Is it possible to create an investment which pays me for lifelong & beyond? This is a question every investor must have asked himself at some point in time. What if you are told that it is very much possible. There is solid mathematical certainty behind it. Last 30 years of market statistics are also supporting us. You can create such investment & enjoy lifelong earnings. The best part, you can even pass this to future generations as your legacy.
Next question will be why it is not known till date? Well, everyone who has a basic understanding of equities, knows but not realizes because of certain predispositions of financial industry. I highly encourage you to read this article entirely. This can be one of the life changing articles, you will ever come across on Internet.
With increasing retail participation in Indian equity market, there is a strong inflow into small cap universe. Such is the impact that small caps have beaten large & mid caps, second year in a row. Most people have jumped in this narrow space to search for next multibagger stock. While it is difficult to spot a multibagger from pure data analysis, it can be little easier if you are actively taking a note of economic trends around you. At AI, we are sharing our view & personal experience on this.
We have heard of averaging down a stock in case it’s price falls significantly below the initial buying price but do you average up your stock? If not, AI strongly recommends you to do it for your top bets.
Averaging up a stock is buying more shares in case stock price moves significantly above initial buying price.
As human beings, we are driven by emotions and tend to bother too much about stocks that are in loss as compared to the once which are in profit. It’s a very normal behavior for all of us but do we know exactly when to average down or average up? Mostly, its driven by our feeling of the day & amount of money in hand rather than based on solid logic. In this article, we will try to understand the benefits of averaging up which is specially important for long term small cap investors.
It’s been a year since pharma sector has been testing investor’s patience. Nifty Pharma index is down with -9.87% since last 1 year. Return remains dismal even if we extend our horizon to 2 years. This fall has been more severe in case of individual stocks.
As an angry investor, you must be searching for the person who told you that pharma never goes down since people will keep popping medicines. But stocks continue to go down, lets dig out why?
2017, has been a good year for Indian stock market so far and sensex has already crossed mount 30k. It has been the same story for most emerging markets across the world. We saw good gains in rural, real estate & FMGC sectors while automobiles, pharma & IT remained sluggish.
The big question in everyone’s mind is how far this rally is going to continue & what sectors to invest now.
This is an economic story of a middle class person in India (perhaps across the world). He (no offence ladies) earns day & night, gets food, pays bills and save a little in the bank. He continues this for many many years after all he has been told by parents to work hard & live an honest life. But after many years, he realizes that after so much efforts, he is just able to meet ends and a little bit of savings here and there. He is never sure if he is financially independent or not. But wait, what went wrong here? I did what everyone else is doing and as hard as it gets.
Well, the answer lies in our “not so perfect” education system. We are taught Moral Science, History, Chemistry & what not (trigonometry yikes!!). Alas, no one teaches us the concept of Money, how it gets created or recycled but every time ends up in the hands of rich people (Confession: I have read Rich Dad Poor Dad). Money Management is a mandatory skill for everyone but for some strange reasons, only Commerce students get it. Coming back to this article, how to get ahead of this rat-race & create a little bit for ourselves is essential.
It can take a whole day to explain but then picture says thousand words, I don’t have any animation today but have a table which represents events during an imaginary football match between You and Rest of Economy. Wear your specs, over to the table.
Recently, DSPBR Micro Cap fund restricted fresh purchase or SIP. It created a lot of inconvenience to people who were planning to start new SIP or a lumpsum investment. It was followed by Mirae Asset Emerging fund also to restrict fresh purchase. We believe more small cap funds can join them in restricting fresh fund inflows. The reason fund managers are giving is that they can not find stocks to park fresh inflows.
But why is that so? Let’s try to understand.
Lets say DSP BR Micro cap has 5,800 cr as on today. If average small cap stock has a market capital of 500 cr. In that case, if fund has to deploy even 1% of their cash into a stock, they will end up buying 58 cr worth of stocks and result in owning more than 10% of that company. Also it is not practical to buy 10% shares in less liquid stocks simply because there are not enough shares on the exchange.
Another logic given by investor is that they can invest in more stocks and own lesser percentage in those stocks? This is also not possible since if they start doing it, they will end up buying all kinds of stocks which they do not want to do. Also managing so many stocks is an added burden on fund performance.
This is the same reason why Warren Buffet says he finds Indian markets less liquid to park his money. Since his slice of investment converted into indian rupees is till too much for even large caps indian stocks.
So what do small cap investors do now?
This is a key question in every small cap investor’s mind. How to identify a multibagger early & hold on for outsized returns? It’s easier said than done!
But AI believes, it can be done if we learn how to evaluate a small cap stock with a robust & ever-evolving process. The key characteristics to look out in a small cap stock is quite different from large caps. We, at AI, have an applied process in place to identify next multibaggers. With it, we are sure that we are gonna hit bull’s eye more than often.
Below are key pillars of our process while searching for a multibagger. Of course, you can outsource this to us by subscribing to our service (click here) but we also encourage our readers to slowly ingrain the concepts of small cap investing. It will be very good on a long run & you will know what you are heading towards.