Multi-bagger is a term you will seldom find in a book, but floating around in the stock market. This hot stock is the one that can be able to manifold in stock price over the years. With 100% return, it termed as two-bagger, a 200% increase is three-bagger and so on.
Multi-bagger Stock is usually a hype that is created for buying interest among especially novice investor by many fake experts, analysts or gurus. No one knows whether it is a trick of big operators for finding an exit route to offload their bulk shares. Chances are high that you may be trapped into them.
Frankly speaking recently I also have been trapped into one of an Indian hot stock as I was unable to trigger a sale order in time. Being a penny stock, I was unable to pull sufficient data out of a reliable source to do my fundamental analysis. Initially I found everything was o.k.-both fundamentally as well technically. What happened to next was a different story.
Anyway, usually you will find stock market experts from business channel recommend you to buy such multi-bagger hot stock. As usual this recommended stock shows a sudden spurt in the price movement and even becomes a circuit breaker. [Circuit breaker is a large price suing in either direction where trading is temporarily halted by the exchange].
This price up-suing may continue in a few days going forward and then you may see a continue downfall in its price during market correction. This trick is often employs by manipulators. So you need to be bewared of this fact before investing your hard-earned money.
Now, what the Multi-bagger Stock actually is?
In common terms, it’s a hot stock that can multiply your investment double or many fold in the shortest period of times. This can be 100%, 200% or more returns and may take three months to even two years time frame to push it up to be a multi-bagger.
One of the biggest flaws you will find in them is that there is no standard time frame that can deliver multiple returns. Warren Buffett’s Berkshire Hathaway is a great example that had multiplied 167 times in value over the past 30 years that you may say it 167-baggers. Likewise stock Wal-Mart is a 10-bagger over the past 20 years.
Is Multi-bagger Stock really a trap?
This may a trap by market manipulators by creating hype around them to offload their stake in an artistic fashion. This may not always be true. Some are really deliver this type whopping return. Only you need to dig out these gems in time before they surge in price movement. Many a times, potentially the best penny stocks are the multi-bagger counters. What you need to do is to analyze them by applying financial ratios that I have specified in my last post. There are certain things that you need to keep in your mind while screening them.
When to enter into them?
One of the crucial aspects that many of the analysts or experts seldom tell you is when to enter into and exit from a stock with marginal profits. Likewise to reap your gain manifold, you will need to identify your multi-bagger stock at the beginning of a bull cycle.
The biggest problem with the retail investors is that they often enter into a hot stock when party is over and big players start dumping them. These stronger players intentionally push the market up in order to execute their pump and dump policy. There is no use of buying that stock when it’s run up is already over and all of its steam is cooled off. Identifying a multi-bagger stock in advance and entering in it at a right time are very critical for your success; else it becomes a bull trap.
Is it Real or Marketing Hype?
The biggest hurdle the novice investors have often to face is shielding them from the so-called gurus or experts. They pretend to be the experts who know everything about stock market operations. They use high sounding sales-pitching style and prefix words like multi-bagger stock for dumping their basket of stocks.
May be many of them are working on behalf of the big operators for personal gain. I often use to read articles about some of the stock market wizards and millionaires who buy into multi-bagger stocks in bulk quantities. And when I open the chart of those stocks, it really shocked me as those stocks are truly skyrocketed multiple times and reached their all-time pick.
And who knows whether they start exiting from them at these levels or not if their holding stocks reversing their growth. Oftentimes novice investors make some silly mistake in analyzing them fundamentally and get into the trap.
These genius wizards seldom reveal about the potential multi-bagger stocks at the start of their journey. And if you somehow tipped to enter into, you are at the every risk of being dumped. Believe me, very few have the potential to give you returns that are not very profitable compared to risk-reward ratio.
Is it an Exit Route for Big Players?
Months back, I’ve bought a financial stock of an Indian company. I have listened to a stock market wizard, did some research and found everything o.k. This stock immediately generated a 30% gain, even though I did not sell out as I was hoping for a multi-bagger return. To my surprise the stock did get rid of myriad 50% of its value when the market had undergone a sizable correction. The prime reason might be a squeeze of revenue in the last quarter.
Many a times, the fake experts/gurus deceitfully create craze among investors by making hype around the targeted multi-bagger stock. Nobody knows what is cooking up around the stock. This may be a trick of big operators for searching for an exit route to offload their bulk shares. There is every chance that you might be trapped into them.
But when you look at the stock charts of that hot stock, you can easily find out the sharp price spikes. Perhaps you will not be able to detect this type of bulk deal because of restrictions from exchange side. Whether it is a genuine buying interest shown by the investors or market manipulators are offloading their stake is a million dollar question.
How Can You Identify Multi-baggers?
How can you identify a multi-bagger is a million dollar question. If you are able to shortlist 10-12 stocks with the help of a good stock screener, 2-3 can give you multi-bagger returns. Penny stocks that you screened could be your potential multi-baggers. So, do your analysis and research and find out your potential ones. Chances are high that you can come out with 2-3 jackpot stocks that can make you rich.
Identifying multi-baggers at their very early stages is the critical for success in your entire journey. You can stay invested in some of them that are producing attractive returns. Make sure you scrutinize their quarterly results and price chart on regular basis. Read news about any positive development around these stocks from reliable sources such as Routers, Bloomberg. If anything bad news comes out, offload some; otherwise keep a close vigil.
Always Be a Good Reader:
Readers are leaders. If you read a trusted business newspaper or reliable online business articles or newsletters on a daily basis on stock market news, you can be able to gather sound working knowledge about your chosen sectors/stocks. Believe me without going through what is happening around the world, you cannot take the right informed decision.
One fine example could be the impact of Brexit on IT sector or the impact of crude oil prices on many upstream and downstream companies. If you’re a good reader, you can advantageously identify a multi-bagger hot stock and can also decide when to exit from or enter into the stock.
Screening for Promising Sectors:
Reading is no doubt a good habit that can help you take informed decision. But too much information is sometimes overwhelming and end up with a lot of confusion in you. In other words, too much analysis leads to a sort of paralysis where you afraid to take right decision. So, it is perhaps not advisable to go through every bit of news information on daily basis.
If you feel like to have been overwhelmed, use your good judgment on sectors that are likely to do well in future. What you need is to be consistent with a vision of long term view to avoid any confusion going forward. Stock market is all about making money by taking risk. You’ve to take this as your business venture where you can lose or gain.Without risking your money, how can you generate profit?
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