Potential Multibaggers

At Potential Multibaggers, my Seeking Alpha Investing Group service, you get the best information about growth stocks that could go 10x or more over a decade or more.

Founder

Multibagger Nuggets

Best Anchor Stocks - A Seeking Alpha Marketplace

Founder of Potential Multibaggers and Best Anchor Stocks, subscription services on Seeking Alpha. I have been writing about stocks since February 2016. You can also get free content at Multibaggers Nuggets.

How to REALLY value stocks

So many investors act as if there's just one way of valuing a company but companies have different stages and you should value them differently.

1. Startup
Management and ideas are crucial. The valuation is in the SAM (serviceable addressable market), but overall, it's extremely difficult to value at this stage. DCFs (discounted cash flows) definitely don't make sense.

2. Young growth
Next to the management and the ideas, the current and future growth are crucial. That's why the EV/Sales is probably one of the best proxies for a valuation. But it remains very hard to value and DCFs are still not applicable.

3. High growth
In this stage, the company has proven there is product-market fit. Next to the management, the ideas, the current and future growth, economies of scale become important. Can the company show that it can grow its sales faster than its cost of sales & marketing?
EV/gross profit is useful in this stage, a DCF still hard.

4. Mature growth
Only in this stage, profitability becomes important and you can use metrics like the forward PE (price/earnings ratio), PEG (PE divided by growth) or P/FCF (price to free cash flow). A (reverse) DCF is a useful instrument here.

5. Maturity
In this stage, the valuation of the stock becomes very important, as the growth is only at single digits now. A PE or EV/EBITDA valuation is the best way to see how investors value the stock and a (reverse) DCF can help you. 

6. Decline

Next to management, which is important at every stage, valuation is all that matters in this stage. You can often use a P/B or P/liquidation value valuation but a DCF will be difficult because you don't know how long you should look forward or how fast the decline will be.

Kris Heyndrikx

10 Psychological Traits of Investing Masters

Warren Buffett, Charlie Munger, Phil Fisher, Ray Dalio, Howard Marks, John Maynard Keynes, Seth Klarman and so many other great investors succeeded where many investors failed. 

What sets them apart? 

It’s not just numbers and trends; it’s much more about the psychology behind the decisions. Here are the key psychological traits that top investors share:

1. Critical thinking
They often go against the current trend but they also try to poke holes in their own investment thesis.

2. Emotional detachment
They don't panic and have buy or sell based on emotions.

3. Growth Mindset
They view mistakes as learning opportunities. They continue studying and they stay curious about all kinds of subjects they then apply to their own field.

4. Calculated Risk Taking
They often make bold decisions after carefully studying all the facts. They know there is risk, but they weigh the risk and reward carefully. 

5. Patience
Every successful investor has a long-term vision that drives their investment choices. They understand that compounding takes time and resist the urge for quick profits. (Jim Simons is the exception here).

6. Resilience
They all had big setbacks, but they bounced back from their failures and mistakes with renewed energy and learned another lesson.

7. Consistency 
They maintain confidence in their strategies despite deep market downturns.

8. Analytical Thinking
They all process vast amounts of information and recognize patterns. They make decisions based on data rather than gut feelings.

9. They recognize their limitations and are open to advice from others. To this end, they recruit the smartest people they can find.

10. They analyze their losers, but they don't lose energy by blaming themselves, others or the market. 

It’s not just about what you invest in, but how you think about investing.
Ready to develop these traits and boost your investment game? 
https://lnkd.in/e5WYWY4e

Daniel Kahneman passed away three months ago at the age of 90. 
The Nobel Prize in Economics winner, renowned psychology researcher and successful author in 10 of his best quotes.

1. It's a wonderful thing to be optimistic. It keeps you healthy and it keeps you resilient.

2. An investment said to have an 80% chance of success sounds far more attractive than one with a 20% chance of failure. The mind can't easily recognize that they are the same.

3. We think, each of us, that we're much more rational than we are. And we think that we make our decisions because we have good reasons to make them. Even when it's the other way around. We believe in the reasons, because we've already made the decision.

4. There's a lot of randomness in the decisions that people make.

5. By their very nature, heuristic shortcuts will produce biases, and that is true for both humans and artificial intelligence, but the heuristics of AI are not necessarily the human ones.

6. Economists think about what people ought to do. Psychologists watch what they actually do.

7. We're blind to our blindness. We have very little idea of how little we know. We're not designed to know how little we know.

8. We have a very narrow view of what is going on.

9. Nothing in life is as important as you think it is while you are thinking about it.

10. The average investor's return is significantly lower than market indices due primarily to market timing.

May he rest in peace. 🙏
We can continue to benefit from all the wisdom that he spread.

Beware Of The Permabears

Have you ever heard of Jeremy Grantham? He's a legendary investor, but his persistent bearish outlook has caused many investors to miss out on big stock market gains.

Permabears score well in SEO rankings because FEAR is one of the forces driving people to search for information.
Nobody is angry with people predicting crashes if the stock market goes up, while many are angry if the market drops, and they sometimes aim their anger at bulls. 

But here’s why you should be cautious with permabears:

Grantham has been predicting market crashes for years. Staying bearish can mean missing out on huge gains.
The market has continued to rise despite his warnings. If you followed his advice, you have missed big returns. Instead of being overly bearish or bullish, strive for balance. 

Don’t let the fear of a downturn paralyze you. As Peter Lynch said: "Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves."

Or, to quote a Wall Street cliché: "Permabears sound smart; permabulls make money."

Stay informed, but be wary of extreme perspectives.

The Power of Scoring Systems: Using The PMQS & QPI

Investing in potential multibaggers requires an eye for quality, but you always have biases. 
That's why I developed two scoring systems, the PMQS and the QPI. These scoring systems are designed to evaluate the quality of businesses and their current attractiveness as investments. Let's dig in. 

1. PMQS: Potential Multibaggers Quality Score
PMQS is not your average quality score. It’s specifically tailored to identify stocks with the potential to multiply. While many stocks may boast high quality, like Apple, they don't show the high-growth potential we're hunting for. This scoring system was instrumental in steering me away from stocks that couldn't back up their growth stories with real numbers.
I use 16 criteria to give the PMQS. You can score along with me and get the scoring card for free here: 
https://lnkd.in/eVQT4-Bn

2. QPI: Quality-Price Index
QPI is where quality meets valuation. It's a balancing act that considers both a stock's inherent quality and its current valuation to determine its attractiveness. Unlike most scores, it balances out price AND quality. We all know premium companies have premium valuations and the QPI incorporates this. 

The PMQS helps you avoid pitfalls by ensuring that you invest in quality companies and that the quality doesn't degenerate over time. 
The QPI takes the valuation into account, but not in an isolated way, as many valuation methods do.

Want to dive deeper? Subscribe to Multibagger Nuggets for free and never miss an update! 
https://lnkd.in/e5WYWY4e

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