How to find multibagger ideas in Stock Market?

The recent downfall in the stock market has created opportunity for the investors to start looking into Equity. Often people come up with the question on how to find the multibagger stock which would create wealth for them?

Today I’ll provide tips and tricks of finding hidden gems from the stock market.

Business you understand:

Ask yourself one question, if you would have got enough money, time, and skills to start on the business which business you would have picked to become next Narayan Murthy?

Identify all such businesses which you understands, which you would like to do or would have done, if given a chance. This is really important, because it’s about achieving your dreams.

Companies in your business:

Once you identify these businesses that you want to start with, identify companies having presence in the same sector/business. Make a list of such companies based on their size. i.e. largecaps, midcaps, smallcaps. Now start comparing these companies based on different parameters like,

- Management:

o       Check management skills by reviewing their interviews, their confidence in the company, how they started the company?, Ownership in the company. Do they love their business?

-    Last 3-5 years results :

o       Check past performance of all these companies. (EBITA , Profit)

-   Corporate Governance:

o       Try to figure out the strength of the company by checking obligations made against it. It at all that is true then how they are dealing with it?

-    Future growth, Scalability :

o       Make sure that the management is right on track with expansions and they have vision to take the company to the next level.

You can add your own parameters as well, which you would try to meet for your own business. Once you find answer for all these parameter you’ll get true hidden gems for your self.

Own a stock or business:

I know it’s not possible for everyone to start business not that they don’t have skills but there are constraints like, personal commitment, finance, family, good job, risk and many other things. But, Is it stopping you from executing your idea? I don’t think so. Now with this exercise you’ve ignited the energy to live your dream. Now you’ve found the same company/business which you would have established, if given the opportunity. More over, these companies have decent experience, growth prospects and management who are equally passionate about the business as you are. In other word, it’s basically you own part of the company, doing the same business and still not sacrificing on your current commitments.

Sounds like excellent deal? Yes it is.

It makes sense to mention here, “Warren Buffet owns stake in many companies/business. He is having CEO and MD of different company reporting to him. But guess what, He is still able to sleep in the afternoon? “Yes that’s correct.

Hope this would help all the readers in finding their own hidden gems !!

Please click here to become expert in riding investor behavior in stock market.

Happy Investing !!

Learn investor behavior - How to ride stock market sentiment?

As there's lot of pessimism prevailing in the stock market, I’m forced to right this article which will guide and help retail investors in selecting best investment course for themselves.

No matter how expert are you? But you tend to take emotional decisions to pick right investment for your self and today’s article would help in understanding investor behaviour in stock market.

Investor Behavior

As depicted in the above fig. , it’s the “Optimism” which drives every investment that you do. Be it stock market, reality, fixed deposit, ULIP, it’s your optimism which leads you to invest in any of the financial instruments.

Once your decision pays off and becomes reality then excitement, thrill and euphoria takes over and drives the investor sentiment. At that point of time investor shows overconfidence due to the success he has made using his investment decision, stock market is at it’s pick and making quick money for the investors. He starts believing every research report, news that he understand and starts taking larger investment exposure. This situation is largely driven by the Euphoria in the market and it’s the “Point of Maximum Financial Risk” for the individual.

Once the rally is over, soaring market calms down and tries to level off that is to balance out the premium at which market was trading due to euphoria VS actual valuation based on earnings. This leads to Anxiety, Denial and Fear in the Investors which was totally bullish and riding through market sentiments. At that point of time investor feels that “I’m a long tem Investor”.

As the market continues to fall, the same investor starts feeling desperation, panic, capitulation, despondency. This is time when investor feels that, “This is not for me.” He tries to sell his holding in the stock market even at enormous loss as he has suffered huge erosion of the wealth. Investors become depressed about the stock market and there’s lot of negative news floating around which keeps them away from the stock market. But dear investor, this is the “Point of Maximum Financial Opportunity.”

When I look at the current situation, there’ fear prevailing in the stock market due to U.S. downgrade, U.K. nations hanging bankruptcy issue, U.S. double dip recession worries, inflation in emerging markets and local political issues in India. It has turned into panic selling globally but despondency and depression is yet to come. Does this mean it’s not the right time to buy? Well, no one can time the market, as we’re in bottom cycle of the stock market, I would advice to start accumulating stocks/businesses in your portfolio from the longer term point of view with the knowledge that it could go down more.

Hope this article would help lot of investor and guide through this turbulent time. You can also check my article on "Risk VS Stock Market" to understand are we at risk by not investing in the stock market?

Happy Investing!!

Risk VS Stock Market

People use to come and ask me "Is it safe to invest in Stock Market??". They don't want to take risk for the money which they earned by truly working hard for it.

This article is dedicated to all such investor who could earn more by parking their money in right investment instruments.

Please take a look at the below year on year comparison for the Sensex only. You'll see average return of 22 %. Even if you don't know anything about stock market this is just simple calculation and you would have earned lot of money by investing in Equity and Equity related instruments over the period.

Sensex Valuation
Year	First Trading Day of Jan	Last Trading Day of Dec	% Change
1991	999.26	1908.85	91.03
1992	1957.33	2615.37	33.62
1993	2539.62	346.06	1.75
1994	3465.86	3926.90	13.30
1995	3932.09	3110.49	-20.89
1996	3127.94	3080.20	-1.37
1997	3260.56	3658.98	12.22
1998	3694.62	3055.41	-17.30
1999	3060.34	5005.82	63.57
2000	5375.11	3972.12	-26.10
2001	3955.08	3262.33	-17.52
2002	3246.15	3377.28	4.04
2003	3390.12	5838.36	72.23
2004	5915.47	6602.69	11.62
2005	6679.2	9397.93	40.70
2006	9390.14	13708.34	45.99
2007	13942.24	20286.99	45.51
2008	20300.71	9647.31	-52.48
2009	9958.22	17464.81	75.38

Above comparison shows that investing in the stock market for longer period always rewards you with handsome return. Make investment as your habit and do it for long term.

For new investor or people who don't have time to check market pulse daily, I would recommend to investment in Mutual Funds. You'll be amazed by some of the Mutual Fund Performance.

Below table gives you idea about the enormous wealth a MF could create for you over the period of time.

Value of Rs 1 Lac - Invested in NFO
Company Name	Launch Year	Initial NAV	Present NAV	Today's Valuation
Birla Sun Life Mid Cap Fund	Oct'02	10	104.84	10,48,400
Sundaram BNP Paribas Select Midcap Fund	July'02	10	134.99	13,49,900
Reliance Growth Fund	Oct' 95	10	427.35	42,73,500

I would advice all the small investor to start SIP - Systematic Investment Plan to invest into MF schemes. This is the best method to start investing in Equity. This is same thing like recurring deposit you are aware of. Only difference is the return you get here. In recurring deposit you'll hardly get return of 6 % which has no comparison with MF returns where you'll get much more return for your valuable money. I'll come up with new article about MF schemes which has great track record for creating wealth for investors.

In country like India we have higher inflation. Most important if you'll check Food Inflation which is necessary for common man it's around 18 %. Do you think parking your money into Bank FD's would help you to sustain in the environment?

I won't answer this question. Take your own call and now rethink if investing in stock market or equity related investment instruments is risky or You are at much higher long term risk by not to investing in the stock market.

I'll come up with some more articles which will really change the way you think investing in the stock market.

Happy Investing !!