"IF you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them." -- Peter Lynch.
Easier said than done? You can make it 'easier done than said'!
Here's how:
1. Keep your eyes and ears open.
A simple way to identify potential multi-baggers is to look around for emerging sectors and new trends and invest in the leading companies participating in these trends.
For instance, some of the mega sectors (organized retail, media, telecommunications, real estate etc.) helped to create wealth for many investors who participated in those sectors in the early phase of discovery. Let’s take the example of two mega sectors - telecommunications and organized retail. If you had invested in Bharti Enterprises during their IPO in 2002 or in Pantaloon Retail when you saw their first 'Big Bazaar' store, you would have grown your investment by 18 times in Bharti and by 65 times in Pantaloon!
2. Go out, explore and see 'what's in'
Peter Lynch used to spend some weekend time for going to malls and shopping with his daughters. According to him, this was a great place to spot new stock stories and do some real market / business research. He’s found amazing stock ideas by simple observations like the favourite toy store with kids, the restaurant people frequent the most, fashion trends with teens etc. Once he would get these answers, he would research the underlying companies and find out if they were attractive investment opportunities.
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This might seem like a far too easy but difficult to implement strategy but trust me, it can work. See what products are in demand, what things get picked up from shelves in super markets the fastest and so on. It might give you good insights on stock picking.
You can beat fund managers!
Did you know that almost 85 per cent of professional fund managers fail to beat the benchmark index at most times. Normally, fund managers have many restrictions in the kind of companies they can invest in terms of market capitalization, liquidity etc. Mostly, companies that are a part of emerging sectors are small caps or mid caps and hence, outside the radar of most fund houses.
You can do better than them by using your common sense and basic research skills. Also, investing early in the company's cycle offers you the most attractive entry price for the stock by default.
Since India is catching up with the developed world, it is one of the best markets to discover new (stock) success stories. Maybe, the next bull run will be lead by companies in healthcare, niche infrastructure, hospitality, specialty retail, entertainment, security solutions, tourism etc.
So, the next time you step outside your home, don't forget to see which is the most popular car on the road. And by the way, what brand of toothpaste do you use? This is important, since the next multibagger might be right in your home!
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