Analyzing multibagger returns of Avanti Feeds: It’s more complicated than what meets the eyes

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Everyone invest in small cap stocks for getting multibagger returns. Interestingly, many stocks achieve great returns in due course of time but alas we sell them too early. We can have the best of research process backing us but at the end, it all boils down to how much actual profit we are making. The question remains unknown to most investors as in how much time shall one wait before booking complete profit. In this article, we will try to analyse a recent multibagger stock’s journey ‘Avanti Feeds’ and understand why it is tough to achieve multibagger returns & how to overcome them.

Avanti Feeds stock price graph for last 10 years

Avanti 10 Yr

Avanti Feeds is the latest multibagger stock of year 2017. A strong business model of sea food processing & exports, coupled with superior margins. But was it an easy journey to hang on to this stock & create 380 times return (38000%) in 10 years? Let’s analyse return patterns for this stock over past 10 years:

  • 2007-2011 (4 Yrs): Stock kept oscillating between ₹5 to ₹7 for 4 years!!
  • Aug 2011- Nov 2011 (4 Months): Stock jumped 150% from under ₹10 to ₹25
  • Nov 2011- May 2013 (1.5 Yrs): Stock kept oscillating between ₹25 to ₹30, occasionally going down to ₹20.
  • May 2013- Sep 2014 (1.3 Yrs): Stock jumped 10 times (1000%) from ₹25-30 to ₹300
  • Sep 2014- Jun 2015 (9 months): Stock went no where and kept hanging around ₹300
  • Jun 2015- Sep 2015 (3 Months): Stock doubled from ₹300 to ₹630
  • Sep 2015- Dec 2016 (1.3 Yrs): Stock went no where, went down to ₹300 and then kept oscillating between ₹500-600
  • Jan 2017 – till date (8 Months): Jumped another 2.8 times (280%) from ₹500 to ₹1900

Following are key observations from this analysis:

  1. Burst Period follows roughly 75:25 ratio: The total period of burst for this stock has been roughly 2.4 Yrs out of 10 Years that is only 24% of the time.
  2. Mentally tough for investor to stay put: Imagine what was going through the minds of investors when it did not perform for 4 years at a stretch. How many stock advisors or investors will hold a stock which does not perform for such a long time? Then again what were investors thinking when it jumped 10 times in 15 months? Time to book profit since it must fall down now? Well, in both cases it might have been a wrong decision in retrospection.
  3. Graph will not show you the actual journey: The nature of most graphs are such that they hide actual journey because most graphs are plotted on a linear scale, so while stock jumped 10 times from 2013 to 2014, it is shown as only a tiny jump up in graph compared to the big jump seen in 2017. The reason is because while it jumped 10 times the numeric difference was only ₹270 (₹30 to ₹300). While in 2017, it was ₹1400 (₹500 to ₹1900). So what you see as bigger jump is not really the biggest jump in stock history in terms of percentage. Graphs can be deceptive too!!

We did similar analysis for other multibagger stocks like Cera Sanitaryware, Mayur Uniquoters etc. Similar patterns of spurt & wait were observed in their multibagger journey as well.

What shall be the best approach?

  1. Never Sell just because a stock jumped 100%: This is most common mistake that we can avoid, why to sell a stock with 1x or 2x profit if stock growth story remains intact. Are we saying this is end of stock’s potential & it is never going to move ahead? Has business stopped production and going to wind up operations? Are we going to deploy these profits in a better opportunity at a better level? If answer is no, then stay invested.
  2. Always do goal based investment: Goal based investment will help you to isolate your selling decisions from market noise. So irrespective of stock is up or down, you are better to sell that stock once you arrive at your predefined goal. After all, you need to enjoy these profits while you are young.
  3. Have Patience during the journey: This is the biggest hurdle of all to have patience while we are checking stock prices daily. Looking at daily charts will only create unnecessary panic in your mind. Better to review stocks once in six months or a year.
  4. Take external help as well: This is where stock advisory service providers like us come into the picture. Taking external advise helps in isolating your emotions out of investment. Choose carefully who can serve your best interest. It is specially important if you are searching multibagger returns since most service providers will be happy to book 100% profit & move on.

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