So, what are Multibaggers?
For the purposes of this website, I am restricting the definition of Multibaggers to any stock that can generate a return of greater than 1,000%, i.e. a ten-fold return over a 5- to 10-years period. After a rigorous analysis of all the Multibaggers that the India stock market has produced since 1990, we have identified common characteristics that stocks which produce these types of out-standing returns possess. Since investors can only take advantage of identifiable opportunities, one of the criteria that we used to narrow down our list was that an alert investor should be able to identify such opportunities. We did not consider companies with limited disclosures that made it impossible to identify them as possible Multibaggers in our study.
It is also important to note that all companies that fit the criteria we have outlined will not become Multibaggers. There are challenges in business execution, management capability, technological factors as well as new products, competition, etc., that will restrict some companies from being able to reach the levels that an investor might dream up for them. One of the key skills is to be able to get out of such situations without getting emotionally attached and stay with only those stocks that go on to become Multibaggers.
And how do we identify them….????
Well, the first, and probably the easiest, step in Multibagger returns is to identify stocks that have the potential to generate extraordinary returns that have the potential to generate extraordinary returns. In order to understand what makes a Multibagger, we researched stocks that appreciated more than 1,000% in the Indian market in rolling 5-year periods from 1990 to 2008. Using this data as a starting point, we distilled out the characteristics that were common to all Multibaggers and trade to identify what made them so. These international Multibaggers give us some clues as to the direction that India could take in the future. But one needs to be cautions and not extrapolate too much since India is charting its own unique course due to its inherent opportunities and constraints.
One key qualitative criterion we used was that at the at time of purchase, the potential for having multibagger returns had to be identifiable. The reason for highlighting the identifiable Multibaggers potential at the time of purchase is that the world of global finance is so dynamic that the unexpected occurs regularly. Almost no one can predict how exactly the world will change. Due to this reason, Multibaggers that are totally unexpected and inexplicable are regular features of great bull markets. Our requirement that potential had to be identifiable weeded out stocks like Jai Corp, Marathon Nextgen Really or BF Utilities which in the 2003-2008 period, generated tremendous returns (59,900%, 5,84,718%, and 37,847%, respectively). While some of these stocks could have been value picks in 2003, it was very difficult for an investor who was not an insider to either get information about these companies or identify them as having any Multibagger potential in 2003 (or in 2008, for that matter!).