I think it wouldn’t be wrong to say that almost all the stock market investors want their stocks to go up 5x, 10x, 20x or even more. But, it’s neither easy, nor most of us know what it takes to achieve such out-sized returns.
We have all heard stories of how a certain stock went up 50-100x for great investors like: Mr. Jhunjhunwala, Mr. Vijay Kedia, Mr. Ashish Kacholia, etc.
However, most of the time such stories don’t talk much about the time the great investors held on to those stocks. Thus, with half baked stories, investors in general get the impression that minting money in stock market or landing multibagger returns on stocks is an overnight process.
In my over 12 + years of investing and recommending stocks to clients, luckily, I have had quite a few 4-20 baggers (check out stocks HERE) and have come to the following realisations:
- Identifying good companies is relatively the easiest,
- Remaining invested during downturns or through periods of consolidation/side-ways movement is tougher and
- Buying stocks when the cycle (business/market or both) is down is the toughest
All 3 are equally important; however, if you have a basic idea about how to identify good companies and can manage to buy such good companies especially during their down cycle or when the markets are down, you will probably have several 10-20 baggers or more in your investing career.
Let me give you an example of one of our 20 bagger stocks – Acrysil Ltd
We recommended Acrysil in Sep 2011 around 16 odd levels (adjusted for bonuses and splits). We believed the company was good and you can read about it HERE.
The stock is currently quoting around 340 and that’s a 21 bagger; however, it has happened over the course of 9.5 years with excruciating 6 long years of sideways movement in the interim. As they say, the rule of 80:20 applies in stock markets as well.
Most importantly, when we recommended it in Sep 2011, the stock was available only around 7 times earnings and only around 1.3 times book value. So, yes, a part of our 21x returns on the stock have come from re-rating of the stock from PE of 7 to around current PE of 30.
Best returns are generated when a company goes through both Earnings and PE expansion
Re-rating has almost always played a significant role in the out-sized returns earned by us in some of the stocks. Thus, no matter what, if you are looking to achieve superior performance, you shouldn’t undermine the important of buying stocks at reasonable valuations with respect to their earnings potential.
Reasonable valuation doesn’t necessarily mean low PE:
- It can also mean buying the stock when the business is going through a temporary down phase and the earnings are lower while the PE is optically higher.
- It can also mean buying stocks at 20-25 times earnings (we generally avoid paying higher than that when initiating a position) with significant entry barriers in the business and long run-way ahead.
- It also means recognizing the extremely cyclical nature of some of the industries and buying when the industry is in downturn and the earnings are at their worst.
Last but not the least, when investing in not so well known small and mid-cap stocks, it’s important to position yourself to be lucky and good luck also strikes from reasonable level of diversification. I am not asking you to invest in 40-50 stocks, but yes, 15-20 is a good number.
You can know only so much about the companies and when the overall stock selection process is good, sometimes the tail end of the portfolio can throw up bigger returns and opportunities than the highest conviction bets.
If you are struggling to find good Stock ideas for investment, you can access latest Stock Reports, Special situations in Premium Memberships HERE
Disclosure: I have personal investment in Acrysil.
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Analyst ownership of the stock: Yes, in Acrysil
Details of Associates: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
Disclaimer: www.katalystwealth.com (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to investors on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision
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This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.
We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.
Disclosure (SEBI RA Regulations)
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – Yes, in Acrysil
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No