Majority of the small cap investors are trying to find next multibagger stock to make huge money and retire at a serene location as depicted in the picture. It makes perfect sense, after all getting 100x returns can do wonders to your personal wealth. But getting multibagger returns are easier said than done. Not only because it’s difficult to find a multibagger stock but also due to other challenges. Many stock advisory services also lack a crucial element in their approach and thus investors never receive multibagger returns even with a paid stock advisory service. At AI, we believe in making investing simpler for investors & this post is dedicated to highlight major challenges which keeps multibagger returns away from many of us. It includes a unique challenge which most stock advisory companies will shy away from telling you.
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.
Information Technology Industry has been around since 1970s when a mini computer was not really mini in size! Fast forward to 2017, a lot has changed and it will keep on changing in future as well. Such is the nature of this industry. Most of the industry leaders are not listed on Indian stock exchanges, rather they are listed on American stock exchanges. As an investor, you might be thinking how to ride such trends & possibly make most of the listed companies in Indian stock exchange? Additionally, there are visa issues & a general downtrend in all IT stocks. Allow us to explain in simpler language as we do at AI. It’s a little longer article, so we are publishing it on weekend. Happy reading!
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?
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.