Was browsing various articles here: http://www.moneycontrol.com/mc10/the10list/the10list.php
Obviously, the thing which stuck my eye is, list of "fastest growing companies in last 10 years"
Here are some interesting observations:
1. Up to no. 9, minimum gain in sale is 50000%.
2. Almost all of them are having sales less than Rs. 5 Cr
Just as thought, how about investing same amount in companies which are having sales less than Rs. 5 Cr and keep them for 10 years and sell when PE ratio of index is greater than 20 after 10 years.
Now, say there are 100 companies which are having positive cash flow and positive book value and having sales less than Rs. 5 Cr. If we hit even one (which is having very high probability, considering what is shown in this article and what I have heard/read of past performance), then most likely it will be minimum 100 bagger (considering mainly an equity dilution), this will provide me all my capital back if I have invested in 100 such companies, and my profit will be remaining value of 99 companies (I will like to bat more here in the sense more than one companies getting say 1000 baggers or so, but let's be conservative to understand point here).
As shown above, even one hit will give all my capital back and rest of them will be inflation adjusted profits. I tend to think that it will be huge profit and it's actually a no brainer.
Problems with this theory:
1. Don't know exact no. of companies which are having positive cash flow and positive book value and having sales less than Rs. 5 Cr. If they are say 1000, then obviously we need to rethink here … This actually is biggest risk for this theory. (It will be really great if someone suggests website which can facilitate this kind of number crunching?)
2. If we do not have even a single bull market in 10 years, then obviously this kind of portfolio will probably have highest losses.
3. Just to stretch the same point here, I simply cannot believe that, making money through investing can be so easy. Why?? If I take somewhat optimistic case, say we have 200 companies fitting in this criteria, and we invest Rs. 1000 in each of them (total Rs. 2 lac). Now, after 10 years, there will be at least 5 companies which will be 100 baggers (total Rs. 5 lac). Even if we forget about 1000 baggers and value left of all other companies, we are still making decent profit which is matching say PPF. This I think is conservative estimate.
Please share your thoughts here. I really want to hear some negative aspects here.
I still need to find more data and check validity of this theory.
Nice reading:
Marc Faber with investment wisdom on his website. Check here: http://www.gloomboomdoom.com/public/pSTD.cfm?pageSPS_ID=4000
Past articles:
Ø Cash Rich Companies in India
Ø Things to check before buying stock
Ø Warren Buffet's advice for 2009
Ø How to perform stock research using fundamental analysis
Note: I am looking for ideas on what topic to write. Please share if you have something interesting.
Disclaimer: These are all personal opinions. Please perform your due research before making any investment decision.
