Legend has it that the Philosopher's Stone had the unique ability of turning iron and other base metals into gold - the ultimate 'multibagger'. For a long time, the quest for the stone became an obsession in western alchemy.
"Many many years ago, a man decided that he would give up worldly comforts and riches, and dedicate his life to finding the Philosopher's Stone. He set out on his quest with an iron chain in his hand. Whenever and wherever he found a stone, he would stoop to pick it up and touch it against the chain to see if it turned to gold or not.
Many days and months passed, but he never wavered in his quest. He became thin and his hair turned into knots and his beard became long and unkempt. But the desire in his heart didn't wane.
He travelled through many countries and continents, from the mountains to the oceans. Never did he stop to appreciate the beauty of nature all around him. With a piercing gaze he picked out every single stone and kept touching it to the iron chain to check if it had turned to gold.
After a few years, it started to dawn on him that his quest may never reach fruition. Out of sheer habit, he carried on and picked up stones and touched the chain with them. He started getting weary and his heart became heavy, and he no longer bothered to check if the chain had turned into gold.
Once he was passing through a village square, where some small children were playing. They saw this wild-eyed man in tattered clothes, knotted hair and tangled beard coming towards them. One of them exclaimed: 'Look, look! That crazy man is carrying a shining gold chain.'
The man stopped dead on his tracks. In sheer disbelief, he looked at the chain in his hand. It was a solid gold chain. During his long quest, he had found the Philosopher's Stone after all. But he had thrown it away, like all the others, after touching it to his chain without checking.
In sheer despair, he sat down and pondered his fate for a while. After some time, he sighed, got up and resumed his quest."
The moral of the story? It is the rare and fortunate investor who can find more than one multibagger stock in his entire investment career. Such good fortune happens more through chance than by design.
Why is that? Because most of us do not plan to hold a stock long enough in our portfolio for it to generate stupendous returns. Does it mean that holding any stock for a long time will automatically generate multibaggers? The answer is obviously 'No'.
That is why, selecting fundamentally strong stocks is so important. Once the preliminary hard work of proper stock selection is done, one should keep holding such stocks, and at most, book partial profits from time to time.
The trick is to keep buying back these shares during a down turn, at lower prices. Doing this with just a couple of stocks, like Tata Steel or L&T, can provide huge returns.
Can momentum, or 'fashionable', stocks provide multibagger returns? The answer is 'Yes'. Pantaloon and DLF have been multibaggers. But how many small investors were able to reap the multibagger returns?
My guess would be, very few. Most would have exited after the stock doubled or tripled. And the unfortunate few, who actually got the multibagger returns, probably held on too long and are facing losses now because of the steep bear market fall.
(Notes: 1. The above story is a prose version of a famous Tagore long poem, titled 'Parash Pathor'. Satyajit Ray made a highly entertaining movie with the same title, about a person who actually finds the Philosopher's Stone and what happens to him because of it.
2. I'd be very interested to hear from readers about any multibaggers they hit or missed.)