To become a successful investor both in terms of having a diversified portfolio and gaining profits, you have to find the company stocks which can become a multi-bagger in the longer go.
Here are some of the golden tips to follow and considerable factors to find a multi-bagger stock:
1. Have a method
Even if it’s a proven method for world’s successful investor don’t blindly use it, it may not work well with you. Create your own method/follow your own approach instead of following other successful stock investors.
2. Follow a disciplinary approach
To become a successful investment professional you need to accept a disciplinary approach.
3. Don’t have a herd mentality
Never invest in particular stock since your seniors, relatives, and friends are investing. In the long run, this strategy will not work well.
4. Take a better-informed decision
Before you invest keep analyzing and researching the stock’s potential multiple times. A good research will back you while taking smart decisions.
5. Create a broad portfolio
Diversification of portfolio across asset classes and instruments is the key factor to earn optimum returns on investments with minimum risk. But the level of diversification depends on each investor's risk-taking capacity. If you aren’t ready to face the risks or accept the loss, don’t go for it.
6. Don’t lose yourselves in diversifying
The greed of diversifying portfolio will lead you to invest in various sector stocks which you don’t even know exists. Instead of blind investment on a popular stock in an inexperienced domain, invest on the domain of your knowledge.
Factors you need to consider for finding multi-bagger stocks:
1. No or less Debt ratio
While investing in a company’s stock it is obvious to keep an eye on their debt ratio. The company should be debt free or with a minimal debt in their inception stages as well as in their growth stages. Companies with less or no debt at all will have the higher chances to become a multi-bagger in near future.
2. Future business potential
The first thing you should check is the future business potential of the company. Invest in a business which has the potential to increase capacity and still generate similar profits. Know whether the company has space to grow further in its domain industry. If there is a demand for their products and services, the company will sustain longer in business and will make huge profits.
3. Market leader
Once the company starts to dominate competitors in its industry it will surely become a market leader and revolutionize in its sector. Many monopoly players focus on increasing their revenue and growing market share instead of only yielding profits. Invest in such companies stocks to avoid taking huge risks.
4. Good performance history
Another important factor to consider before investing in a company’s stock is to check its performance history. Check the consistency of the stock in terms of the net profit margin and revenue. Analyze and know quarterly and yearly results to find out performance history of the company.
5. Expansion or new product development
A company with a great Research & Development facility will always have new products in the pipeline. Such company stocks will go further high during the success of their new product releases. Also, they will have higher chances of business expansion. Invest in companies with such qualities that are needed to become a multi-bagger.
6. Quality administration & Management
Not only the company’s ratio should be good in numbers but also the leadership of the management must be expert in the industry. A good leader and management can keep their investors and employees successful with the right decisions in business.