»Fast Profits Daily by Equitymaster

On This Day - 11 SEPTEMBER 2020
How the 8-Year Cycle Can Help Identify Multibaggers

Apurva Sheth, Editor,Profit Hunter Pro

Over the last couple of weeks, I've shown you the eight year cycle of the Sensex.

In my previous video, I also showed you examples of how the cycle affects stocks.

Now that you know a bit about this cycle, let's dig a little deeper.

Today, I'll show you how to use this cycle while picking specific stocks.

If you get it right, you could have a multibagger on your hands!

Enjoy the video and let me know what you think.

Hi, I'm Apurva Sheth and I welcome you to this latest edition of Fast Profits Daily.

So friends over the last couple of weeks, we have seen the eight year cycle of the Sensex and how it affects the various sectors as well as stocks during various phases that is greed and fear phases. So today we will see how the eight year cycle can help you identify multibaggers.

The eight year cycle can help you identify huge profit making opportunities in stocks but for that you need to keep a few things in mind. So today I'll show you that. For those of you who haven't gone through my past videos, I covered the things that we have covered so far in brief but if you want to know more amount the eight year cycle and sectors that perform well this cycle, you must go and check out my previous videos.


So now here what we have is the long term chart of Sensex. This is the monthly chart, along with the 8 year cycles marked on it, The vertical lines are the points wherein the cycle turns from one phase to the other.


So first what we are seeing here is the green phase. Sensex generally tends to move up during the greed phase and it consolidates during the fear phase. So this greed and fear phases alternate every eight years and changing the month is April. So April 1992 to April 2000 and April 2008 to April 2016 and the next change of cycle will happen in April 2024. So you can see how Sensex has performed well during the greed phase and it consolidates or underperforms during the fear phase.

Now what sectors move during the greed phase? That is the old economy stocks or sectors which are related to the basic human needs like food, clothing, and shelter, will tend to do well during though the greed phase and the new age stocks or technology companies which are driven by technology, will to do well during the fear phase. So that's how the various change of sectors happens during this greed and fear phases and last week I'd have shown you examples of 12 stocks which have gone through similar greed and fear phases. One of them is Tata Steel. Another is L&T, and another company is ACC. There are nine other companies which have also gone through this eight year cycle perfectly.

Now, who identified multibaggers, one of the things that one should keep in mind? So first thing is that companies do fail and by that I mean that just because greed and fear cycles have worked well in the past, it is not necessarily proof or is not necessarily the reason why it will work in the future as well. So if the company is not doing well and the financial performance is bad, the management has not than its job correctly, then the company will fail. In that case, the eight year cycle in that company will also fail.

So Today, I want to share with you three examples where the companies have failed and that could be the reason why these stocks despite moving so well in the past during the greed and fear phases will not move or may not move according to the cycle in the future. So first example is Aban Offshore.

As you can see, the stock moved up phenomenally well in 1992 with gains of of 734%. It dropped by 94% in the fear phase of 2000, and it moved up by 100,000% in the greed phase of 2008. Now, in a fear phase of 2016 it again dropped by 94% and here again in 2024, as you can see, the stock has been sliding lower and chances of its recovery on a very slim. The company has the reported a net loss for five straight years in a row, and these losses are thousands of crores. So chances are that the company may not survive the full greed phase of 2024.

Another example is Reliance Infrastructure.

The stock has done phenomenally well across the greed phrase of 92 and 2008 and it has worked perfectly well over the years. However, beginning 2018, problems started to emerge with the company. It's been loaded with debt and the chances of turnaround as slim. So, despite the greed and fear cycle working so well, the chances are that the company may not see the light of the day till 2024.

Similar is the case with Reliance Capital. The company is from the same group. It has done very well across the greed and fear cycles, although it's not an old economy stock, but it has still worked wonderfully well across the region faces across the phases. So again, the problem started to emerge in 2018 and the stock has become a penny stock now.

So now you cannot keep your eyes closed and say that just because it has worked so when in the greed phase, these companies will tend do too well in the phase of 2024. So you must have this basic common sense, and you must apply this common sense while picking your stocks. So you must avoid such pitfalls or avoid such companies where financial performance is terrible.

The second thing that you must keep in mind is that the human needs evolve. So what do I mean by human needs evolve? So human needs keep on changing over a period of time. Now I have this beautiful looking chart on the screen

Now do don't be intimidated with it. I'll explain to you what it is. So Abraham Maslow was a psychologist who developed this need hierarchy model back some 100-200 years ago. According to him, there are five levels of needs that humans need to fulfil and it starts with the basic needs. So the lower level of need has to be fulfilled first, and only when that needs are fulfilled, he will look for fulfilling his high level needs.

So the first level of is the physiological needs wishes, the basic needs, the basic things that humans need to live. That is air, food, water, clothing, shelter. Once that need is fulfilled, he will try to fulfil his safety needs, that his personal security, employment health. After these needs are fulfilled, he will go and try to fulfil his needs for intimate relationships of friends, family, love a sense of connection with the friends and relatives. Finally, there will be esteem needs and self-actualisation. So esteem needs have got to do with go. So a sense of prestige, a feeling of accomplishments and once this need is fulfilled, he will go and try to achieve his full potential of self-actualisation.

From an economic perspective, we are not currently bothered about the self-fulfilment or self-actualisation. What we are currently interested in is the basic and physiological needs. So in the greed phase, the companies that tend to do well are the companies that cater to the basic needs of safety and physiological needs. The companies which have products or services which cater to these needs will tend to do well during the greed phase.

When we are in the fear phase, the companies which tend to focus on the psychological needs i.e. of of esteem and belonging will tend to do well. As I told you earlier, the examples of companies which fulfil the basic needs of food, clothing, and shelter and the psychological needs would be 24/7 connectivity with your family and friends and your loved ones. The companies which fulfil the ego needs or prestige needs, like a luxury car, the companies which have those kind of products will tend to do well.

Now the catch over here is that the basic needs do not remain the same. So the basic needs which were there in the year 1992 are not the basic needs that are there right now. So food, clothing, shelter haven't changed but the way we fulfil these basically things keep on changing. So in the year 92, a vada pav would have fulfilled this need but now a burger would be required to fulfil that need of a college going kid. So there are similar examples.

Let's say in the year 1992 mobiles phones were considered as a status symbol. Even pagers for a while remained a status symbol. People would hang mobile phones, the big cordless phones on their belt and would use it to show off. The mobile incoming call would cost you Rs 16 per minute. So a mobile phone was of a product which fulfilled the prestige need back in the year 1992. Similarly, air travel was also considered as a prestigious thing. Lakhs of people dreamt about travelling by a plane but now it has become a common thing. So these are only a few examples.

Now, what you must do to while using these eight year cycles is that you have to identify companies which are fulfilling the greed and the basic needs and psychological needs in the current environment. So as we are in the greed phase, defence companies which are fulfilling the basic needs of safety and physiological needs will likely do well in this greed phase of 2024. So that's how you have use the greed and fear cycle to identify multibaggers.

Another example that I'd like to give you is that a lot of times it's said, data is the new oil. So oil was the product which kept the economy running. It was a classic old economy commodity that was in use back in the years 1990s and 2000s. However, this is changing now and it has already changed. So been listening that data is the new oil.

So cos which are catering to the needs of data are doing very well. So we have seen that the internet giants like Facebook, Google, even Amazon have been phenomenally well and similar example of a company which are doing that kind of thing will be telecom players, the major telecom players, who are into a providing data services as well as content. They have become data kings in India. So these companies have done well over here. So we have seen that data now becoming the major component a major commodity which is running the economy.

So that's of you can see or identify the changing needs of people and companies which are able to identify the changing needs and are able to fulfil these needs of people are likely to do well and that's how these eight year cycles will also help you identify companies which are likely to do well. So that's how you could use the eight year cycle, along with the need hierarchy model to identify multibaggers.

So that's all from me for today. I hope you enjoyed watching this video. I hope that this video has helped add more insights in to the greed and fear cycle and it will help you identify multibaggers for the future. I like to request you to share this video with your friends and family members who want to become better traders and who you think going through the greed and fear cycle will help them. So, please do share this video with your friends and family members.

Also join do join our Telegram channel wherein I share market insights on a regular basis. So that's our from me for today. Thanks a lot and have a nice day.

Stay safe and have a great weekend!

Warm regards,

Apurva Sheth
Senior Research Analyst, Fast Profits Report
Equitymaster Agora Research Private Limited (Research Analyst)

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