Interviewee: Gurmeet Chadha
Interviewer: Sharan Hegde
Subject: How to identify multibagger stocks in 2025
Date: 6 January 2025
Trading
Only one percent of traders actually make money. There are high frequency traders that use AI, machine learning; they will put 500-1000 trades at one go; you can’t compete against them.
Regulatory based stocks
Sin stocks such as alcohol, gambling, cigarettes, the risk is the pricing being controlled by the government. They are also very heavily taxed. Some states also impose a ban on such items. That’s why these stocks will never trade at a high PE. These stocks can never be wealth creators or multibaggers, but they can make money for you.
Petrol and diesel marketing companies face a similar dilemma. The price is decided by the government and hence, companies in this space will never make big money.
Ownership
A shareholder is the owner of the business; you have to be involved in the business. You can’t say I’ll buy the share and forget about it. You have to give time to the stocks; read up on business updates.
Common sense investing
Use common sense to pick stocks; for example, consider a profitable airline (Company X). It has about 64% market share. The flights are always on time; in fact, they aim to reach 10 to 15 minutes earlier. A Harvard study says, 10 minutes saved on every flight is 200 extra flights in a year; that is why Company X is one of the few profitable airlines. It offers cold food; they fly ovenless; every oven weighs 20 kgs, and there are three ovens on a flight, hence, they save 60 kgs of weight which translates into fuel savings; they fly 7 lakh flights in a year and save approximately Rs 400 crore. There are no male members in the crew; men are heavier (hence, more fuel consumption). They only buy one model – the Airbus A320, which means they can service their aircraft anywhere, so the aircraft won’t be grounded for long. They have mastered the art of cost efficiency.
Value chain
When you consider a sector, look at the entire value chain; for instance, power is going to be in large demand going forward, which means you should also consider companies in transmission. solar panels, insulators, etc.
Similarly, select the best selling cars (you can get this information from any auto magazine or online). Find out who manufactures the components for these cars (for an investment opportunity); an auto ancillary company (Company A) manufacturers airbags, alloy wheels, power window switches, touch screen, etc. In fact, auto ancillary companies tend to be more profitable than auto companies.
Valuation
To decide when to invest, look at the valuation of the company (this is available on lots of sites such as Screener, Moneycontrol etc.). Price performance is a function of business performance. If the top line and the profits are growing, and margins are expanding, the price is bound to follow, though not necessarily linearly. Stock price returns can be very non-linear. The price may remain stagnant for a very long time in spite of the company doing well and shoot up very quickly within a short period. Hence, you should have a lot of patience.
How much to buy
What to buy is important; how much to buy is even more important. The number of stocks you hold should be directly in proportion to how many you can keep track of. For a retail investor, the number should not be more than 20 to 25 stocks. If you are convinced on a stock, don’t invest less than 3-4% of your corpus in that stock. A small investment amount would be meaningless. Keep the maximum investment in a stock at about 10% of your corpus.
Crises
In a crisis situation, you can make money in the market by asking yourself which companies will survive through the crisis. Additionally, use tactical methods to find opportunities in the crisis. This will be situational and short term in nature. Control your emotions during a crisis; remember that loss is notional till you act on it.
Goals
Set goals in your mind on how much you intend to save for a particular life goal, and then work towards it.
Set quantity goals in your mind; for example, you may decide that I want 1000 shares of HDFC or 1000 shares of Infosys, and then work towards it.
With your income, use the 40: 30: 30 formula – 40% for needs; 30% for wants; and 30% for savings.
To conclude…
Simply investing in the Nifty index can get you approximately 12 to 13% returns. Historically, you would have not lost money if you stayed invested in equity for 5 years.
To access the interview, click here.
Disclaimer: The key points of the interview presented here are not a substitute to listening to the full interview. To get the interviewee’s holistic message requires listening to the entire interview.
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