Multi-Baggers – To Hold or Not to Hold?

In my previous blog post, I shared the various ways in which you could get multi-baggers. There were a few interesting comments from Lizardo and Uncle CreateWealth8888, namely, what would have happened if I had held on to the multi-baggers and not sold them? The results are shown in the table below.

Counter	Date Bought	Date Sold	Avg Buy Price	Avg Sell Price	% Gain	Current Price	% Add Gain	Remarks
Surface MT	Apr 01	May 01	$0.315	$0.660	110%	$0.001	-100%	Conso
Multichem Wt	Jul 01	Jan 04	$0.093	$0.205	120%			Expired
Fischer	Sep 01	Jan 02	$0.148	$0.315	113%	$0.158	-50%
Ionics	Oct 01	Apr 02	$0.185	$0.420	127%	$0.015	-96%	Delisted
Magnecomp	Aug 02	Jan 04	$0.290	$0.950	228%	$0.410	-57%
Nera Tel	Mar 03	Mar 04	$0.252	$0.565	124%	$0.790	40%
AP Oil	May 03	Sep 03	$0.195	$0.420	115%	$0.313	-26%	2 Bonus
Aussino	Jun 03	Feb 04	$0.245	$0.510	108%	$0.006	-99%	Delisted
Fortune REIT	Dec 03	May 13	$3.420	$8.050	135%	$7.190	-11%
Food Empire	Mar 05	Jan 07	$0.353	$0.780	121%	$0.456	-42%	Bonus
Kingboard	Nov 05	Jan 07	$0.205	$0.535	161%	$0.184	-66%
Meiban	Jun 06	Jul 07	$0.260	$0.550	112%	$0.400	-27%	Privatised
DMX	Mar 07	Sep 09	$0.164	$0.433	164%	$0.190	-56%
A-iTrust	Aug 07	Feb 10	$0.442	$0.954	116%	$0.855	-10%
CapitaRChina	Oct 08	Aug 09	$0.493	$1.300	164%	$1.550	19%
FrasersCT	Oct 08	Nov 10	$0.697	$1.430	105%	$1.940	36%
ParkwayLife	Apr 09	Feb 11	$0.760	$1.732	128%	$2.430	40%
VizBranz	Sep 10	Jul 12	$0.268	$0.646	141%	$0.815	26%	Privatised

As shown in the table above, a couple of the multi-baggers have been delisted or privatised. For these stocks, the current price refers to the price at the time of delisting or privatisation. For all stocks, the % additional gain refers to the gain based on the average selling price and reflects the additional gain had the multi-baggers not been sold.

Based on the 17 multi-baggers listed above (excluding the 1 warrant which expired), a total of 12 (or 71%) of the multi-baggers dropped below the selling price. Essentially, these multi-baggers are like Cinderella, who turned back into a maid after midnight. Does this mean you should not hold multi-baggers and stories of 10-baggers are just a dream? The answer is it really depends on what type of multi-baggers the stocks are in the first place.

Cyclical Multi-Baggers

As mentioned in my previous blog post, multi-baggers can come from different sources, namely, from market cycles, growth companies, turnarounds and warrants. Multi-baggers that arise from market cycles are never permanent. If you do not sell the multi-bagger near the peak of the market, eventually it will decline as the market direction turns. Like-wise, turnarounds are usually cyclical companies that go from boom to bust and back during economic cycles. If you do not sell the multi-bagger near the peak of its economic cycle, eventually it will decline as well. 

Growth Multi-Baggers

The only type of multi-baggers with some longevity are the growth companies. Among the 18 multi-baggers listed above, only the REITs have been growing their Distribution Per Share with some regularity, and it is not surprising that most of these REITs have continued to rise in price after I sold them. Nera Tel is another company that has sustained its growth over the years and its current share price reflects that growth.

Having said the above, growth is not permanent. Some companies could be growing at a high rate for a few years, after which the growth stalls. When this happens, the high-growth company will become just like any other companies and are subject to economic and/or market cycles. Aussino used to be a high-growth company with booming business in China until it encountered difficulties during the Global Financial Crisis (GFC) from which it never recovered. Likewise for Food Empire, whose share price performance is shown in the figure below.

Share Price Performance of Food Empire

Thus, it is important to monitor growth companies closely. The moment they lose their growth, they too will turn from Cinderellas into maids and lose their lustre.

Multi-Baggers Reloaded?

If the Cinderellas have turned back into maids after you have gotten your multi-baggers, is it advisable to buy the same stocks again, hoping that they would turn from maids into Cinderellas once more? Again, it depends on the type of multi-baggers they are. If they are the cyclical type (market or economic), then it might make sense to pick them up again from the bottom of the cycle. However, it is important to check that nothing fundamental has changed with the company to ensure that it can participate in the upswing of the economic and/or market cycle. As mentioned earlier, Aussino never recovered from the GFC and you will no longer find it again on the Singapore Exchange (SGX).

Just to share, over the same 16-year period of investing with my own money, there were 3 wipe-outs and 8 write-offs in addition to the 18 multi-baggers. The wipe-outs refer to stocks whose companies went bankrupt or were delisted with no exit offers. The write-offs refer to stocks, which although still listed on the SGX, had declined substantially from my buying price and were written off. It is interesting to note that among the 11 wipe-outs and write-offs, 2 are among the list of 18 multi-baggers, i.e. the second time I bought into these stocks, they lost money. These 2 stocks are Aussino and Surface MT. Unfortunately, the capital invested during the subsequent purchase was larger than the original purchase and whatever profit from the original transaction could not cover the loss from the subsequent transaction. This is probably a case of being too "familiar" with the stocks without realising that they have changed fundamentally and are no longer the same companies.

Conclusion

There are several reasons why a stock can become a multi-bagger. But when the reason is no longer around, it is time to sell the multi-bagger before it turns from Cinderella back into a maid.

See related blog posts:

• The Multi-Baggers of SGX
• Origins of the SGX Multi-Baggers
• How to Get a Multi-Bagger?