During the Seminar and Workshop, we are often asked for a multi-bagger stock that you are investing in. This is something not new to though. We have also faced similar high-quality multi-bagger stocks recommendations in our forum.
I was also one of them, getting excited to find next multi-bagger stock chasing companies to companies, hustling for next big lead, and in the process trying to capture the next 100-bagger stock. Suddenly, the talk and learnings are hovering around finding and investing in multi-bagger. Whereas the concept of multi-bagger existed long back. If you happen to read the books written by Thomas W. Phelps then you would realize that there nothing new. Even if you find one it would take the market 1-3 decades to show it’s performance. Even the Coffee Can Portfolio was focused on creating such returns with a slightly different strategy.
The Pep Up talk or the Inspirational talk revolves around finding the next multi-bagger. This has lead to people getting into this game of finding the next multi-bagger stock not realizing how it really works. No one seems to be interested to find out the probability of such stock-picking skills. The real question one should ask before applying your resources to finding a multi-bagger stock, is it really possible? Who has played this game before? What is required to play this game? What are the chances of success in this game.?
The total number of stocks listed on Bombay Stock Exchange is around 5000 plus stocks. For the last 40 years, the total number of stocks that got multi-bagger or 100 bagger status is mere 57 stocks this shows how rare this kind of opportunity is. Another similar research revealed that the American stock market over the last 40 years has got around 365 companies to their credit. The probability to find such stock is not only hard but the resource required is also very high.
Venture Capitalists are known to get multi-bagger returns from their investing activities.
The simple definition of venture capitalists is, “A venture capitalist is an investor who either provides capital to startup ventures or supports small companies that wish to expand but does not have access to equities markets.”
It might look very simple but when one of the investors was asked as to what it takes to be a venture capitalist the witty clear response was, “[T]o start a venture capitalist of your own you need the brains of Albert Einstein and Money of Warren Buffet”
The real irony is some finance blogs, e-magazines, gurus, and journals give out a list of potential multi-bagger stocks on a yearly basis and top this all some of them give on monthly basis.
Let’s take for example Nifty Index which has been giving 16.57% cagr returns from inception. Any amount invested for last 30 years would result in multi-bagger returns.
Stock picking is a second biggest challenge after how you treat your investments. George Baker, the 19th-century American banker rightly said, “The vision to see them, the courage to buy them and the patience to hold them.”
Generating a Portfolio Returns ranging from 15%-25% CAGR over long-term can create multi-bagger returns over two decades. This is a complete contrast to the Coffee Can Portfolio. But the returns generated by this method are much higher than the Coffee Can portfolio the main reason being that unlike earlier the business models and business are changing fast. This is one of the reasons why companies which were expected to perform very well over the long term have lost the charm to early and too soon.
The risk of creating a multi-bagger portfolio exists with a high churning ratio. A good knowledge of stock picking is very essential. Especially when compared with coffee can portfolio where the stocks are picked up only once in a while. Historically the coffee can portfolio was successful when the total number of companies were very few and the competition among the total number of companies was less.
Closing Points of Multi-Bagger Portfolio
The probability of finding a single multi-bagger is a very tedious task with very less probability. Hence we should focus on a portfolio of stocks which can generate consistent returns over a longer period of time.
The disadvantages of Coffee Can Portfolio can be achieved only by active investing multi-bagger portfolio.
If you are still adopting the old ways of investing and expecting returns form the stock market you might be losing a lot of money on the table. Multi-bagger portfolio is active in sense of the continuous performance of the companies bought and looking out for possible red flags which can harm your returns.
At times even if you are not investing in the stock market can be considered as the risk. Another school of thought also has a valid point of mitigating the risk by opening a zero brokerage account.
Come back here and tell us about the before-and-after. I bet you’ll have something to say! If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend or sharing it on Twitter or Facebook. Thank you!