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The Equitymaster Research Digest

Step Away from Perfection, Promoters Who Set an Example, and More...
Jan 12, 2016

Ask this question to a seasoned investor, with some track record of success: What does it take to find a 100 baggers?

Strong financial track record, moat, great management, and attractive valuations are likely to be the keywords in the reply. Turns out that this is just the half-truth. All these elements are certainly needed to make a company great. They make the business sustainable across market cycles. They make the stock less prone to downsides. And to top it all, investors fall over each other to pay a premium for such stocks.

No doubt, this is a great recipe for successful stock picking. But it is very unlikely that these alone will help yield the returns you need to boast of a 100 bagger in your portfolio.

The elusive trait that you need to select 100 baggers is the ability to identify companies that are a step away from perfection.

Consider this example...

The board of directors of a loss making two wheeler company decided to sell off its most iconic brand. For all its reputation, sales of the bike were down to 2,000 units a month against the plant's installed capacity of 6,000. The losses mounted for years. Though the bikes had diehard followers, there were also frequent complaints about the engine and oil leakages. Many found them heavy and difficult to maintain, and the kick-start daunting.

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