In my experience, when I invest expecting 12% cagr for a long term (risk free rate plus risk margin for me), I usually end up getting 25% cagr. As Krishna used to say, focus on the task at hand and not the end result. Exploring the success of above companies will make sense only if someone looks at the business outcome instead of price appreciation of stock. Success comes from action and not from outcome. Some of the stocks had very minimal business growth when compared to price growth. Hence looking at the stock price alone may not be the right approach.
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Not losing money is more important than scoring big winners. If one has the downside in control, the upside usually takes care by itself. Yet, most people focus on what could go right for their investments to make big money, instead of identifying what could go wrong, what course of action to take should that happen, and whether the price you pay is reasonable considering such possibilities.
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I have always lost money when I went in searching for multibaggers. Money is made when you invest in good companies over a period of time and in the course of your investment you stumble upon these multi-baggers. Also it depends on how much money you have to lose.
I know someone who picked up Satyam at Rs.10/- and sold it when it went to 60 in very little time. HE paid his house down payment from the profits earned. But then after that he invested in stocks which were mediocre.
Iām done with my search for multibaggers after the 2008-09 carnage. Since then Iāve been fortunate enough to get a few multibaggers like Ajanta and Mayur and Page. But never in the search for that. This has helped me maintain my sanity and sleep. I know if there is another bear market I will be able to pick up some stocks which will definitely be multibaggers.
Once we have reached a certain wealth level we can afford to put a portion of our money in those which could turn out to be multibaggers.
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As many of these success stories that you can list out based on hind sight 20-20 bias and reflection, there is no way people can put 20 stocks together today and guarantee that they will have 10 of that 20 in the Top Most CAGR listing from 2019 to 2029.
So, one has to invest in the best ideas that belong to the Small, Mid and Large Cap category and then hold them through thick and thin. Even I am having the impatience of hitting the sell trigger after 100% or 200% or 300% gains from the 2014-2017 selections that I still hold today. I bought Take Solutions for example. Great company, doing acquisitions, have 300% of growth in 2 - 3 years. Good CAGR right? It has been pretty much stagnant and then goes sideways due to Pharma and IT market (since it belongs to both).
Now, with all the conviction in the world, watching the earnings and the market share growth, it will do well. I know it, but how many thousands of shares do I hold? Do I hold until 2020 or 2025 for it to pan out. My personal target is Rs405, but when is the question, and will I be able to hold my shares until then?
It is the impatience that does not allow most people to have just 2-5 positions (average) in any single portfolio with a good amount of investment.
Great topicā¦
KKP
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Sir, would like to know your thoughts and analysis on Take Solutions please, especially in light of the allegations raised and shared on the Take Solutions thread.
Rgds,
Advait.
Not sure about the details and questions raised on Take Solution, and if that is the reason for the stockās erratic performance.
I rotate around the macro elements of the companies and sectors, and usually derive my investment decisions based on other FA experts that analyze the balance sheets, ask these kinds of detailed questions, show/see the CAGR, ROCE, PS, PB, PD etc ratios, and then decide WHEN to buy or when to offload.
In most circumstances, I trust that the management is being held accountable through the Quarterly Reports, Conf Calls and Analyst Briefings.
The points on this topic was much different, and I was just giving a random example, so, lets not get caught by the Moderators making this a Take Solution topic under the CAGR reasonings that we were analyzing.
KKP
Yes,it is the impatience factor that makes us,the average investor, take hasty,ill-considered decisions,based on emotions rather than cold logic. I am reminded of the recent interview on CNBC TV18, of Shankar Sharma, First Global. The veteran investor confessed to being shaken up by the recent carnage of small cap and mid cap shares,when everything that had worked in the past,now seemed unworkable.
As they say, everyone is an ace investor during a bull-run,and the emperor who has no clothes,is only exposed during low-tide, that is a bear phase.
Even the common investorsā definition of ālong-termā holding of shares,is now of no more than three months,leave aside the minimum one year for LTCG . The fact is the meteroic rise of share prices during the last bull-run,has created un-realisitic expectations.Even the pre-election rally has failed to dampen such expectations. In fact, we may be entering into a decadal period of slowing growth of the world economy,and since capital inflows and FII inflows have a decisive effect on the Indian share prices,the Indian economy is yet to fully and conclusively de-couple from the global macro-economic trends.Despite all logic of holding on for the long term, the common investor,including myself,presses the panic button,as soon as the erosion of wealth crosses certain individual parameters.
The biggest fallacy in investing that I have found, even in myself, is that we are constantly competing with the new best of today. If a friend makes 33% in 2018, and you did not, you feel sad. If a MF made 51% in a year, you feel made that you did not invest. The fallacy is that we ALL compete with a ābeingā that is not a ābeingā called Sensex or Nifty or BankNifty. No reason to do so.
Over time, one has to be improve in investing since through the years of 20s to 50s it ireally hard to make it and even if you pound your chest in 1999, there will be a humbling time in 2000 and 2001. Same with 2007 and 2008.
So, what am I saying > āCompete with yourself, your own account, and your own Net Worthā. Increase Net Worth in multiple ways, and with different types of investments, and diversify. As soon as you do that, you are using your 24 hour day in the most proper way, cause you will be reading, working, investing, analyzing, and also thinking about the next disruptive strategy. I have been in these shoes for a long time, and people might think this is too much, but it is not too much, but it is called having the knowledge base and many pots of plants that will grow fruits at different times.
Folks with 2 to 10 stocks, and 2 cars and 1 house will completely disagree. Cause, I believe in stamps, coins, gold, diamonds, stocks, bonds, FDs, houses, apartments, cars, ETFs, options, and yes, I am not a winner at all, but have winning strategies all the time, and all of the strategies do not work all the time, but each of them work some of the time, and I can never predict when. Key is the right amount of investments in the right asset at the right time. Hard to do, but doable, but it is intensly busy-work, and if you want to sit in a rocking chair, then find 3 MFs, invest in it, and call it a day or lifetime!
In the stock market, find the best companies that are doing 25% CAGR per year, find the lows on each of those stocks, and keep SIPping into it. This might be the simplest of all non-MF strategy.
KKP
14 Likes
Interesting you mentioned.
This could happen to me if I pick a good company BUT at an exorbitant price tag.
It is like walking into a swank showroom, in a swank locality. Here you are already mentally prepared to over-pay, and everything appears perfect.
Coming to stocks. Looking at a good balance sheet, and a attached brand name, and in a bull mrket, when all its peers are priced highā¦ one is fine paying a high PE for a stock.
At the time of buying, ones eyes see only good things. But, when market starts to normalize, and price has to correct 30%, one sees the negatives too.
Case in Point: Berger Paints. Or Asian for that matter. They have flawless numbers, right? But, its just paints. How much bargaining power can it have.
But, at the time of buying the company appears perfectly good and its peers are priced similarly, one starts to think that PE 60 is the new normal. BJP govt and all that jazz.
Only when liquidity becomes scarce, and market correctsā¦one starts to see the negativesā¦ and thinks "should I have paid PE 60 for a paint company, whos sales have grown cagr 7% in three years, which is dependent on the real estate market which has gone slump!
Upon suddenly seeing the negatives, and sharp fall in share price, it is likely that I end-up selling a very long term investment within a matter of months.
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Scalability aspect is going to help us find one or two good ideas every few years. If one thinks an idea can be scaled up quickly , it might be a good one. I for myself am focusing on fintech alone, and buying finance stocks where I see better tech adoption. Things like paytm have pushed tech adoption amongst banks and top nbfcs, and that has to show in the growth in next 10 years. A single place where payments, debt , and insurance all are to be addressed is going to appear through tech adoption- who all will ride this wave is the question.
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I think, from what people are talking about on VP, IDFC First Bank is a new-age bank. It can open accounts in a matter of minutes.
Who else is on this path fintech?
I have opened two accounts simultaneously to check the sameā¦
One was IDFC First bank normal savings account and Kotak 811 account.
For IDFC First bank, I had to contact them through their executiveā¦ Their executive took 2 to 3 days to visit my home and on Kotak 811ā¦ I just had to open website, upload few document and few details and account was opened in a dayā¦ so I guessā¦ there is still a competition on that front. IDFC first bank still needs an executive while you can open an account with Kotak without an executiveā¦ complete digitilā¦
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I think the stock which should give a good returns as of now is Safari Industriesā¦ Everything is turning around thereā¦
Industry,
management (from 2012),
Financials (comparing with 5/10 years back),
good commentery about industry as a whole from the other competitors too (Samsonite and VIP),
plans to decrease dependancy on China,
Changing trends among public,
Increasing market share of Safari,
Continous hitting full capacity and addition of new capacity,
Inorganic expansion,
reducing price differnece between unorganised and organised products,
Demographics of high Millennials,
Three players contribute 90% of organised market.
Negative is
it is trading at very high PEā¦
Very high and intense competition,
correlation to Yuan and crude oil,
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I tend to look at stock valuations as stock appraisals, similar to year end appraisals in most IT companies.
I have built a mathematical model that calculates the earnings growth expectations from the company valuation (EV). This expectations if compared against historic performance or based on individual analysis is then verified for its viability.
The shortlisted stocks are then the ones which are best suited for higher returns. The returns are even higher if the overall market sentiment is very positive (just like year end appraisals, if the company performance is good the bonus is higher).
The base PE or cash flows matter, but to the extent of converting that information to market expectations. This is the reason why so called expensive stocks like Page, Gruh, HDFC, HDFC Bank and so on, still deliver higher returns. Their financial performance, meets or exceeds the expectations.
Just like appraisal is a year end phenomenon, the stock appraisal is also based on yearly performance.
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I think not looking at the price of the business and just following with the quarterly updates along with the general industry view of particular business can give decent returns in long term! Management has to be very good of all the businesses that we want to invest in! Someone has rightly said in one of the replies to limit the losses. By doing so, probability of gains from tat investment will be much higher! Also holding the business for longer period of time requires guts and very strong conviction. We always tend to compare 10 / 15 years time frame and the prices and term the things as multi baggers but a very few even hold the scrip after it has doubled or trippled.
Nice post Dinesh,
My take is about your observation about Prof. Bakshi selling and then buying back Eicher Motors as the understanding developed about the transformation taking place there. The take is that continuous review of the businesses need to be done. it does not take 10 years for the market to recognise the transformative work happening in any business
The companies that have emerged in the list are from across sectors is another observation
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Great Topic. I would like to share a little bit from my own experience.
Finding stocks that can deliver multi-fold returns over long periods is a combination of Fundamental Analysis + Technical Analysis + Overall Macro Trend.
Fundamental Analysis helps to understand company related qualitative and quantitative information, Technical analysis can help time your entry-exit by way of trend-following. Liquidity in market is the key driver of prices in market, which can be understood by studying central bankās policy and other macro factors.
Sector selection is very important and first step in selection of Multi-Bagger Stock.
Outcomes from the past if analysed thoroughly can help one arrive at various observations which can be used for better decision making in future. Sector selection is an important aspect in stock selection process for investing. Have you ever found any power company in the past that has provided extra-ordinary or superior returns to shareholder ? The answer from your end would be a NO in 95% cases for power companies. Similarly a lot of FMCG companies have provided multi-bagger returns in the past has been observed. So what is the fundamental difference ? Businesses which have natural demand, monopoly or some form of competitive advantage normally provide superior returns to shareholders in the longer run. Businesses like food products, alcohol, condoms, paint, pharma etc. fall in the above categories. Capital intensive businesses like energy, telecom, defense, steel, mining etc. generate relatively lower returns in their business and so shareholders value increases at a slower rate in such business. If one can understand these fundamental points than success rate in investing can be enhanced substantially.
āEFFICIENCYā is the driving Factor :
Stock selection process in investing is more or less revolving around Efficiency. Whether we are looking at returns or valuation or debt or any other factor. All we are looking for is to invest in an efficient business which can generate superior return with lesser capital and lesser risk.
Top-Down Approach : In this approach one identifies first the sector in which one wishes to invest and then looks for the best available companies in the sector.
Bottom-up Approach : In this approach one identifies first the stock in which one wishes to invest and then performs sector study to arrive at conclusion whether it is fit to invest.
Both the approaches are equally valid and effective. However, one point is to be kept in mind that investor must go across and understand primary information for all the sectors so that they can chose the best sectors and best stocks.
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I would like to share one more SECRET of picking multi-bagger stocks, which is in our plain sight but most Investors never pay attention to it !
Majority of Multi-Bagger stocks carry out capacity expansion or addition to fixed asset every single year consistently, which increases their sales and net profits. Which leads to increase in overall valuation of business. It is very important point and is worth observing. ( Check āFixed Assetā Schedule in Balance-sheet of past 10 years of Multi-Bagger Stocks given in this post or any other that you have and check for yourself). Share your observations here.
Expansion of Business Activity and Impact on Share price
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Sales and profit are the main drivers of Shareholders wealth creation in the long-run. Expansion of business activity is very essential for survival and growth of business as well as shareholders wealth
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Expansion of business may be undertaken either by mode of merger/acquisition with another corporate entity or by making an addition to existing fixed assets of the company
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Expansion of business activity normally results in increased share prices due to higher sales and higher profits. Companies can carry out expansion either by :
- Internal accruals of existing business
- Borrowed fund
- Equity dilution
- A mix of all these options
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Companies which carry out expansion from internal accruals of existing business are the best ones to invest in. Expansion carried out solely by equity dilution results in lower per-share profit to existing shareholders. Expansion carried out solely by borrowed fund might result in lower profits due to interest expense and cash flow is also impacted due to repayment of borrowed fund via periodical installments. Mix of all these options might be suitable considering capital structure and other factors specific to the company
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Companies which are functioning at maximum capacity utilization and do not carry out expansion have less scope of superior shareholder wealth creation
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In the spirit of the thread I would like to share everything I know from my experience & understanding as a professional as well as Investor/Trader.
I have already shared 2 points to be considered while selecting multi-bagger stocks. Will share all other points one by one.
Important Parameters for Stock Selection in Investing :
Preparing a tasty dish requires a perfect combination of ingredients for a good outcome. Similarly for identifying a multi-bagger stock or a stock with good upside potential requires a perfect combination of ingredients which will substantially increase probability of stock turning out to be a good one. Below stated are few major ingredients which will help any investor in identifying and understanding whether the stock has good investment potential or not. Detailed analysis has been done for each point and it is prepared in a very user-friendly language so that even a common man can understand the same. If an investor understands and follows below stated points in his due diligence then chances of failure in investment will be reduced. Further diversification and risk management will also help investor reduce risk to the portfolio even if somehow a bad stock has been selected in the process of evaluation. I will also share posts on diversification and risk management. Summary of Important parameters in stock selection process are as below.
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Sector/ Business
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Promoters
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Returns
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Valuation
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Expansion of Activity
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Operating Profit Margins
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Debt/ Borrowing
Quality of Promoters and Impact on Share Price in Investing
Introduction
A promoter is an individual or an entity who does the preliminary work incidental to the formation of a company, including its promotion, incorporation and flotation and solicits people to invest money in the company, which is being formed. The entire lot of people and other companies that control a company in this way is called its promoter group . Their combined shareholding is called promoter holding. Higher the promoter holding in a company,greater is the promoters control over it. Promoters exercise their control by taking key decisions of the company and appointing people in various positions of its management and board. They also provide the visions for the existence of the company. It is, therefore necessary that the promoters continue to hold a dominant shareholding position in the company. A large promoter group also provides stability to a company. Generally, promoters are in a fiduciary relationship with the company and its investors and shareholders, and must avoid conflicts of interests and exercise reasonable care in performing their duties. They must refrain from self-dealing or other types of abuse to take advantage of their position as a promoter.
When money is invested in shares of a company, Quality of Promoters is the most important aspect. It is because promoters are the people who are going to be involved with the day to day activities of business and is at the foundation of success of entire business. If promoters carry out their duty with integrity and efficiency then every stakeholder of the business including shareholders can flourish and wealth maximization takes place.
In India a lot of companies which had corporate-governance issues have been the biggest wealth destroyer from shareholders perspective. In many cases it was not possible to identify the symptoms until it was very late for shareholders to exit. However, if few aspects are kept in mind while analyzing a company, shareholders can save their capital.All the mechanisms put in place by a company to protect stakeholder rights, in particular shareholders rights, is referred to as its corporate governance structure . It consists of policies, procedures and regulations that define how the management must deal with its stakeholders, and the remedies available to them in case of a violation.
Important Points in Respect of Quality of Promoters from Investment Perspective :
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Educational qualification, age, experience in the sector or elsewhere, role assigned etc. are the important points to be checked to determine quality of promoters while investing in a company
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Shareholding of promoters group greater than 51% in the business shows the interest of promoters as well as it helps in proper implementation of business decisions due to majority ownership. Knowingly and willingly promoters are unlikely to take decisions which are not in the interest of the company in which majority of their personal wealth is invested
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Regularity of reporting to regulatory authorities and stock exchanges is very important. Failure in timely reporting of financial statements and necessary disclosures as required by stock exchanges can be considered as a red-flag on the part of promoters. Eg. If a company does not report itās quarterly results within time limit set by regulations it is a red-flag
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Avoid companies where promoters have pledged substantial part of their stake to raise funds. In case promoter makes a default, then banks/financial institution which has given loan will sell the pledged shares in open-market to recover itās loan which can lead to meltdown in share prices
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Integrity on the part of promoters is very important. Promoters remuneration for the time and energy they contribute to the business must be analysed thoroughly by investor to determine whether it is reasonable or not.
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Personal transactions of promoters or relative of promoter or any related entity with the company shall be on fair terms. Investor has to ensure that related party transactions are not of such nature which exploit resources of company for personal gains
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Concept of " Independent director" was introduced by SEBI some 17-18 years back to ensure that board of directors also have people who are outsider (unbiased) and take decisions in the interest of stakeholders at large. Listed companies are compulsorily required to have one-third composition of board to comprise of Independent directors as per regulations. Investors have to ensure that independent directors are appointed and removed as per the policy and also check whether they are really independent or related to promoters
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Necessary information related to promoters remuneration, related party transactions and independent directors etc is available in the annual report of the company which is available on the website of the company as well as on the stock exchange website
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Violation of rules of stock exchanges, companies act, taxation act etc can be considered as a red-flag from investor perspective. Violation of internal policies,guidelines and procedures established by the company is also a red-flag from investor perspective
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I believe I know the answer 
All these companies have one thing in common, all of them have been growing their operating earnings year over year, beating the expectations of the market as a whole. I have my theory and my thread where I explain this concept:
https://forum.valuepickr.com/t/expectations-value/22744
I know this seems like a self promotion. But it is important to understand that in the myriad of business quality, management quality, market size, Cost of Capital, Interest rate cycles and so many other issues to consider while choosing a business to buy, the key for the market still remain āoperating profit growthā. This is why low PE or high PE does not matter. This is why Price to BV does not matter, this is why price to sales does not matter. This is why tax rate changes did not impact valuations in a big way.
Take a list of companies that have given positive returns this financial year, and you will realize that almost all of them have grown their operating earnings at a good click.
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