Saturday, March 28, 2015

BASICS FOR BEGINNERS .....



Multibagger stocks: Manage risks and reap rewards

Courtesy : Economic Times
Multibagger stocks: Manage risks and reap rewards



Stock investing is inherently risky. Little wonder that it's not recommended for those who usually want to play it safe. Still there's no dearth of brave hearts who, in a bid to maximize gains, are always willing to take that 'extra' or even 'unlimited' risk.

After all, as the saying goes, there's no gain without pain. And there are stocks available for this breed of people as well. The 'only' catch is that if they can make one a millionaire, they can make one bankrupt too! But not everyone is scared, at least not the risk seekers. Even with all the risks and drawbacks involved in such stocks, many investors simply find the potential windfalls well worth it.
If you too are unable to resist the lure of big money, you can also take a chance. However, it is better to know the tricks as well as the risks involved before putting your hard-earned money into high-risk stocks.

Things You Should Know

The first question before venturing into high-risk stocks should be directed at yourself. Do you have the knowledge, temperament and resources to let you start investing in such stocks without seriously damaging your financial future? And exactly how familiar are you with these stocks and the way this market works? .The golden rule of investing is never invest in anything you don't understand. So, if you don't understand high-risk stocks at deeper layers, never take the chance.You also need to figure out the amount of money you are willing to risk investing in such stocks. In fact, you should limit yourself to that amount, and not a single rupee more. That way, even if the worst happens, you may be poorer, but you won't be destitute.


Get a Fair Idea of High-Risk Stocks

If you still consider them worth the risk, you should have some idea about these stocks, which include penny stocks, turnaround stocks and concept stocks.

Penny Stocks are of a company whose business failed and which does not have a revival plan to make it economically viable again. Because of the continuous erosion of shareholders' wealth, these stocks trade at low prices -- typically, between Rs 1 and Rs 10. However, since their levels are quite low, they sometimes represent great money-making opportunities with limited risk.

Turnaround Stocks are of companies which are not performing well for various reasons, including adverse industry fortunes, higher debt and higher interest burdens, accumulated losses, inefficient management or uneconomical size. However, when these companies go through restructuring or they see a management change, they can offer turnaround possibilities.

Concept Stocks are of companies that are likely to create significant value for investors in the future. Usually concept stocks trade at very high multiples because there are great expectations built into the future prospects of these companies. Organized retail, branded jewellery, wind power energy, security and surveillance systems, logistics, outsourcing and oil drilling are all concepts that are likely to have great demand going ahead.

Risks Involved with Penny Stocks

Liquidity Risk: Usually the major ownership of penny stocks rests in the hands of a few people like promoters of the company. If these people decide to unload a significant number of the stocks, the price drops steeply. Also, since most of the trades are speculative and not really backed by fundamentals, the moment there is a market correction everyone wants to get rid of these stocks, resulting in huge price corrections.

Trick Trades: Going by the past experience, penny stocks' prices are sometimes rigged and artificially inflated. Investors get sucked in looking at the price movement only to suffer later as prices drop when the traders offload large quantities of shares.

Corporate Governance: Most of the penny/small stocks are poorly managed and governed. Some of them don't even send their annual reports to investors!


Risks Involved With Turnaround Stocks

For these stocks, the turnaround may not sustain, leading to losses.
"The risk in turnaround stocks arises when a restructuring plan has yet to take shape, and only ideas are floating around. Normally, only one of 10 such companies will be successfully restructured, while the rest will be liquidated. Additionally, such companies carry a very low net worth on their books, and provide little cushion to equity investors," Dinesh Thakkar, CMD at Angel Broking, said.


Investors' Profile

Usually, retail investors/day traders invest in penny stocks are.

"These investors are risk seekers as they want usually high returns and, hence, are attracted to penny stocks. Sometimes greed and ignorance are the only explanation for some of these investments," T Srikanth Bhagavat, Managing Director at Hexagon Capital Advisors Pvt Ltd, said.Like penny stocks, turnaround stocks also bring in multiple returns, but investors in these stocks are convinced about the future profitability and are looking for high returns accompanied by some risks.


The conceptual style of investing is good in any market circumstance. However, benefits become more obvious over a longer time cycle.Therefore, relatively long-term investors looking for extraordinary returns are interested in concept stocks. Once these stocks come into the limelight, they generate healthy returns," Ashish Kapur, CEO at Invest Shoppe, said.

Precautions while Investing in Penny Stocks

Anyone new to investing in penny stocks should first be made aware of the differences between these stocks and the more conventional bluechips and midcaps.

"Unlike buying shares in a large, stable company like Reliance and SBI, you are dealing with speculative investments. Penny stocks and junk scripts look attractive to the investor when the indices are rising since the price of these shares usually rise faster than  the rise in prices of other shares. However, when the market falls, the investor is left with junk, which has no value," Kapur warned.

As a matter of principle, you should invest in only those penny stocks whose fundamentals are known to you. Also be prepared to hold on to these stocks till the market discovers the hidden value in them. You also need to diversify and never put all you money into a single stock, no matter how sure you are.

Precautions in Turnaround/ Concept Stocks

Often turnaround players report bumper profits after a "sad" track record. It is pertinent to understand the driving factors behind the profits. A savvy investor typically chooses companies that have started making profit at an operational level due to operational efficiencies and changing business fortunes. The company is in the first stage of turning around, though it is still in losses at the net level. There is a high possibility that it would make it to the net earnings level soon.

"As far as concept stocks are concerned, investors need to be educated about the conceptual style investing, as it requires commitment for a longer time from the investors. Also you need to have the ability to spot emerging trends in the social and industrial environment," Kapur said.

Identifying Multibaggers

Identification of these stocks is also far more difficult than large, reliable stocks. Picking these stocks, therefore, requires detailed understanding of their business and a vision to anticipate the future for the companies' business. It may also require an eye to discover the hidden assets in a deeply-undervalued company.

For instance, turnaround stories can be identified by closely keeping a watch on the concerned company, following its policies, results and other business activities. A close interaction with management and understanding of their decision making is also necessary. But these stocks come into light only after some of the turnaround has already happened and there are some signs of changes. Also, in such cases, the net worth of the company is generally eroded, and, therefore, one should look at the replacement value of the company. "This can be done by studying the company's EV to sales and comparing it with the industry average," Thakkar said.


Have Patience/ Conviction

Invest in these stocks only if you are fully aware of the risks involved and also know the market well. Whatever be the case, investing in theme/concept stocks requires patience and conviction.

"Patience because the sector/company which has tremendous value may take time to be noticed by the market, and conviction because without thorough knowledge of underlying value in the stock you will not be able to hold the stock for the period long enough for full appreciation to be realized," Kapur said.


Conclusion

Sure, these big prizes also mean the investor needs to be resourceful, have an upper hand on the information flow connected with the stock, and that means investing some serious time as well. An upside is that there are professional services available nowadays that can help big players with these investments. They may be in the form of private equity investment vehicles or hedge funds, etc..

82 comments :

  1. Sir, I am holding 250 shares baught at Rs.250/-. Now I want to average at the level around Rs.145/-. Please suggest me whether it is correct level or not to average.
    Thanking you

    ReplyDelete
  2. Hi.. Pls share your views on Hindustan Tin Works. I think it will benefit greatly from the ban on plastic packaging for non-essential items. On the other hand, another of your old recommendations, viz. Polyplex will have to take it in the chin and hurt.

    ReplyDelete
    Replies
    1. Who banned plastic packaging for non-essential items ?

      Delete
    2. The National Green Tribunal. Pls see this link http://articles.economictimes.indiatimes.com/2015-03-13/news/60086472_1_packaging-pet-bottles-ngt-notice

      Delete
  3. Dear VP sir,

    Very useful and good posting. What is your view on subex turn around story if you are tracking subex.

    Thanks
    Suresh

    ReplyDelete
  4. Dear sir,
    pl. suggest the any five blue-chip stocks in this market for two to three years horizon and become multibaggers.

    ReplyDelete
    Replies
    1. Generally blue-chips are steady compounders , not easy to get multi baggers from there .

      Delete
  5. Dear Value Pick,
    I am posting the query again as I couldn't find earlier post sorry if you see it twice. I was asking for your view on NATCO, can one enter into it as a CONTRA bet at CMP?
    Thanks,
    PVR

    ReplyDelete
    Replies
    1. Didn't understand why you are saying Natco is a "CONTRA" bet ?

      Delete
  6. Sir ur view on dolphin offshore and lumax auto technology

    ReplyDelete
    Replies
    1. Both stocks already recommended @ much lower rate

      Delete
  7. Good evening sir. I am ur follower and invested 10pc of my holding in il&fs eng at 97. I want to make it to 30pc. Can you plz guide me the levels and quantity at that levels so that i cn avg. I m long term investor and can wait for 5 yrs at least. If you say buy all at cmp then also its fine. I just need guidance

    ReplyDelete
    Replies
    1. For me Any stock will become more attractive when they fall without any changes in their fundamentals and only because of general negative mood in market . But we can't say - one stock will come only upto a particular level if there is panic in sentiment . One should use SIP mode in such high volatile situations to purchase shares at a comfortable average rate.

      Delete
  8. Vp sirji your views on bdh industries

    ReplyDelete
  9. Dear VP

    BCCL is buying stake in v2, what is your view ? Is it good for v2 ?

    ReplyDelete
  10. Sir, your views on microsec financial services ltd please

    ReplyDelete
  11. SIr, your views on Maharastra Seamless, numbers in balance sheet looks good except with indutry trend now makes it down temporary..being part of oil undsutry

    ReplyDelete
  12. Sir,

    Your view on Garware wall ropes?

    ReplyDelete
  13. sir is it good to enter in to kerb and caplin point int current level

    ReplyDelete
    Replies
    1. Caplin point is a stock which returned more than 1000 % since recommendation and I recently expressed my present view through a separate posting .Use search option

      Delete
  14. Dear VP sir,
    I need your guidance on Manjushree Technopack. I understand that you may not be tracking it...i needed a suggestion from your experience...this stock has been de-listed recently however i didn't sell it then...i needed to know my options now and weigh them well so that i could take a right decision....what happens if i keep holding them...or should i be selling it to the promoters...if yes..then how...kindly provide your view point.

    Thanks,
    Ramesh

    ReplyDelete
    Replies
    1. If I am not mistaken , company will accept shares till the completion of one year from de-listing date . Contact directly either with company or their R&T agent.

      Delete
  15. Sir, I bought 100 apollo tyres shares at 235. Current price is ~160Rs. Should i average it at this level?

    ReplyDelete
  16. Dear Vp

    What is your views on DYNAMATIC TECHNOLOGIES LTD.

    ReplyDelete
    Replies
    1. Already expressed positive view on this stock even at much lower level

      Delete
  17. Arrow Coated one of your earlier recommendations already turned multi baggers seems to have taken a pause. Ever since one of its directors sold shares for personal purpose, stock is getting beaten up daily even though fundamentals remain unchanged. Considering its consolidated results to be published in May 2015, marketing of new products & coming up with global alliance it has, do you thing the present market price is an attractive investment. Pls. advise.

    With regards,

    Shrikant

    ReplyDelete
    Replies
    1. Though they given explanation for reason of selling , it affected investor's sentiment very badly.When I suggested this stock @ Rs.12 , risk reward ratio was very favorable .But now @ Rs.340 , they should prove the given reason of selling is genuine and nothing wrong in business side. We need to wait till full year and see the performance for that.

      Delete
  18. Sir, sorry for repeating the question but am just seeking your guidance. Do you think J&K bank would be an attractive long term hold with the price quoting below Bv.

    ReplyDelete
  19. Veer energy view bought @ 4:30 & RS software bought @ 717

    ReplyDelete
    Replies
    1. Negative about Veer Energy , not tracking R S Software

      Delete
  20. Dear VP sir,
    Marksans pharma has announced QIP, what was its effect on short, medium and long term investor. I have purchased it @5.5 and still holding. I am long term investor, so please guide that what is effect of QIP.

    ReplyDelete
    Replies
    1. Effect depends on the utilisation of raised funds.

      Delete
    2. Sir effect of qip is positive or negative

      Delete
  21. Dear VP Sir,

    Do you recommend to take fresh positions in DHP or Selan Exploration at current prices ?

    ReplyDelete
    Replies
    1. DHP recommended around Rs.25 and suggested to book profit around Rs.140 , Not suggesting for re-entry .

      Selan is not bad but required patience till the crude cycle rebound

      Delete
  22. Hello VP Sir

    what are your views on Aarti Drugs??

    Best regards
    Lloyd Gracias

    ReplyDelete
  23. Hello VP Sir,
    Please tell me ur view about DrDatsonlab.I can hold it for 5 years and bought at Rs. 11.25. The rate of this share is just half of my holding. Please guide me sir.

    ReplyDelete
    Replies
    1. Holding period will not ensure profit in any stock

      Delete
  24. Sir ur view on Tata Elxsi plz

    ReplyDelete
  25. Your view on bal pharma please?

    ReplyDelete
  26. Your views on hathway cable and den network please?

    ReplyDelete
    Replies
    1. Sorry , not tracking both companies

      Delete
  27. Dear VP Sir, Do you track stocks in telecom space and any stock looks attractive at the moment

    ReplyDelete
    Replies
    1. Not tracking any stocks from this sector

      Delete
  28. Dear VP sir your view on Astec LifeSciences Limited.Thank you sir

    ReplyDelete
    Replies
    1. Already suggested about 50 % lower than current price.

      Delete
  29. Dear Sir,

    Your current view on Themis Medicare if you are tracking the same. Would you recommend to hold it for a long term?

    Thank you and Best Regards.

    ReplyDelete
  30. Hi VP Sir,

    As per your previous comment, you are waiting for cybertech to dilver good result.
    As per the latest disclosure in NSE, promoters have bought some 1 lakh share from the open market. Stock surged to 20%.

    Just wanted to know if you have any thing to add do you feel it is worth adding at this level or wait for March result to get clear picture.

    Bought few chuck at 70 and 42 rs previusoly.

    ReplyDelete
  31. sir
    please share your views on IPCA labs bought @ 800

    ReplyDelete
    Replies
    1. Stock is under pressure due to USFDA related issues .May take 18-24 months to resolve.One can hold , if have enough patience.

      Delete
  32. Dear valuepick ji, what is your mail id?
    Regards
    Senthil

    ReplyDelete
  33. Dear VP
    Kindly share your opinion about salzer electronics - management decision about fund raising by issuing authorized capital?

    ReplyDelete
    Replies
    1. Only their plans to raise further funds is known at present .Let they disclose the purpose too

      Delete
  34. Va Tech Wabag recently approved Stock Bonus...
    At the current CMP and considering the business enviornment , what is your take on it ? Hold or Avoid ?

    ReplyDelete
  35. A grand salute to you VP sir for the valuable & selfless guidance you provide to small investors. I just wanted to know your views on Future Consumer Enterprise (FCEL), if you are tracking that one.

    Thanks & god bless,
    Hiren

    ReplyDelete
  36. Dear VP Sir,
    Its been a long time that you did not gave any assignment for guessing gems. If you provide it will be good for our minds to do some research like salzer. Thanks in advance.

    ReplyDelete
    Replies
    1. Lot of short term players misusing it to trap genuine long term investors , hence not planning to repeat it anytime soon.

      Delete
  37. Dear Sir,

    I would like to thank you from the bottom of my heart... I have been in the stock markets since last 12 years.. but I have lost almost 15 Lakhs in Markets. So much so the situation was so worse that I had to take up a job outside India to repay the debts. This was all because of lack of knowledge.. too much leverage and many more mistakes.... Ever since I have started reading your blog and follwoing your investment ideas and advices, I m very proud and thankful to you and I must share with you that whatever I have lost in last 12 years, I have recovered almost 30 % of it in just 1.5 years and still counting...

    May God bless you. May he shower all his blessings on you... :).
    I have laernt a lot especially building a conviction, understanding the business of the compnay and investing in value and growing companies. I am very much hopeful of learning a lot from you in years to come...

    Caplin Labs, Arrow coatedand Granuels are my top investment picks which are giving me profit of more than 50K each in last 1.5 years...

    I need you views on
    1. Zenotech Lab ( Having interest by Sum Pharma)
    2. Onmobile global
    3. Dion Global - your old pick in which I think promoter group bought more than 4.56 laksh shares few days back).

    Appreciate you views..

    Many thanks

    Imran Momin

    ReplyDelete
    Replies
    1. Not strictly tracking Zenotech and not tracking Onmobile ( after management related issues in this company)

      No change in previous view on Dion Global

      Delete
  38. Dear Sir, Came across your blog 2 weeks before. Very Nice Work done by you. Now my age is 24 years. After visiting your blog I had a thought in my mind that i should have started INVESTing much before now. But now i have made my mind to STRICTLY start investing in companies regularly and not in market.
    Thanks,
    Tushar K.

    ReplyDelete

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