest net profit margins according to the year 2020. Moreover, these stocks tend to have a sustained margin over time that doesn’t fluctuate every quarter or year.
When an Investor invests in a stock, He not only invests in the business but the founders also. If the person who started the business conceptualized a business he should remain committed to its cause and growth.
Or in simple words be updated about the promoter’s holding. Is it increasing or decreasing? An increased holding shows more interest and faith of the founders in their company and vice versa.
“Buy on Dips” Strategy
This strategy is very popular among long-term investors. Who used to accumulate more at corrections. They buy on bad news too. The basic theory behind the “buy on dips” strategy is a good business is likely to grow in the long term the correction lasts only for a short period due to some negative news or current scenarios.
You definitely have heard of this one “be greedy when others are fearful and be fearful when others are greedy” said by great Investor Sir, Warren buffet. He indirectly supports the above strategy.
For more confirmation you can check the starting of the year 2020, When markets were crashing heavily all over the world, NIFTY50 touching 8,000 and SENSEX at 28,000. If you have invested that time you would be enjoying more than 100% gains now.
Do Fundamental Analysis
Do fundamental analysis and study Ratios. Fundamental analysis is a method of making Investment after analyzing the business and its financial performance in order to understand its current valuation and future growth potential.
It is broadly divided into two categories Qualitative and Quantitative. You should do fundamental analysis quarterly after the company post results and do it annually is a must.
To learn more about fundamental analysis you can check this article “How To Do Fundamental Analysis Of Stocks”
To sum up, you can learn how to pick multibagger stocks in India with a little effort. It is also important to note that these stocks should be invested in with a long term horizon.
As discussed above these businesses have taken a lot of time to establish as leaders in their respective fields and hence, patience and discipline is a must in Investing in a multi-bagger.
If you are looking for multi-bagger stocks in 2020 in India, go for a business that has solid Management, Future growth plans, exceptional fundamentals, and Margins.
You should remain Invested as long as these are on track. You have to remain invested for a long and cope with the volatility and downtimes. If you have survived these your patience will be rewarded and you will be able to enjoy the success of these multi-baggers.