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||%
|Current Price||% Add
|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.
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.
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.
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.
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:
Thanks for your comments in my last blog post. I think it has greatly clarified how we should manage multi-baggers in our portfolios.Delete
I think these are cigar butts that Warren Buffet talks about. Worth a puff and then they're gone. Exciting while it lasts.ReplyDelete
Thanks for your comments in my last blog post too. It has greatly clarify how we should manage multi-baggers in our portfolios.Delete
Yes, "cigar butts" is a fitting analogy for those positive multi-baggers that turn into negative multi-baggers.
Hello Chin Wai,ReplyDelete
"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."
That's the crux of investing ;)
Knowing when to hold
Knowing when to fold
Knowing when to walk away
Knowing when to run!
Gambling, speculating, trading, and investing - there's a common red thread through all of them.
We need a bit of luck, a little bit of guts, and a little bit of common sense.
So, gamblers, speculators, traders and investors are all the same? Just that calling ourselves "investors" sound more respectable? LOL!