Definition of 'Tenbagger'

Definition of 'Tenbagger'

A stock whose value increases 10 times its purchase price. This expression was coined by Peter Lynch, one of the greatest investors of all time, in his book "One Up On Wall Street" (1989).

Investopedia explains 'Tenbagger'

These types of returns are considered once-in-a-lifetime investments. Some of the most famous examples of tenbaggers include now blue-chip stocks like Wal-Mart, Hewlett-Packard and General Electric. Many investors are constantly in search of the elusive tenbagger, but there isn't an exact science to discover tenbagger stocks. Generally, these explosive companies are smaller companies (market cap under $1 billion) with large potential markets. Over time, these companies grow into their potential markets, providing patient investors with handsome returns.

Read more: http://www.investopedia.com/terms/t/tenbagger.asp#ixzz29TLSeRzN



Where did the term "tenbagger" originate?

On February 15, 1989, Peter Lynch's investing book, "One Up On Wall Street", made its debut. At the core of the book was a call to arms for individual investors. Lynch believed that individual investors could outperform highly educated Wall Street stock pickers by keeping their eyes open during their daily life and learning basic research skills. Lynch pointed out that, as consumers, workers, mothers and fathers, individual investors are much closer to the market than the people in Wall Street's ivory towers. When new products are introduced or new businesses opened up, consumers get first-hand information that Wall Street firms wait months for analysts to come up with.

Lynch explained that once a stock becomes noticeable enough to make the institutional approved list, most of the gains have already happened. He coined the term tenbagger to describe a stock that returns ten times the money that you put into it and gave numerous examples of ten, twenty, and even fortybaggers that individual investors could've spotted before Wall Street jumped in. These include everything from Dunkin' Donuts, Wal-Mart, The Limited and Stop & Shop. Lynch showed that Wall Street funds came in late on the majority of multi-baggers, seeing only a small percentage of the overall gains.

Boiled down to two precepts, "One Up On Wall Street" tells investors to invest where they have an edge in knowledge and keep up with the "story" of their stocks. Lynch didn't want investors to blindly buy companies that they encountered in their daily lives, but he suggested that those companies were the best place to start looking for great stocks rather than searching in an industry that they knew nothing about. He also emphasized the need to create a storyline for a company and keep up with any changes in that story so that investors can eliminate the market noise before deciding to buy or sell. The mixture of real world examples and practical advice made Lynch's book a classic and it continues to be a source of inspiration and instruction for individual investors today.

For more, read Pick Stocks Like Peter Lynch.

This question was answered by Andrew Beattie.

Read more: http://www.investopedia.com/ask/answers/09/tenbagger-peter-lynch.asp#ixzz29TOJzaAi

How to Find 10-Baggers

By Jeremy Bowman
September 14, 2012

In 2006, I took a small amount of money from my bank account and bought some shares of Chipotle Mexican Grill (NYSE: CMG  ) .

I wish I would have pawned all my worldly possessions along with those of my friends and family. The stock gained nearly 10 times its original value in just six years, climbing from about $45 to a peak of $440, before stumbling after its recent earnings report.

When I bought Chipotle, I didn't do any thorough financial analysis or even look at its P/E ratio, but I knew it was a great company, having visited their stores several times, and I knew it had just IPO'd so it seemed like a great time to buy. Going to college in Colorado, Chipotle's home state, gave me an advantage over other investors as I had early access and awareness of the company as well as the ability to see its popularity among my classmates, who raved about it. It seemed clear to me that this company was bound for success.

Recalling that experience, I decided to look back and see what lessons I could learn as I search for the next 10-bagger. The following are three key factors that I think investors should look for.

1. Mass appeal
Peter Lynch famously encouraged investors to "buy what you know" -- whether that knowledge is geographical, job-related, or something else -- as this is one of the best ways to find an advantage over the market. Simply paying attention to what products people are raving about and what companies are just better than the competition can be one of the first hints of a multibagger.

For example, I don't see a lot of corporate logos on car bumpers, but I've noticed that Apple(Nasdaq: AAPL  ) and lululemon athletica (Nasdaq: LULU  ) have gained legions of devotees based on this unscientific survey. It's no surprise, then, that their shares have gone through the roof. Lululemon is up more than 30 times from its bottom after the financial crisis, and though Apple's been around since the '70s, shares of the company could still be had for $7 back in 2003, when the iPod was first gaining popularity. While it may be have impossible to extrapolate the iPhone and the iPad and the remarkable success that would come with them from just the iPod, it was clear that Apple had a hugely popular, revolutionary product on its hands. This was no longer the same old second-place computer maker from the 1990s. The iOS ecosystem is what's made Apple the most valuable company ever, and that began with the iPod and iTunes.

Other companies that have exemplified these characteristics include Under Armour, whose logo has become as ubiquitious as the Nike swoosh, and Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , whose Keurig coffeemaker had turned it into a juggernaut before the recent tumble on patent cliff concerns.

2. Growth potential
This part may seem obvious, as pretty much every publicly traded company is focused on growth, but some parts bear explaining.

Stocks can appreciate in two ways: earnings growth or valuation. Of course, earnings growth is preferred, but an increasing P/E ratio is often a sign of a highly regarded brand such as the ones identified above and should not necessarily be a cause for concern.

Look for companies with a growth rate of 25% or more and with plenty of room to expand. In retail, using companies such as Chipotle or Lululemon as an example, this can be as simple as looking at store counts. Considering both companies have just a fraction of the locations of larger competitors McDonald's or Gap, it seems they should be able to grow revenue for years to come as long as their products remain popular.

Growth potential with consumer goods companies can be more difficult to gauge. Look for a low market share, new products in the pipeline, and opportunities abroad. Apple's iPhone, for instance, still has a relatively low market share despite trouncing the competition in profits.

Perhaps the best example of a company that keeps generating new growth opportunities is Amazon.com (Nasdaq: AMZN  ) . Though its consistent top-line advances have not fed earnings, the company has repeatedly redefined industries and invented new opportunities for itself, whether they be in digital media, mobile hardware, or creative bundling services like Amazon Prime. It's those opportunities that make it the only company of its size that could justify a P/E of 300, and why its shares are worth than 100 times what they were when they came on the market.

3. Size
Finally, the third quality to look for in a potential 10-bagger is the right size. Companies like Apple and Amazon clearly have mass appeal and growth potential, but are too big already to grow 10 times in size. Even most of the other companies listed above are already worth around $10 billion in market value, and considering only a small list of companies have reached $100 billion, it seems like we should be looking at smaller targets.

A market cap of around $1 billion seems like an ideal size for a potential 10-bagger. Companies this big are small enough to have room to grow, since $10 billion is a reasonable goal for most publicly traded businesses, but they're also big enough to have proven themselves, have a track record, and are generally profitable.

Chipotle, Lululemon, Green Mountain, and Netflix were all in this $1 billion range before their shares took off. For young growth companies, that cusp seems to be a good indicator of when to invest.

Now that we've examined the primary factors to use in identifying potential 10-baggers, I'll next take a look at a few stocks that fit these criteria. Click here for my next article, where I'll discuss stocks that I think could become 10-baggers.

http://www.fool.com/investing/high-growth/2012/09/14/how-to-find-10-baggers-.aspx

****Growth stocks as a class has a striking tendency toward wide swings in market price (II)

The striking thing about growth stocks as a class is their tendency toward wide swings in market price.

But is it not true, that the really big fortunes from common stocks have been garnered by those 

• who made a substantial commitment in the early years of a company in whose future they had great confidence and 
• who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."  

Click to see:
10 Year Price Chart of Top Glove

But the big fortunes from single company investments are almost always realised by persons who have a close relationship with the particular company - through employment, family connection, etc. - which justifies them

• in placing a large part of their resources in one medium and 
• holding on to this commitment through all vicissitudes, despite numerous temptations to sell out at apparently high prices along the way.

Click to see:
5 Year Price Chart of Top Glove
2 Year Price Chart of Top Glove
1 Year Price Chart of Top Glove
6 month Price Chart of Top Glove
3 Month Price Chart of Top Glove
1 Month Price Chart of Top Glove


An investor without such close personal contact will constantly be faced with the question of whether too large a portion of his funds are in this one medium. 

Click to see:
5 Year Price Chart of Top Glove
2 Year Price Chart of Top Glove
1 Year Price Chart of Top Glove
6 month Price Chart of Top Glove
3 Month Price Chart of Top Glove
1 Month Price Chart of Top Glove


Each decline - however temporary it proves in the sequel - will accentuate his problem; and internal and external pressures are likely to force him to take what seems to be a good profit, 


Click to see:
5 Year Price Chart of Top Glove
2 Year Price Chart of Top Glove
1 Year Price Chart of Top Glove
6 month Price Chart of Top Glove
3 Month Price Chart of Top Glove 
1 Month Price Chart of Top Glove 

but one far less than the ultimate bonanza.

Click to see:
10 Year Price Chart of Top Glove



Comments:

1. Be a good stock picker.  
2. Think as a business owner.
3. Always look at value rather than the price.  Do the homework.
4. Buy and hold is alright for selected stocks.
5. Compounding is your friend, get this to work the magic for you.
6. Mr. Market is there to be taken advantage of.  Do not be the sucker instead.  BFS;STS.
7. Always buy a lot when the price is low.  Doing so locks in a higher potential return and minimise the potential loss.  But then, if you have confidence in your stock picking, you would have picked a winner - it is only how much return it will deliver over time.
8. Never buy when the stock is overpriced.  Not observing this rule will result in loss in your investing.  This strategy is critical as it protects against loss.
9. It is alright to buy when the selected stock is at a fair price.
10. Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the the price is still obviously too high.
11. Do not time the market for such or any stocks.   Timing can increase returns and similarly harms the returns from your investment. It is impossible to predict the short term volatility of the stock, therefore, it is better to bet on the long-term business prospect of the company which is more predictable. 
12. By keeping to the above strategy, the returns will be delivered through the growth of the company's business. 
13. So, when do you sell the stock?  Almost never, as long as the fundamentals remain sound and the future prospects intact.    
14. The downside risk is protected through only buying when the price is low or fairly priced.  Therefore, when the price is trending downwards and when it is obviously below intrinsic value, do not harm your portfolio by selling to "protect your gains" or "to minimise your loss."  Instead, you should be brave and courageous (this can be very difficult for those not properly wired)  to add more to your portfolio through dollar cost averaging or phasing in your new purchases.  This strategy is very safe for selected high quality stocks as long as you are confident and know your valuation.  It has the same effect of averaging down the cost of your purchase price.  However, unlike selling your shares to do so, buying more below intrinsic value ensures that your money will always be invested to capture the long term returns offered by the business of the selected stock.
15. Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.  Tactical dynamic asset allocation or rebalancing involves selling at the right price and buying at the right price based on valuation.  Assuming you can get your buying and your selling correct 80% of the time;, to get both of them right for a profitable transaction is only slightly better than chance (80% x 80% = 64%).  Except for the extremes of the market, for most (perhaps, almost all of the time), for such stocks, it is better to stay invested (buy, hold, accumulate more) for the long haul.
16. Sell urgently when the company business fundamental has deteriorated irreversibly. (Reminder:  Transmile)
17. You may also wish to sell  should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality.  However, unlike point 14, you can do so leisurely.
18. In conclusion, a critical key to successful investing is in your stock picking ability.  To be able to do so, you will need to acquire the following skills:

• To formulate an investing philosophy and strategy suitable for your investing time horizon, risk tolerance profile and investment objectives.
• The knowledge to value the business of the company.  
• The discipline to always focus on value.
• The willingness to do your homework diligently.
• A good grasp of behavioural finance to understand your internal and external responses to the price fluctuations of the stock in the stock market.
• A good rational thinking regarding the risks (dangers) and rewards (opportunities) generated by the price fluctuations of the stock in the stock market.

Top Glove Insider action:

Tan Sri Dr. Lim Wee Chai

Disposed 26/1/2007 100,000
Acquired 14/2/2007 34,540,661 (Bonus issue)
Disposed 6/4/2007  6,300,000
Acquired 9/5/2007 1,000,000
Acquired 22/6/2007 500,000
Acquired 12/7/2007 438,900
Acquired 18/7/2007 403,900
Acquired 25/7/2007 157,200
Acquired 12/9/2007 200,000
Acquired 18/9/2007 580,000
Acquired 24/3/2008 50,000
Expiration of ESOS-options 29/4/2008

(The only ESOS-option not converted and expired were those noted on 29/4/2008.  After this date, Mr. Lim continued to convert ESOS-options at regular intervals and did not buy or sell other shares of his company.  The large sale of shares in 6/4/2007 followed the large bonus issue Mr. Lim acquired on 14/2/2007.)

Click to see:
5 Year Price Chart of Top Glove
10 Year Price Chart of Top Glove

From the price chart of Top Glove, we can draw the following points:

The price of Top Glove peaked at around $14 at the beginning of January 2007.
It dropped to around  $9 in February 2007.
In April 2007, the price was around $9.20 when Mr. Lim sold 6,300,000 shares; he did not sell at the highest price possible.
In May 2007, the price was around $8.95, Mr. Lim bought back 1,000,000 shares.
The share price continued dropping to $6.00 in September 2007; Mr. Lim bought back 580,000 shares.
Mr. Lim continued to buy from May 2007 to September 2007 a total of 2.9 million shares.
It was obvious that even Mr. Lim phased-in his buying of the shares at various prices, rather than timing the buying of his shares at the lowest price.

To find a mystical 10-bagger you must ignore all the froth

To find a mystical 10-bagger you must ignore all the froth

By Luke Johnson
Published: 12:01AM BST 07 Aug 2005

One of the best books of modern times about investing was published in 1989 and is called One Up On Wall Street. It was written by a clever fund manager at Fidelity, Peter Lynch, and it introduced me to the concept of "10-baggers", the Holy Grail of investing.

Ten-baggers are shares where you make 10 times your money (I believe the phrase is derived from baseball). Such opportunities are rare, but I have been fortunate enough over the past 15 years to be involved in a few such situations: Pizza Express, Topps Tiles and Abacus Recruitment among them.

There tend to be some common characteristics among these winners. The businesses all operate in growth industries and the company in question must be able to grow the top line. No one ever made a tenfold return on a pure margin improvement, or cost-cutting story with no sales growth.

Turnarounds are, however, a rich source of 10-baggers. For these to work, one's timing has to be immaculate, and the underlying business has to be sound - just desperately unloved by the stock market.

Those two retail recovery stories, Next and French Connection, come to mind: both have been 10-baggers for those who bought at the bottom in the early 1990s. Recessions and downturns will occasionally reveal such gems, decent firms with temporary problems which can be cured.

Such returns need patience. A hedge fund that churns its holdings every few months will never enjoy a 10-bagger. And therein lies the greatest danger: selling too early to enjoy the 1,000 per cent gain.

When you have doubled or trebled your money, it is so tempting to cash in profits. It must have been tempting in the early 1950s to take profits on Glaxo shares, just a few years after their 1947 flotation. Or to have done the same for Tesco which floated in the same year. Or sell Racal in the late 1960s after its 1961 market debut, decades before it spun off Vodafone. Yet each of those shares rewarded patient investors with epic performances over many decades, all 20-baggers at least, not even allowing for dividend.

One of the advantages that private equity enjoys is that it is forced to take a reasonably long-term view, and so is usually unable to rush for the exit at the first opportunity. Venture capital's other edge over quoted investors is debt: gearing in successful situations always amplifies the return to equity-holders. Typically, buy-outs have structures where 70 per cent of the capital is borrowed.

Quoted companies probably have the reverse capitalisation, with equity providing three-quarters of the funding. And as ever in investing, those who regularly find 10-baggers say you should stick to your own sphere of competence: buy what you understand.

A good source of 10-baggers has been privatisations. Of the 43 public-sector companies floated in London, at least four have returned more than 10 times their issue price: Associated British Ports, Amersham, BP and Forth Ports. Proof, I suppose, that governments tend to sell state assets cheaply, or perhaps that such organisations thrive in private ownership.

While the UK has few such businesses left to flog off, there are a number of countries such as France and Turkey that have active privatisation programmes where there might just be 10-baggers waiting to be discovered.

Indeed the UK is a mature economy and therefore finding new sectors - and stocks - experiencing sustained, rapid growth is harder than ever.

It may well be that the most exciting investments are in emerging economies which are expanding quickly. Luckily capital markets like Aim are attracting dozens of foreign companies looking to raise money, so British investors do not necessarily need to buy shares quoted on overseas exchanges. But the usual rules apply: look for real companies with competent management and a proven business model.

You won't find a 10-bagger among much of the over-hyped, speculative froth that comes to Aim. Search for the solid operation with strong fundamentals and a high quality of earnings.

Very few acquisitive vehicles are 10-baggers. Management in such firms focuses on doing deals rather than organically growing its core business. This can produce reasonable returns, but rarely delivers the stellar, long-run performance that can come from a strong business franchise in an attractive niche. And balance sheets matter: 10-baggers must be able to fund expansion internally or through debt. Companies that are forever issuing equity dilute their stock performance.

So good luck in your search for the next blockbuster. It may well be an obscure, neglected company now, but with the potential for greatness. The secret is to spot that potential.

• Luke Johnson is chairman of Signature Restaurants and Channel 4


http://www.telegraph.co.uk/finance/2920265/To-find-a-mystical-10-bagger-you-must-ignore-all-the-froth.html

Where you'll find the double-baggers

Where you'll find the double-baggers

Small caps' tendency to outperform their large-cap brethren isn't just a down-market happenstance -- it held true in 2005, 2006, 2007, and 2008 as well.

In any market, the stocks with the most potential for outsized returns (stocks that will double, triple, or even increase your investment tenfold) are not found among large caps, but rather among stocks that are:

1.Ignored.
2.Obscure.
3.Very small.

Why? Because the market's greatest inefficiencies (and, thereby, greatest opportunities) lie hidden among the investments that Wall Street analysts and institutional investors shun only because of their size.

Starting today

Investing in small-cap stocks makes many people nervous -- and today's market volatility is sending many people into the arms of stable, financially pristine large-cap stocks. Which makes now an even better time to buy up those oversold small caps.

But not all small caps are equal. You want to make sure you buy small caps that have a rock-solid balance sheet and a solid business model. Both these factors ensure that the company will be around five to 10 years from now, giving it plenty of time to double, triple, or increase tenfold in size.

At Motley Fool Hidden Gems, these are precisely the kinds of stocks we're recommending right now -- and we're putting real money behind our best ideas. What's more, our recommendations are beating the market by an average of 18 percentage points since the service began in 2003.


http://www.themoneytimes.com/featured/20090904/these-stocks-can-easily-double-your-money-id-1082594.html

How to buy multi bagger stocks?

Tuesday, February 3, 2009

How to buy multi bagger stocks?

Rakesh Jhunjhunwala & Others Guidelines To You

For any investor, buying stocks which can be multibaggers are the most attractive option. Raamdeo Agrawal, Director, Motilal Oswal Financial Services owned over 10 multibagger stocks, while Sanjoy Bhattacharyya, Partner, Fortuna Capital owned over 100 baggers. And we all know about the success story of Rakesh Jhunjhunwala, legendary investor in Indian stock market.

But how does one identify a multibagger? Valuation, a company's fundamentals, a business that promises growth over time, management's integrity, rational allocation of capital etc decide if a stock is of the multibagger variety.

Explains Raamdeo Agrawal, "If you want a multi bagger, it has to be bought literally free of cost...the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years." There is also another plot to this story--the market. Agrawal says a multibagger gets irrational quote from the market in three steps. It goes from being undervalued to fairly valued to being irrationally valued.

Rakesh Jhunjhunwala, Partner, Rare Enterprises, advice is that one needs to check what opportunity the business has, who are the entrepreneurs, how much capital is needed, is the business scalable, and what is the company’s valuation.

Here is a verbatim transcript of the exclusive interview with Raamdeo Agrawal and Rakesh Jhunjhunwala on CNBC-TV18. Also see the accompanying video.

Q: You had more than 10 multi-bagger stocks, what are the characteristics? How does one find 10 multi-bagger stocks? How does one start the process of thinking that the stock is going to be a 10 bagger?

Agrawal: You don’t pay anything to have multi-baggers. If you want a multi-bagger literally you have to buy free of cost, your purchase price decides your rate of return. That is a simple method.

Jhunjhunwala: That doesn’t mean that if Infosys has Rs 30 crore market capitalization, then at Rs 90 crore I should not buy it. We don’t buy it just because it has doubled. You have to see value when you buy.

Agrawal: The first fundamental thing is that you have got to buy extremely cheap and it is non-negotiable. If you want a multi bagger, it has to be bought literally free of cost. Like I could have bought Bharti Telecom around Rs 4,000-5,000 kind of valuation, today it commands a valuation of Rs 1,50,000 crore in just five years. So, when you buy these kind of things at those prices literally, the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years. That is a non-negotiable kind of a trade for finding a multi bagger. Now, the market must become irrational about that stock. So, from under valuation it goes to a fair valuation and from fair valuation it goes to irrational valuation.

Q: You are too modest to say this but I know you have had 700 baggers. Where have you looked for your 100 baggers, give us intellectual hypothesis?

Bhattacharyya: Between being smart and being lucky, I know it will hurt your ego like hell because all you guys are IIM-A always ought to be lucky not smart. It seems that there are two things, which are very important. Agrawal spoke the need to buy cheap, so valuation is very much in your favour.

But two other things you must buy a business, which is of very high quality. What do I mean by high quality business is that a business which is capable of growing over time. I think in the modern lingua franca it is called scalable. I hate words like that. But I think that is what they teach you here, so scalable and the scalability doesn’t require linear inputs of capital.

In a really high quality business, which is disproportionate and where you don’t need to have equal amounts of money to finance incremental growth, that is a wonderful business. The cigarette business, the biscuit business are also highly predictable. What destroys most people is their inability to foresee change. Most of us are not as smart as we think and change can be very rapid and very destructive. So, you have got to be able to figure out change.

Unless you are Rakesh Jhunjhunwala, you are usually a minority holder.

Then, it is very important to understand, what is the agenda and the interest of the majority holder or management usually. If it’s a private equity firm which has the majority stake in the company, what is their agenda? What do they want and how well do they allocate capital? You can never have a multi-bagger if capital is irrationally allocated by the people who run the company. If they have this wild ambition that I am going to spend and earn lots of money, but I will spend even more in terms of capital expenditure and financing growth, you will have very high reported profit but zero cash flow or negative cash flow. You can never get a multi-bagger out of that situation. But you have obviously got to search for a management which has competence and then make sure that you sort of super-impose a huge dose of integrity on that and rational capital allocation. The minute that is missing you will be at risk. Your 10 baggers could reduce back to being a 2 baggers because you could wipe out 80% of your gains.



Q: Are Titan, Praj, Nagarjuna some of the great multi-baggers?

Jhunjhunwala: Titan was a retailer, it was a brand company, it always had a great business. That was a reality. So, it was a great business. In a moment of crisis and when they went into Europe, they lost money. That was a crisis primarily. To my mind what is most important for Titan is India’s prosperity. I envisaged the future and I thought Indians are going to buy far many watches, so that is how he said that the business should be great. So, in a moment of crisis you get great valuations and you envisage the future where the product could have great demand and great growth and that business doesn’t need money.

In MBA language, price is equal to EPS multiplies by P/E, so circumstance should arise where the P/E should grow and the EPS should grow. Suppose I buy a stock, which earns Rs 5. At 5 P/E and I pay Rs 25, if the earnings becomes Rs 15 and the P/E becomes Rs 20, that Rs 25 goes to Rs 300. So, the basic methodology is that can this EPS grow year-upon-year and will the P/E expand. P/E expansion is function of so many items. It is a function of size. So, many of my companies I don’t sell because I feel that P/E will expand, as their size increases and liquidity increases.

Q: Your favourite multi-bagger in your career?

Agrawal: Vysya Bank that was a very first one, second one was Hero Honda, and third one was Bharti.

Q: What has been your multi-bagger historically?

Jhunjhunwala: For me anything that gives me money is my favourite one. There is no emotion. But I think as I judge myself some of the finest investment decisions which I have taken in my life is the decision to invest in Titan, decision to invest in Crisil, decision to invest and retain my holding of Karur Vysya Bank. Now, it is14-15 years since I have bought them. But I think some investment of Rs 2,000 is worth sum I don’t know how many crores today.

Bhattacharyya: The important thing is to identifying the opportunity and then as Jhunjhunwala said is acting on it, being decisive, not getting stuck in a trap where you are perpetually seeking extra information. If you are looking to identify great opportunities, one other thing that all of you will do well is to make friends or associates with people who are called in the language of Dalal Street smart money. You have three of the smartest guys sitting here. But to say this if you have guys, who are really smart serious, thinking investors, one of the ways you will find 100 baggers is by talking to them frequently. I am not joking.

Jhunjhunwala: One important trade of any 10 bagger is there should not be any institutional ownership, it should be under research, nobody should know about it. Today also I was asking Mr. Bhattacharyya that have you researched Titan. Even if the stock have gone up 30 times, Mr. Bhattacharyya has not researched it, which is very good for Titan. I have not researched Bharti, which is very good for Bharti. The stock has appreciated so much but the amount of interest remains in the stock remains at low level. So, it should not be one of the popular not by rule but generally it is not a popular stocks and there should be deep scepticism.

Bhattacharyya: In fact one of the good test to follow is go and tell it to someone else who has experience and has been around in the market for a long time. He will laugh at you. The fact that he is laughing at you should be like a tremendous source of encouragement.

Jhunjhunwala: There are no rules. If two agree, it doesn’t mean that you don’t buy.

Agrawal: What Mr. Bhattacharyya said is a truest thing, when I like something very deeply and when he disagrees ‑ because he is my friend, I go and test with him – and when he disagrees that is going to be a multi bagger.

Q: When you look at buying stake in a company, what is the most important factor or criteria that you look at?

Jhunjhunwala: I cannot say whether the leg or head is more important or the brain is more important or the heart is more important. There are equally important factors, and any successful business is a combination of factors.

When I look at any investment or any business, I look at three-four factors. First, the external opportunity which is demand. For instance in Praj maybe because of the need of alternative fuels the demand for ethanol plants went through the roof. So, I look at the opportunity the business has.

Then I look at the entrepreneurs, I look at the capital needed, and I want to judge scalability. We could make money in Pantaloon because Kishore Biyani could scale the business. Then, it is important what you buy, it is important at what price you buy. So, I look at the valuation. I have no analysis paralysis. I judge very fast.

Q: Which are the sectors that one should invest in say for a period of one year given the current market level and fluctuations?

Bhattacharyya: My answer is not going to be a happy answer. First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.

You are buying a business with specific players, a cast. You are buying the people who run that business; you are buying the assets and liabilities of that business, you are buying the balance sheet of the company. Within the same sector, different people have different opportunities.

So, if I were to say that the pharmaceutical sector is a great opportunity, there are different pharmaceutical companies. Say if you were buying Sun Pharma as opposed to buying Lupin, you are buying it at completely different valuations. Some sectors that are hot right now, I mean the whole world knows they are hot right now. So, the prices at which you are buying that sector reflect the hope and the enthusiasm that people have for that now.

But I don’t think that I understand anything other than what is called bottom-up. That means god lies in the details. There are specific opportunities or companies that I can tend to buy.

Agrawal: I would approach the financial sector, the large banks, which have large bond portfolios like SBI has Rs 2-2.5 lakh crore worth of bond portfolio, mark-to-market. When the yield drops you know what happens to bond prices and that goes directly to the P&L. In any case, you are buying that stock at 1-1.2 times book, insurance free thrown with the SBI stock. So, I would like to buy that for maybe 25-40% case for the next one year.

Secondly, I would say telecom. I think god communicates wirelessly. I think the telecom penetration in India is just about 25%. We are headed for 75% if not 100% in the next 5-6 years. We are going to see more than 10-15% compounded quarterly growth for the next 20-25 quarters in this country. Hence, we have a great opportunity in buying Bharti Telecom.

Q: Is there any sector you like?

Jhunjhunwala: I think that India-centric sectors will do well whether it is banking, retailing, infrastructure, all sectors that are related to India – SBI, Bharti, and Hero Honda.

Q: You were talking about recognising value in a stock. If you look at the power sector in India, there are some stocks like Tata Power and NTPC have significantly high ground assets, or whether some new companies like KSK Energy who have captive coal reserves. How do you compare these and what are the parameters that you use to identify value?

Jhunjhunwala: The first multi-bagger of my life was Tata Power. But after having earned a lot of money in Tata Power, I have promised myself I am not going to buy any power companies because after all it is a fixed return rate of return and the rate of return is 13-14%. It is a capital intensive industry. So god bless NTPC and KSK Energy. But that is not where my interest is, because I can’t think of any industry in the world where the rate of return as fixed, if it is going to give you multiple returns.

Bhattacharyya: In fact, I would like to endorse what Jhunjhunwala said. But I think of your question and I suspect it may be that how do you distinguish between companies that are asset plays, which don’t have at this stage earnings that you can identify with and see and therefore put a multiple to them as opposed to companies that have a stream of earnings.

Jhunjhunwala: But market will value them if within a comprehensible period those assets can return a stream of earnings. If I have a company whose office is worth Rs 5,000 crore, what can I do? I will wait for earnings for one, two, or five years. Nobody is going to buy that company because their office is there. Don’t forget all these coal reserves. You know what is the average value for oil reserves ‑ about USD 10-15 or maybe USD 20. You first have to say in what time period KSK Energy will get the coal reserves. If it gets it 15 years later and you bring it to present value, you come to 3% of the current market price. Then, you have value in the current coal prices. Are these prices going to last? So, therefore they may appear cheap.

Q: In the present market scenario both from an investors’ perspective and a speculators’ perspective, where would you put your money – in real estate, in fixed income, equities, or gold?

Agrawal: To tell you the truth, I don’t know any other trade. I know only stocks. So, I don’t have any other option but to buy stock.

Jhunjhunwala: We never allocate capital. We have money means it is for equities.

Agrawal: Just equities, not even cash and equities, only equities. So, when I wanted to play real estate, I bought hotel shares. I am not going to buy 100 acres here and there. I said let’s go and buy earning real estate, i.e. hotel shares.

Jhunjhunwala: I have allocated some part of my trading portfolio to debt – to buy bonds. Long-dated bonds with good yields are very good.

Q: How do you decide when to sell a multi-bagger?

Jhunjhunwala: I will sell a stock only in two circumstances: when I have limited capital and when I get an opportunity that is better than what I have now. So, if comparatively I need capital, I will sell it.

Secondly, when the perception of earnings peaks and the P/E is unsustainable. I think that is a time to sell. The earning may not peak but the expectations of hope like in 2000 everybody said Infosys’ earnings will double every year for the next 10 years. That was the expectation in the market and its P/E was at the current earnings, it was 100-150 times. So, when the expectation of earnings peaks and the P/E is unsustainable, I think that is a time to sell.

Agrawal: There are two types of stocks. One you buy forever and one you buy for a trade.

Jhunjhunwala: I strongly contest this. There is no stock forever in the world.

Agrawal: I contest that. There are clearly two types of stock. One you buy for selling and one you buy forever.

Source: Moneycontrol.com


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