Spotting The Right Multibaggers

When it comes to equities or equity investing, almost every other investor is in search of a multibagger. The commonly held belief is that the surest way to create outsized wealth is only by bagging a few multibaggers. 

A multibagger is defined as a stock that gives a return of over 100 per cent or more. Coined by Peter Lynch in his 1988 book, One Up on Wall Street, the origin of this phrase comes from the sport of baseball, where each base is colloquially referred to as a ‘bag’. If a runner in baseball reaches multiple bases, it is considered a successful play. Applying this term to the equity market, a ten-bagger stock is a stock that gives a return of 10 times the original amount invested, and a twenty-bagger would give a return twenty times more than the original investment. 

Now the question is how does one identify and invest in multibaggers? In the world of investing, there are few individuals such as Warren Buffet or Rakesh Jhunjhunwala who are known to have successfully identified multiple multibaggers. We know about them only when they become famous and successful. Furthermore, nobody has been rich by copying their stock portfolio because one does not have the patience to hold for a long term on a borrowed idea. As a result, more often, individual investors have lost more money in direct investing than in finding the next multibagger. 

So, what is the alternative? Before answering that, every investor must answer a question - What kind of a multibagger are you looking for? Whatever the answer, the truth is it can be made into a reality by investing in equity mutual funds. While most of the readers may be doing that, there is a reason why those investments may not have turned into a multibagger and we will get to that towards the end. 

Given is the list of 10 mutual funds which have completed 20 years and have multiplied wealth between 25-74 times, the average being 43 times. In this journey, at times, the NAV of these funds fell by 30 per cent, 40 per cent and even 60 per cent during the bear market but over time, the NAV has only recovered. 

For the sake of assumption, let us consider a fund that you have invested in is generating a return of 12 per cent for the next 5/10/15 years. At this rate, wealth will double every 6 years. In the 26th year of investment, the wealth will be 85 times. In the 32nd year, it will be 165 times. In your earning lifespan of 30-35 years, you can multiply your wealth and secure your future. 

But now comes the most difficult part - the ability to stay the course. The biggest risk to your wealth creation journey is not your willingness or willpower to invest or your desires but the innocuous little roadblocks that pop up from time to time. For example: In your investment journey, you will require funds a few times for which your mutual fund portfolio will be the easiest source of money. At such times, you will not touch other investments like FDs, PF, Insurance Policies, Real Estate & Gold because you believe they are assets which should not be touched. Now to make up for the lost opportunity, you will follow the multibaggers ideas, F&O tips shared on social media and news channels only to lose money. While it is a known fact that everyone cannot be a Warren Buffett or Rakesh Jhunjhunwala, just by staying the course with your equity investments can make your investments into a multibagger. For this, trust your financial adviser, who under all circumstances will help you navigate the ups and downs of the investment journey and help you reach your financial destination in a stress-free manner. 
 

Abhishek Mohta
Founder , Trustedarms Wealth. 


The writer is Founder of Trustedarms Wealth. ■ Email : abhishek@trustedarms.com ■ Website : www.trustedarms.com