Multibagger Stocks: How to miss them.

I find myself wondering if I will ever have a multibagger in my portfolio. Granted, I have had trades returning north of 100%, but I have never went past 200% in a single trade.

Trade. There lies in my biggest enemy; I trade stocks and I am not ashamed of it. Trading, or price action investing, is different to the conventional way of investing, value investing. I do not dive into the company financial statements to try and assess if the company is trading at the fair value. I look at the price action of the stock, make my mind if the risk is worth the potential reward, if it does, I buy few shares of the company.

Some trades do well, multiple R returns, some beyond 50% return. Sure, 50% is not that great but if you look at it from risk management's perspective, it is a lot, assuming you risk -10% on that position. See, a 1:5 risk-to-reward is a big deal, unlike 1:2. In this case, you do not look at stock with the intention to double your money. You determine how much you are willing to lose, then determine how much you want in return for the risk you are taking, taking into account your trading record. Thus, 1:3, or more, is really worth it. But multibaggers?

Well, in a strong trending market anything is possible. A 1:3 risk-to-reward trade can turn into a +11R return trade, I have done it but the stock only went up by 48% (my risk was a tight -4.4% 😊). But, can the stock go beyond 100% from my entry point, yes; can I have a 100% return in that trade, possible.

Market move in ebb and flows, major moves and corrections in between. During the correction I can buy more of the stock, which changes the average buy price, and as you have guessed it, the return. Also, I can add on breakouts, or anytime a sign of a strong uptrend happens, all these buys affect my average buy price and returns. Combine this with my goal of limiting drawdowns ( a topic I discuss a lot with one of the OGs in trading), say a stock is up 60%, then it pull backs, I am not going to sit and wait for the stock to resume an uptrend. In fact, every trend reversal begins as "just a healthy pull back". If the stock does recover, I can go back and buy it again, starting from 0% return. Now you see why I it is almost impossible for me to bag multibaggers. 

I can cry about it, or I can just keep on sticking to the same rules that grew my account without chasing these elusive multibaggers. I do not buy stocks with the intention of picking stocks that will become multibaggers, although I would like to bag a few every once in a while, that is if the market allow.

Understand your strategy, assess regularly if it still fits your investing objectives, and tweak it wherever it needs tweaking. Trading is continuous improvement game.