Friday, June 22, 2018

10 mistakes to avoid while Hunting for multibaggers

The return-hungry investors who are always looking for stocks which could give multibagger returns normally end up picking up stocks which either don’t perform or even if they perform they would give returns less or equal to benchmark returns.

Being able to spot a potential multi-bagger stock early definitely requires some research, along with that, patience plays a key role. Such stocks do exist, and if you have already done your research then the ideal time to pick them is on every decline.

Here are a few parameters that can help you spot a potential multibagger stock early – focus on the growth rate of the industry including future growth potential, which would benefit the stock under consideration.

Apart from that if there are entry barrier that would prevent competition. High-quality management is an added advantage and is like a precondition for the creation of long-term wealth for investors, suggest experts.

The other measure to look at is financial ratios. “Although not strictly defined, but a consistent low debt-to-equity ratio, high returns ratio, and free cash flows are some of the key indicators we have seen in the multibaggers in the last decade,” said, Nidhi Agrawal, an analyst at Angel Broking

Here are 10 mistakes as highlighted by different experts which one should avoid making when hunting for stocks which could potentially give multibagger returns: 

1.Herd mentality: 

Many investors fall victim to following stock tips by friends, neighbours and so-called experts. These picks rarely work out. In order to make money in equities, the conviction is necessary in an investment, which leads to the ability to hold on to a stock holding through volatile times and sell-offs.
If an investor does not understand a business, he should not invest in the company.  If an investor is unwilling to put in the time to research equities, then they are better off letting professionals manage their portfolios.

2.Investing in stocks based on low price: 
Just because a stock price is low does not mean that the stock is an attractive investment. I have surprisingly met clients that make the mistake of equating low price to cheap.
I once met a client that would only purchase stocks selling less than a certain price. However, even a stock selling at Rs 15 can be incredibly expensive while a stock selling at Rs 1,500 can often be cheap. Low price does not mean an attractive investment.

3.Holding on to losers: 
If a stock is down, there is a reason it is trading lower. It is best to regain losses by moving the money to an attractive investment.
Investors often make the mistake of being unwilling to take a loss on a position. However, if you think about investing logically, it is clear that if a stock has sold off, there is a reason it has done so, and it may never reach back the same levels or may take a long time to do so.
In many scenarios, the investor would be much better off putting money in an attractive alternative investment that would give them a better chance of recouping the loss.
Most importantly, avoiding and minimizing crippling losses is a discipline many investors don’t follow.

4.Investing at high P/E multiples:
An investment return is often determined by the price paid. At 100 times P/E, for instance, an investor is paying 100 times the trailing earnings over the past 12 months of the company. That is an awfully expensive price.
It means it will take the investor 100 years to make back his investment.  Very few stocks are able to deliver the growth that justifies this sort of a premium. Therefore, the valuation paid is crucial in determining future returns.

5.Investing in risky bets: 
Investors want to make money quickly and take larger speculative bets.  These bets often lead to large losses. I have come across many investors that have bet on so-called sure shots, home runs, multibaggers.
In my experience, the vast majority of these investors end up taking losses.  These companies often have been hyped up by people on the street that are looking for suckers to pile in.
There are many ways that investors are taken advantage of, and it is up to the investor to recognize the dangers and work with an experienced advisor.

6.Focusing more on macro data than on stock fundamentals: 
Blind investment in equity without looking much into the stock specific fundamentals should be avoided.

7. Just going with the hot picks or flavor of the season: 
They both need to be analyzed before investing for the earning potential of the company/industry dynamics.

8.Overlooking corporate governance issues: 
With the number of scams and frauds coming up, one needs to do best possible due diligence for the corporate governance of the company.

9.Over-allocation/under allocation to particular stock: 
While asset allocation is highly subjective and varies from person to person, a prudent investment strategy says that the allocation should be in line with the conviction and risk appetite of the investor.

10.Discontinuing monitoring of stock/key variables: 
Once an investor has taken a position in the stock, he/ she needs to regularly monitor the investment thesis, changing variables etc. to understand whether it is on the right track.

Next Read :Fine Organic Industries IPO Review

1 comment:

Unknown said...

Now a days many Indian industries are getting issues due to lack of skill of the management as well as resource skill. each and every engineers or each and every managers should learn everyday something new so that skill will be develop but in India thing very different if , person got job he will work routine job every day and he will not learn anything.

If you compare japan and american country everyday they do something and they are innovative. if you see our history also our legends also not at all innovative , if we are innovating before British attack to Indian we should have good weapon than British weapons.

Like same indian industries also like this only , you just see in the world for the IT industry , why only america doing startup why not other country apple , Facebook , twitter , Microsoft , google ect... no one can overtake that company because we are depends on those facility, these called continues improvement.

Let's pledge today if working any company be innovative and do some value added work every day so that , India and Indian industries became mature and they can give computation to international companies .

There very few companies are recognized internationally like Tata , wipro , Quest Ect. apart from that no companies are not giving computation internationally.

Why some Indian companies are in Top level

There is reason behind , i will tell why . if your working in MNC company you may heard bench mark work , what is the bench mark. if you maintaining all the process in standard level and your business partners are happy with your facility and so that your company impression will good and became bench marking company.

What are standard things required became bench marking company?

If your company want to became bench marking company, they must adapt Lean manufacturing Technics , 5S , visual factory management should be exist if these are well maintain in industry so that automatically company became bench mark.


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Disclaimer : All information given here is for information purpose only. Users are advised to rely on their own judgement or investment advisor when making investment decisions. This blog is not liable and take no responsibility for any loss or profit arising out of such decisions being made by anyone acting on such advice.

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This blog is formed for sharing useful information from financial world. This blog aims to increase the awareness among the people so that they are well informed .The blog also shares some details for investor, trader ,newbie friends in stock market on free buy/sell/hold recommendations. Here the recommendations are shared along with information on Stock Splits, Right Issues, Bonus Issues, Latest Stock market updates. This publication is not, and should not be construed to be, an offer to sell or a solicitation of an offer to buy any security. This publication, its publisher, and its editor do not purport to provide a complete analysis of any company's financial position. The publisher and editor are not, and do not purport to be, registered investment advisors. Any investment should be made only after consulting a professional investment advisor and only after reviewing the financial statements and other pertinent corporate information about the company. Investing in securities is speculative and carries a high degree of risk. Past performance does not guarantee future results. This publication is based exclusively on information generally available to the public and does not contain any material, non-public information. The information on which it is based is believed to be reliable. Nevertheless, the publisher cannot guarantee the accuracy or completeness of the information. This publication contains forward-looking statements, including statements regarding expected continual growth of the featured company and/or industry. The publisher notes that statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties that may affect the company's actual results of operations. Factors that could cause actual results to differ include the size and growth of the market for the company's products and services, the company's ability to fund its capital requirements in the near term and long term, pricing pressures, etc.

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