The Multibagger Fascination

Last week I was at dinner with a couple of long term investors. The discussion veered to where to invest and out popped the eventual question that I come across so often” What are the next multibaggers?” Damned if I know! I am as clueless as the next guy about which stock can become a multibagger.  I find this disease quite prevalent across the market. In fact there is one of my friends who is always, all the time, looking for stocks that will give him multiple times his investment. If you talk to him about a stock that will double in a year, he will summarily reject! What is the Multibagger Fascination?

People speak loosely about some stock going up multi fold in a matter of X years (and the X is never too long, mind). When the X factor is long, the usual phrase used is “bhav kuch bhi ho jayega”! I think this emerges from the fascination of people to get the most for nothing. They reckon that if they have to invest the money, then it might as well get multiple returns. Why bother about some piddley 10-20%- that’s for the losers, man! Have you noticed that almost no one speaks about the risks involved in these stocks thru the time they are to be held? Again, the unstated logic is that, if they are multi baggers, hell, where is the question of risk? These are Winners, buddy, not some two bit trading call that you get all the time! So goes the thinking.

Unfortunately too many people get suckered into this. Take an example of Force Motors. Now, everyone knows that the stock is a multi bagger. But do you recall any forecast for the stock into current levels anytime during the last five years? I haven’t. And I am around the markets all the time. So I thought I will do some work to see if it is just me who is not able to spot a multi bagger when I see one. I reckoned that one should be able to find a good multi bagger when the market is at the bottom, right? Hence 2013 is where I went in my search. I find a research report by a leading broking house in 2013 at the then price of 445 with a price target of 550. Excuse me? Multi bagger stock with 25% gain?

Not quite. When I searched some more, I found that this target of 550 was actually a downward revision of their target of 2012- which was 675!! What gives, I thought? I decided that maybe this broking house doesn’t carry the punch to get right and went to another one, supposedly an expert at this sort of thing and fast forwarded a year. By then, I read, there had been “a remarkable turnaround” in the company’s performance in the previous two quarters. It was looking juicy from all angles, according to the new report I read in Aug 2014. Apparently, by then Force Motors had become cash rich, debt free, promoters had hiked their stake, margins had shot up (35% yoy, no less!).

If I were in Aug 2014, I would have been almost salivating at the mouth by now! The report went on to say that growth ahead would be excellent and the stock would report an EPS of 70. What was the rating of that report? Target price 707! Huh?? The then price was 565. Hello??  Where is the multi bagger story here?

But the stock takes off! Spurts to 1400 levels within a couple of months! Something that it did not do for many, many years. So, it was not as though someone could have said, I told you so! No one did. Because we all can see only what we have seen so far and confine our vision of the future within that limited perspective created from the past. Why did that broking house give a target of 700 only? Inspite of quoting a whole host of factors that was positive?

You are a product of the past and your creation of the future is but a representation of how you see the past and the present. Never seeing Force Motors move higher than 400-500 levels, the analyst, stretched his imagination, applied a 10x multiple to the expected eps of 70, said a small prayer and issued the report. It came thru big time but should he take the credit? Obviously not. For, according to the report the potential was till 700 only!

The stock rolled on and it was only not until about year later that the same brokerage seems to have come out with another forecast on Force. Writing in Oct 15, by when prices had moved 2475 (by now you have already missed the multibagger effect, haven’t you?), they lay out various reasons, all of which were well founded and well-meant I am sure, but the target was only 3150. Whoops. A small move of 50% from the then level? Definitely not a multibagger, right? Still pulling punches? Not quite.

This time around, they decided to go for the jugular! But couched their multibagger target of 10,000 with a caveat of it being target 2 and achievable by 2020. No matter. At least, they called it! And I respect them for it. I searched the net for other such bold calls of significantly higher targets, caveated or not, based on current findings of variables. Alas, found none. So these guys get the crown, I guess!

Now, the problems. Most of us cannot think or envision 2020. We don’t even know whether we are going to be around till then in the markets and how we would fare until then. Besides, what about the fact that I was to buy (or maybe did) this stock at 565 and sold it off at 700, feeling good! But that feeling turned into absolute mortification as the stock doubled to 1400 and wouldn’t come down to allow me to re-enter. And then the same guys have the temerity to ask me to buy at 2475! What a load of crap, I think. How can this be justified, I argue?. You cannot make me sell at 700 and ask me to buy at 2500.

Not done, brother. It is your duty to tell me at 700 that it would go to 10000 (never mind the fact that you owe me absolutely nothing and you don’t even know me!). What’s the big deal in saying that it will go up 4x when it is already 4x from where I sold? Ha, anybody can do that! Aside from me of course! But that I don’t say, in my rightful indignation at being cheated out of what I now feel was my rightful gain- the move from 565 all the way 10K. All spoilt by that idiot who got me out of 700. Had it not been for him, I might still be holding this stock! Isn’t this a fair thing to call this a multibagger fascination?

And so we go on, in our minds. Creating silly scenarios, arguments, justifications, rationalisations etc. for why we don’t own Force Motors. Is anyone thinking, like, Hey, this has a target of 10K and it is still much lower and maybe I should buy it here? Then the immediate thought is, Oh no, it is too late. I should have done it at 2475. That price was actually OK (it seems now!) but how can we buy here, at 4200? The chance is gone. And it is all that analysts fault. Silly bugger, putting a target at 3100. Doesn’t he believe in his own work or what?

Moral of this long story is, when a stock starts off becoming a multi bagger, no one can quite see it. It moves in steps, gradually, and as fundamentals kick in, the technicals take over and push it higher. Then a revision occurs in view because now one is able to see more. And so it goes, stage by stage by stage. At this stage (cmp 4200), to many, 10000 still doesn’t look possible. They won’t buy. But if the prices do got to 10K, they will continue to moan- exactly the same way they did when the price was 565 and they did not buy, because they thought the 700 target was “too less”!

Story of our lives, I would think. So stop this search for the multibagger. No one really knows. Just buy a good stock when you see or hear of one. Track it fundamentally and technically and be in it so long as it keeps doing what it is supposed to be doing. It will become a multibagger by itself!