Meaning:
A
multibagger stock is one that gives returns in multiples of the original investment (multiple bags) or more than 100%.
Dangerous Multibaggers:
Generally investors use the word also to imply earning such returns in short to medium term, say within one to three years. They also imply the meaning of
return to be entirely from price increase. Chasing such multibagger stocks is not only like chasing
mirages but also a dangerous pursuit and not practiced in value investing.
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| Multibagger Stock - Concept |
What then are real and safe multibagger stock?
There are plenty of such stocks around. For example Warren Buffett has specialized in identifying and investing in them, especially during great global crises when their prices are unjustifiably depressed. They yield returns many times the original investment both in the form of
dividends and
capital appreciation or price increase over a long period of time. Let us see a few examples:
- Gillette
- Coca Cola
- NMDC
- SJVN
What is the most important characteristic of a multibegger?
- They are a single product businesses
- They have an intense focus on and excel in what they do
- They do not look for diversification
- Their products and services will always have a demand irrespective of technological advances
- They have been existing for a very, very long time
- They have significant free cash flows even after paying handsome dividends, which is invested in safe short term investments earning large amounts of non-operating income
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