If you are a new investor, we recommend you go through this table below. This will help you understand the Multibagger Creation Journey.
|Here you Identified a Multibagger based on Past Performance & Growth aspects.
For example, The capitalization is 300 Crore & PE is just 5.
Imagine you Invested 1 Lakh Rupees on it.
|0% on 1 Lakh|
|After Year 1||The company performed well as expected and displayed 20% EPS Growth.
Now PE is 4.
But all EPS growth will not be reflected in Price, especially in the beginning years. Hence you will get +/- 20% returns.
|After Year 2||Now the company performed well again with another 20% EPS Growth.
This time the price will have to start reflecting as more & more analysts, people, funds will be looking into the stock.
Let us say the price gained 50%.
The PE is 5 again.
|+ 20% | 1.5 Lakh|
|After Year 3||Your company is performing well with another 20% EPS growth.
This time the market visibility is high & hence the price jumped another 100%
Now the PE is around 8 with Capitalization 600 Crore.
|+ 100% | 3 Lakh|
|After Year 5||Now you are on Year 5. The compounded EPS growth of 20% lead to 100% EPS growth in 5 years.
Since the Capitalization is above 1000 Crore, Mutual Funds will start Investing. Big Money & Increased Visibility leading to Higher PE.
Now the PE is 20 with Capitalization 1200 Crore.
|+100% | 5 Lakh
5X Gain in 5 Years
Now onward 20% EPS growth leads to 30% price growth.
Also, you will earn 100% return on original capital. i.e 1 Lakh gain every year.
|After Year 10||Now the company is growing again at 20% CAGR.
Now the PE is 30.
|+500% | 30 Lakh
At this point you will start getting Dividend Yield 1% as 30 Thousand rs. per year.
30X Gain in 10 Years
|After Year 20||If you are lucky to have a Superbagger with 20% CAGR. Eg: Infosys, Wipro, Page Industries etc.
Now the PE is 40 and you have a 100X returns on original capital.
All these are possible as, Infosys gave 300X returns in 20 years!
|+3000% | 10 Crores
Now the Dividend Yield will be 1 Lakh rs. per month equal to your Original Capital investment.
100X Gain in 5 Years
Cash Flow Generation!
This is how Stock Market creates wealth & cash flow. It takes really long time for the compounding to work. No shortcuts!
So here are the problems of amateur investors:
- They add more stocks than above learning & tracking capacity
- They exit stocks every other year breaking the power of compounding positioning
SO I recommend each & every investor to understand this process & continue holding stocks long term discarding noises, as long as their fundamentals & growth factors are intact. Be like Pro!