Stock investments is considered as the quicker mean to earn huge profits, most of the people find the stock market as a very lucrative and easy option for investments. Some invest without doing any research on the stocks they are considering. This definitely makes them suffer as they get negative profits by not making a proper investment decision. For instance, in the late 90s and early 2000s, dotcom was in boom and their IPOs were considered to be multibagger stocks. However, the situation turned out to be completely opposite and the investors suffered huge losses. So it is very important to first analyze the stock you want to invest in and only then take the rightful decision.
What stocks are called as multibagger stocks? Well, these are the stocks that assure you manifold returns. Say for instance, you are investing Rs. 1 in a stock; that stock would promise you Rs. 10 over the period of time. Many a times, such stock options are mere hoaxes. Before investing in such stocks, you need to be extremely careful. It is always a good option to stay at bay from such bubbles as when these bubbles burst you can experience huge loss. Similar was the case with the dotcom companies. They had created a bubble, which when burst resulted in the loss of many investors. How to determine these bubbles? Is there some theory you need to follow while investing?
Not really, it is quite difficult to suggest any particular theory as life and investments always teach you new lessons every single time you are caught in a difficulty or trading respectively. There is no single lesson to be learnt but yes you need to understand through others experiences as well. Especially, when it comes to investments, it gets very risky. So, it is better to be very careful and first analyze all the aspects. Only then make the investment decision.
So, on priority you need to do a fundamental analysis of the firm you are going to invest your money into. Check the financial health of the company, its history, if any setbacks experienced, if yes, what were the reasons, the liquidity and credit position of the company. After this, conduct a comparison with other companies falling in the same sector/industries. Only after proper analysis, take your decision. If any loophole observed, it is always better to divert your investments to some better option. This requires a constant study of the market, the performance of the stock and the liquidity for the same.
About the Author
Rajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.Follow @SanaSecurities