Friday, September 30, 2016

What is a Multibagger Stock?

Meaning:

A multibagger  stock is the share that gives returns in multiples of the original investment (multiple bags) or 200% or 300% or more. There is a handful of multibagger stocks out there, which can be easily bought through the online share market. But please pay attention that the multiple bags of returns can only be made through prudent and long-term investments in excellent companies at reasonable valuations (value investing) and not through online trading platforms like the Kotak stock trader or calling the stock broker and placing telephonic bets.


Dangerous Multibaggers:

Generally investors use the word also to imply earning such returns in short to medium term, say within one to three years. They also imply the meaning of return to be entirely from price increase. Chasing such multibagger stocks is not only like chasing mirages but also a dangerous pursuit and not practiced in value investing.

Multibagger Stock - Concept


What then are real and safe multibagger stock?

There are plenty of such stocks around. For example Warren Buffett has specialized in identifying and investing in them, especially during great global crises when their prices are unjustifiably depressed. They yield returns many times the original investment both in the form of dividends and capital appreciation or price increase over a long period of time. Let us see a few examples:
  • Gillette
  • Coca Cola
  • NMDC 
  • SJVN

What is the most important characteristic of a multibegger?
  1. They are a single product businesses
  2. They have an intense focus on and excel in what they do
  3. They do not look for diversification
  4. Their products and services will always have a demand irrespective of technological advances
  5. They have been existing for a very, very long time
  6. They have significant free cash flows even after paying handsome dividends, which is invested in safe short term investments earning large amounts of non-operating income

Examples of Multibaggers

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Conclusion

Multibagger  stocks give returns in multiples of the original investment (multiple bags). Multibagger  stocks can be bought through the online share market, but please note that high returns can only be made through prudent and long-term investments and not through online trading platforms like the Kotak stock trader or calling the stock broker and placing telephonic bets.

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