Renowned investor Peter Lynch coined the term ‘multibagger’ in order to refer to equity shares of a company which were capable of creating returns several times higher than their associated cost of acquisition. To be precise, such equity stocks provide their investors with a return of more than 100 per cent. Great investment options, multibagger stocks are found in high-growth industries and their scope for growth is enormous. Having strong fundamentals in place, multibagger shares tend to be undervalued which makes them ideal investment options. Such companies are in possession of excellent production techniques and display sound management. Reflective of superior research and development skills of a company, such shares can create high demand in a market. Companies that possess such shares are scalable within a short period of time.
- How Do You Identify Multibaggers?
Multibagger shares can be identified by considering the following prior to investing in a given company. The debt that said company takes on must be within reasonable limits. While what constitutes reasonable varies between different industries, ideally debt shouldn’t exceed 30 percent of the equity value. Prior performance of the company must be considered as it can indicate whether or not its revenue has a capacity to increase steadily or not. If the operations of a company can be scaled with ease, its shares might be able to become multibaggers. Understanding the revenue digits and its sources of income can be illuminating. Moreover, being aware of any and all major changes – pertaining to its business model or structure and management can impact a company’s operations.
- The Value of Multibaggers -
The Best Multibagger Stocks are known for generating vast swathes of wealth as the returns they provide are enormous. However, investing in such shares requires bulk purchases to be made in order to generate wealth. This means that should they incur losses; they have the potential to be extremely detrimental. Such stocks can also get briefly trapped in an economic bubble. When this bubble pops, however, investors can incur extreme losses. For laymen who have recently started playing the stock market and have limited funds to spare, multibagger stocks might not be the wisest investment. Instead, they might be better suited to investing in mutual funds.
- Alternatives to Multibaggers
Mutual funds provide their investors with a diversified portfolio made up of stocks, bonds or other securities. These portfolios are professionally managed for the investors for a low price. Mutual funds exist in several forms and represent a slew of considerations including the type of securities invested in, investment objectives and the returns sought. A vast majority of the money existing in employer-sponsored retirement funds is allocated towards mutual funds. It is important to note that mutual funds charge investors with annual fees which are termed expense ratios. These can potentially affect overall returns.
The presence of online mutual funds have eased the ability with which individuals can invest in the stock market. In order to invest in mutual funds online, investors must do thorough research in advance. The internet can be a useful tool to provide information on mutual funds to invest in now.