Multibaggers: Misses, Hits, Lessons

Lessons from Mr Market
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Dear investors and friends,

Successful instances of multibagger investments is what separates the best from the rest. That could be one big difference between an Hitesh, Ayush; and the rest of us.

Study of the MPS thread gave me a big lesson. If observed deeply; most of the times, Ayush is involved in tracking the business; very rarely he comments on the share price.

Successful****multibagging investment could be divided into 2 phases.

The first where a cheap stock is uncovered / discovered. Behind the stock there must exist a business with solid fundamentals. This would involve all the possible checks.

The second phase would be the actual investment process:

a. Entry, b. Growth(staying with the multibagger), c. Exit

Both Phase 1 and 2 are very important.In Phase 2, all the three steps are important.

My View: The MOST DIFFICULT part is 2b (staying the course)

I think that is what separates the best from the rest.

For a Peter L, Rakesh J, Ayush, Hitesh; this comes naturally.

How ever rest of us need not worry; with discipline, self control, conviction and practice; it is possible to achieve stupendous results.

In this endeavour, it will be great if people can share their personal experience (or of others known to them); the hits, misses and lessons. FOCUS ON MULTIBAGGERS.

I’m sure that in the next 5 years, many more of us (the unfortunate ones), can share their experiences too!!

Best regards!!Hemanth

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Multibagger Miss: Nucleus Software

The first time Nucleus software came into my radar was around March 2012. The market cap was around 200 CR, and the CMP was hovering between 60 and 70 rs.

At the first level, this company almost seemed to be a perfect potential multibagger. On hindsight my first level (superficial) research and analysis turned out to be right. In less than 2 years, the CMP is around 200 rs with a market cap of around 650 CR.

Let me explain the difference between my Level 1 and Level 2 analysis.

Level 1 (Superficial, with a positive frame of mind):

This company has very honest and trustworthy promoter, a successful product, decent market share and good track record. The company was well managed, no debt, decent profitability, excellent credentials in terms of financial reporting (they have won consistent awards for transparent financial reporting). And it was deeply undervalued. Very low PE. Consistent dividend track record. Almost perfect. Too good to be true.

On hindsight, if I had stopped there, invested a chunk in the company, I would have had a multibagger on hand.

How ever, because it was so good; I went into the next level of analysing.

Level 2 (More detailed, with a negative frame of mind):

The result of my analysis (real orperceived) were:

1). Since inception, the company has had products in a single line of business. That is mortgage related. Products like loan origination, retail loan asset management, etc. In almost 20+ years of existence, the company was not able to come up with a 2nd product line.

2). There was no visibility of a TEAM at the top. Over the last 5 years, several senior people had quit. It was almost like a one man leadership team, being the founder. This was a clear risk in terms of succession planning and future outlook

3). Doubts about the ability of the company to scale and grow big (mainly because of the above two reasons)

RESULT: Missed the multibagger

Hindsight analysis now: Not too sure what to make of it. Perhaps some seniors / experienced people can help.

Views appreciated!!

Kind regards, Hemanth!!

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Let me share a regrettable miss.

I purchased Page Industries at 500+ Rs. in June 2009. The company was trading at 18 times trailing pe. By December of 2009, the company was trading at 800+. The pe had jumped to 25 times trailing pe. I had made 60% returns in just 6 months. In December 2009, company came out with almost 30% sales growth, but margins were depressed and profit growth was almost negligible. I thought that company is fairly valued at 25 pe and now margin compression has started so a pe of 25 will not be sustainable. I sold the stock and the stock shot up to 1200 very soon. Since then, it has been a very very costly stock(in my perception) and I have not been able to buy this one. The stock is a 7-bagger since I sold it.

Lessons:

1). For a good stock, the fair pe range is very very high. Applicabe to our current discussion on Astral and its PE.

2). One or two quarters of margin compression does not make a stock unattractive. This lession is very relevant to our discussion on Cera. I keep asking myself this question- Is Cera there where Page was 4 years back?

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_**

Hemanth - in your note I would be careful of the learning to extract. It reminds me of the discussion on process versus outcome.

Good process + good outcome = deserved success

Good process + bad outcome = bad break

Bad process + good outcome = dumb luck

Bad process + bad outcome = deserved fail

I would continue to focus on improving the process. Sometimes taking a bad process and winning by luck can create bad habits like during the tech bubble where everyone thought they were geniuses until things suddenly changed.

You did your thinking and decided that it did not warrant investment based on your criteria - I think that is fine irrespective of the outcome. If your criteria were wrong, focus on improving the criteria.

Makes sense?

Multibagger Miss: Nucleus Software

Hindsight analysis now: help. **_

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Thanks, Deepinsight

Broadly what you say makes sense. It could be a good guideline to follow.

How ever one question bugs me, “Did I analyse to much?” (Over analyse)

How to find, how much analysis is too much analysis?

Any answers?

Regards!!

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Just because the stock went up does not make you wrong.

Your objective (if you choose to take it :slight_smile: ) is learn to assess properly the present and future value, articulate a thesis for yourself and make a good investment judgement to invest or pass.

)-----

In this case the question is were you wrong in your process?

Did you misjudge something?

Was your investment thesis wrong? Why?

You anyway need a thesis to invest and also to divest…otherwise you would be perpetually be played by market movements.

( I don’t know the company to give any opinion )

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:))

)-----

Agree, Sir.

Your first part makes lot of sense.

And in the 2nd part, you have raised some very important and relevant questions.

Answering them, will definitely help is establishing more clarity

Thanks!!

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When I look back my investment journey, there is one issue which got highlighted in the last two years. That’s area of competence. Generally, area of competence in my view revolves around our profession, which I do not want to discuss here. However, the issue i want to discuss is our area of competence related to our home. As a family we all are involved in many issue, which if linked could have indicated numerous investment opportunities. To establish this, I narrate certain obvious misses of my life.
• TVS Bike in 1990
• Titan Watch in 1992
• Godrej Fridge in 1993
• V - Guard UPS in 1994
• Maruti car in 2000
• Account in HDFC Bank and ICICI bank 2002
• Home loan from HDFC Limited 2002
• Kitchen always had Prestige Cookers, Hawkins, Laopala Cups etc
• Hitachi AC in 2007
• Amaron Battery in 2008
• Jockey underwears
• Westside user
• Dominos Pizza – enjoy with family at restaurant and home
• Sun TV - way of life at south Indian home
• Regular visitor to Wonderla
• Gillette razors – No other brand please
These are few examples wherein the moment I liked a product/service genuinely, it should have triggered at least an analysis of that stock. It’s also pertinent to mention that every such idea may not turn out to be a great investment. A classical example is NDTV (Bought and sold) which I love to see every day, but worst stock for an investor. Also if bought, one need to hold such stocks for long term to derive the benefit. A confession - bought and sold few of the above for meager gains, unfortunately continued to use the products/service for their quality.
Many of the above are only in hindsight, because today I am not able to see one like this. But I am confident that if one keeps the eyes and ears open, some ideas will come in the way.

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Hi there,

Can’t agree more on your thoughts. I was discussing the same thing with my father (who is also an investor) almost two years back. Specifically, we were mentioning how much wealth would it have been if we bough Maruti shares instead (or along with) of our first car in the 1990’s and M&M shares vis-a-vis Scorpio SUV in 2002.

Interestingly, I cant find similar stories now though i keep my eyes and ears open. Many times, I get confused, it is better ride with Page / Maruti / Eicher even if they have been huge wealth creators which are currently trading at significant valuations. This keep me at bay when it comes investing as i cant find such compelling stories now (just my view). Any thoughts on this or any new ideas would be greatly appreciated …! Thanks

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Read my last two lines which confirms the same view as yours. . I am sure forums like VP may throw a Stock Universe which when combined with our look out for such story may click. Also such stocks if available in the market may not look that interesting and obvious due to various parameters of scrutiny. As one of my friend Savishesh told me today, I quote
" I think a process is very important to identify, buy, add, stop loss, to hold and to sell.
All my mistakes some way or the other could have been avoided if I had an objective process. when left to us and our emotions, we tend to make more mistakes because our emotions tend to run from one extreme to other.

Also process will take care how long we should hold, Should add or not, and most importantly when to sell. I m still very deficient in this and in process to develop such an objective system.

In hindsight many things look as no Brainer but would you buy a new brand that has potential to become next Kajaria or Asian paints? at that time there are too many ifs and buts and that clarity comes only in hindsight. for example, Surya roshni tubelight we all know for ages… but how many dared to buy when it was at 45? or sintex now? it is market leader in tanks, largest prefab company, second largest automobile composites maker… does it make it a no brainer ? we will know only in hindsight. so process is important not gut feel.