Investments in stocks involve equity risks. Despite having all the potential of a stellar performance, a company may fail, and so its market values. So, an investor needs to evaluate his/her investment portfolio periodically to assess the performance of individual stocks.
Once a multibagger portfolio is set, what timeline does it take to yield the target results?
It may take at least 5 to 7 years for a portfolio to provide multibagger returns. There could be phases when the portfolio may give single digit or even negative returns. But, one will have to measure its performance against a benchmark index like Nifty and ensure that it is able to generate a higher alpha than Nifty. A multibagger portfolio should ideally generate an alpha of 15 per cent to 20 per cent higher than Nifty.
For example, between September 2016 and September 2022, Nifty has generated a CAGR of approximately 11 per cent. Therefore, Rs 10 lakh invested in Nifty in September 2016 would be worth around Rs 20.8 lakhs. However, if one was able to generate an alpha of 25 per cent during this period, the value of the portfolio would be approximately Rs 38 lakhs.
One can expect such returns by getting associated with a registered investment advisor specializing in providing an equity advisory service.
What to do when a prospective multibagger falls down?
The journey of a multibagger stock isn’t linear. There will be multiple times during which it will fall. For example, the share price of Bajaj Finance plummeted by more than 15 per cent at least 6 times between September 2016 and September 2022. However, during this period, its share price has gone up by 6.2 times which means an absolute return of 522 per cent.
An investor will need to evaluate whether a company’s share price has fallen due to changes in its business fundamentals. Hence, it is vital to keep tracking the company’s fundamentals in which one has invested. Apart from scrutinizing the financial statements, one must also read brokerage reports, earnings concall transcripts conducted with institutional investors and annual reports.
On the other hand, if there are no changes in the business fundamentals of a company and its share price has fallen due to irrational pessimism, then it might be a good opportunity to average one’s holdings in that company without drastically altering the allocation percentage.