Dear Members of Multibagger Service,
The last Quarter has been exceptionally good for Indian markets with Stocks gaining significantly across the board. Quality Mid-Caps and Small-Caps that we track are up by 50%-100% over the last quarter. The saying that “Equity Returns are Non-Linear and lumpy” has been proved yet again. As we have been writing regularly, its near impossible to predict the exact timing of such Lumpy returns and hence the best way to gain is to BUY during attractive prices and stay Invested.
On the results of the last Quarter, almost all our stocks have performed well and there have been only a few disappointments. Most of our core Portfolio stocks are on track to deliver many more years of strong growth in their evolution to become much larger companies. Thus an uptick in prices should not be used as an opportunity to BOOK Profits. We have continued to evaluate all our Ideas in this Flashback report and have put spotlight on the Core Portfolio stocks. We hope our subscribers will have a proper capital allocation framework to profit handsomely from these Investment ideas.
Before we get into details of the individual performance of our stocks over the last quarter, we would like to evaluate the performance of our Multibagger service over the years and what you can expect going forward through your association with Multibagger package,
Over the last 3 years, we have had a satisfactory record of identifying good quality businesses when they were available cheap. We have had some tremendous successes in identifying Multibagger ideas very early in their growth cycle such as Cera, Astral Poly, Persistent, Poly Medicure, Mayur Uniquoters, Biocon etc. There have also been some failures such as Honda Siel power. But overall, we believe our results have been satisfactory with good returns despite a very tough environment for small and mid cap stocks.
We have had significant learning’s from our failure picks, but our overall cost of learning has been small and it has been worth the returns we have been able to generate from our winning picks. We have strongly strengthened our networks to source better Ideas and validate our primary information. We have also improved our proprietary Investment checklists and Research framework to avoid bad businesses. Our watch list of stocks of good quality businesses has been expanded and we are ready to identify Multibagger ideas much ahead of the curve.
With a strong focus on Small and Mid-cap stocks, we have internalized several processes to evaluate and filter ideas better from a vast pool of stocks. Durability of our returns have also been good as they have come from quality businesses. Our current strike is satisfactory but there is enough room for improving it even further and with our strengthened framework, we are confident of delivering much better returns over the next 3 years.
Our deep understanding of Indian Small cap and mid cap businesses makes us well positioned to pick the right stocks. If we were able to go through an extremely tough phase for Indian Mid-Caps and Small-Caps and still generate good absolute returns, we believe that our returns will only grow better in a favorable macro environment (relatively) which we expect over the next 3 years.
In this Flashback report, we have also added a special mention about the contrarian bets in Metals and Mining sector. The 3 Special stocks that have been recommended are commodity businesses with above average fundamentals available at attractive prices near the bottom of a super cycle. As you could see in the Business Rating and Valuation Rating, these stocks are purely valuation plays and hence these bets are more tactical in nature and not the Multi-year investing that we usually do.
In our Model Portfolio and Funds that we manage, allocation to our CORE Portfolio Ideas still stays the same. Since we already had a high Equity exposure of around 95% over the last 18 months, the current rally has delivered strong absolute returns. We are currently neither BUYING nor SELLING any of our shares. We believe that this rally has still a long way to go and our Portfolio is well positioned to take advantage of the future environments. We believe that earnings growth in our stocks would positively surprise investors and further re-rating is on the cards. We would continue to maintain our high Equity exposure in our Portfolios and would exit from any stock only in case of Irrational valuations (or) swap for better opportunities.
Investors with Cash & Cash Equivalents of > 25% can deploy incremental capital into our Core Multibagger Ideas. Investors need to develop the courage to Average up on these quality stocks despite the steep rally over the last few months. These stocks still have a strong potential to deliver superior risk adjusted returns over a 5 year period. Just because there are stocks that haven’t gone up over the last few months, don’t invest in them. Long Term investments always needs to be done in quality businesses even if the price is not cheap. The easy pickings in the markets are now behind us after the recent rally. We need to dig deeper to find stocks with asymmetric returns. Our contrarian approach to investing would help us to continue generating top decile returns. While our focus would continue to be in Small & Mid cap stocks, we are ready to look at other sources as well going forward.
We continue to be Multi-Dimensional investors and invest in good ideas ranging across Debt capacity bargains, Moat based businesses, Cash bargains, Float based businesses, Quality at cost etc. We also continue to be dynamic in evaluating our old picks and companies which are not performing will be eliminated from our recommendation lists periodically. We will definitely overcome our biases in removing bad stocks and adding onto good stocks.
We advice our customers to focus their capital on the core long term portfolio picks which we have highlighted in this report and also follow the explained discipline of capital allocation. We would also continue to have a Rating on all our stocks through the Flashback report which can be used for regular evaluation of the Ideas in which you have invested your capital. Looking forward to many more Profitable years going forward !!
Gokul Raj. P
(Investment Head – HBJ Capital)