Value Investing And Discovering a Multi-bagger

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Value Investing And Discovering a Multi-bagger

Just the other day, one of the market ‘experts’ on a business news channel while recommending a stock, said that it had the potential to be a multi-bagger. Overall market sentiment has been subdued over the last five years and we were hearing the word multi-bagger after quite some time. Our mind raced back to the analyst meet of a technology sector company during the rah-rah days of the late 1990s.

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Hosted in the banquet hall of a five star hotel, the setting resembled a rock show replete with hi-tech stereos blasting heavy metal music. The investors at the event were vying with each other to advocate stocks in their personal portfolios that had been multi-baggers in a matter of just a couple of years. After all, Infosys, the poster boy of the late 1990s, was up 75 times over three years from 1996 to 1999. Moreover, during the same period, 25 stocks in the technology sector were up at least 10 times.

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Multi-bagger is one of those words, used colloquially, ever so often among the investment community, but does not seem to find a place in the dictionary. Wikipedia has a reference to the word ‘ten-bagger’ on a page devoted to legendary investor Peter Lynch. Apparently, it was Peter Lynch, who first coined the term ten-bagger in a financial context. This refers to an investment that is now worth ten times its original purchase price and comes from baseball where ‘bags’ or ‘bases’ that a runner reaches are the measure of the success of a play.

To many an investor, the holy grail of investing is to seek out a multi-bagger. After all, why take the trouble of painstakingly building a diversified portfolio, churning it periodically and, if lucky, just about marginally beating the markets, when one can find that multi-bagger stock and handsomely beat the returns not just of the stock market but across all asset classes on the planet. Hence, the multi-million dollar question is, how does one discover a potential multi-bagger. In fact, this is where the folly lies.

PDF Link Connecting the dots-Nov 13

H/T CapitalIdeasOnline

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