In our previous article, we have seen the “Quality of Multibagger Shares” (click here to view). In this article we will look in to the requirement of Multibagger Investor or How to become a Multibagger Investor. Multibagger investor is the one who invests in share and gaining multifold income. Multifold income is not “making quick money” and hence it cannot be made in short period of time. It is not only the time frame to keep invested but there are some other requirements which will be listed in this article.
- Selection of quality stock: Selection of a share which has the quality and strength to become Multibagger is the first and foremost requirement. There is a common feeling among people that stocks trading at low price are Multibagger shares or shares trading in high prices cannot be Multibagger. Both these concepts are myth. Many shares once traded in thousands of rupees have become multibaggers. Hence it is not the price but the quality of the share is the deciding factor whether the share will become Multibagger or not.
- Don’t try to time the market to buy: No one should wait till the market comes down to buy a share. Practically, market never reaches the low we expect. Because when the index is bearish, people will keep on waiting expecting it will fall more…. before they realize the market will bounce back and price of the shares will move up. Hence timing the market is not advisable but what can be done is to buy in small quantities i.e., not investing all the allocated money in one time, instead buying can be split in to three or four times in small quantities. This will help if the price falls.
- Shares bought? Assume you spent the money..!!! When we visit restaurant, we settle the bill amount and we never expect the money to come back to us from the restaurant… we know that the money is spent by us for what we consumed and will never come back. It is always to assume that the money invested in the market is already spent and never think of taking it back unless you need the money for purpose which you invested, the purpose might be to buy a house, kids higher education, etc. (subject to financial performance of the company in which money is invested). Many investors (at least they call them as investor…!!!) look their portfolio for a chance to sell shares and get the money back for routine commitments, this mentality will be a disastrous approach and will stop Multibagger gains. That’s the reason we have to invest and ignore. Routine review and watching for company news is not to be forgotten.
- NOT to Watch the daily price movement: Multibagger shares once bought can be safely ignored except to look in to the quarterly and annual results in addition to news about the company. Watching daily price movement is not required because the aim of buying multibagger share is not to make short term profit. Price of any share will not keep on increasing every day. Share price will be having ups and downs. Daily price chart of shares will be having price movement as shown below.
Some investors watch the daily chart, seeing the share price is falling due to correction will sell immediately convincing themselves that the same share can be bought once it starts moving up. This will be a wrong decision and I have seen many persons unable to buy after (including myself…!!!!). Instead of watching the live or daily price chart, watch for any news – positive/negative, and Financial Results at the time of publishing.
- Watch for news about the company: Reading any news about the company is worth. While going through the news, we have to have particular attention to any change in the top management, business line, expansion of the company operation / market segment, product information, Bonus issue, Rights issue, Share split, and Shareholding pattern with specific attention to shares pledged by promoters (this is filed with the stock exchanges every three months and can be seen in stock exchange website). Nowadays getting information is not at all difficult – we are flooded with plenty of information more than what we need.
- Understanding the impact of compounding and its benefits: Compounding is the simple math which tells us if you leave your money in a regular income generating assets (like Bonds, Fixed Deposits, etc). Compounding in deposits, your money gains interest and that interest also makes additional interest and hence the income will be more. This is the benefit of Long Term Investment. The company you invested grows over the years, value of share increases and finally your investment will become Multibagger. Compounding of your capital will benefit only when it is left for long time. The sooner one starts investing, the bigger the capital value one will end up in middle aged or at retirement time.
- Start early to invest: Those who start early will benefit from the Multibagger shares. Because as we know, no share will become Multibagger in a year or two, it takes its own time to climb the ladder subject to the hurdles of performance, corporate governance, promoters’ attitude and holding, etc. Investment can be started with small amount also. Don’t wait to accumulate more money to invest. Investment in small amounts, small quantity of shares at early stage will do the magic. Practice the habit of saving is the first spending as soon as we get money and rest follows after. Generally it is the habit of many and majority of people, to spend for necessity and entertainment first, and if any money is left will be taken to savings. It must be the other way around. Savings – Ultimately investment – must be the first spending.
- Thinking of market direction: Small investors are mostly thinking about the market direction and worrying which direction the market will move. This thinking must be avoided, instead the investors must think about the company and its direction in future. Will the company will grow year by year, will the company make good profit must be the concern for investment…. Not the market direction.
- Selling the shares during market panic time: if the market is in correction level, huge level of selling happening and this is mostly done by traders who want to make short term or intraday gain. Market correction or panic selling happening in the market is a good opportunity for the investors to accumulate more shares for investment. Prices of shares might be available at reasonably low levels due to panic selling and this is called as “available in discount”. Hence the investors must try to buy at the discount sale.
- Diversify your Portfolio: Diversification we mean here is a portfolio must have shares from different sectors and within the sector having different companies. Diversifying doesn’t mean to have shares as much as possible. Heavy diversified portfolio will be difficult to manage i.e., reviewing results, gathering news, etc will be very difficult and the investor might lose control over the portfolio and even might end up with many shares from same sector. Diversification must be limited and manageable level. Typically a portfolio may contain 15 to 20 shares. The maximum investment in any single sector shall not exceed 20% and investment in any single company shall not exceed 15%. A good portfolio will contain shares from Large Cap, Mid Cap, Small Cap and little bit of Micro Cap also. Rapid growth is highly expected from Small and Mid cap shares while large cap shares will provide more or less stable return. Micro cap shares will grow vary fast but the risk is very high.
- Reshuffling portfolio: Portfolio can be reshuffled if needed. This has to be done cautiously and shall not a daily practice. If there is any unwanted news / flat growth / any unpleasant info about promotors’ shareholding pattern, etc can be looked in to and if the expected damage is quite visible, hence selling the particulars share and adding more of existing shares in the portfolio or some new share will be advisable.