Friday, September 30, 2016

What is the Better Investment Instrument Between Stock and Bond?

There is not a shred of doubt that only shares can give excellent results and create real wealth over a long period of time.
Bonds and Debentures just fixed income securities that offer no scope of capital appreciation, at least in India as of now. In advanced financial markets bond markets are highly mature allowing scope for a bit of capital appreciation and enhancing interest yield. Therefore they are merely like fixed deposits in banks with higher risks.
Investing in stocks directly however requires investing knowledge and there are two options before the investor:
Option 1: Making Investments Directly in Shares
Devote a couple of hours every day and learn and practice value investing. The best and only book I will recommend is “The Intelligent Investor” by Benjamin Graham.

You may also visit this blog “Wealth Vidya” and a few other value investing sites.


Please beware of a number of books and websites that encourage people to engage in day-tradingmargin-trading and trading in futures and options, commodities and currencies. All these are not investing activities but purely speculative acts that have the potential to destroy the capital and even lives of people.

Option 2: Investments in Index Mutual Funds:
Those who cannot afford to learn investing have this easy and wonderful option of investing in Index Funds and Exchange Traded Funds (ETFs).

Long term Investing:
Whether you choose option one or two, please always remember that the secret behind investment success is the law of “Miracle of Compounding”, which requires you to keep investing and be invested for 20 to 50 years.

There is not an iota of doubt that only shares or stocks are the investment vehicles that can yield investment success and real wealth creation.

What is a Multibagger Stock?


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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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.