Look Beyond the Sensex for Life Changing Wealth

A few days ago, we got the track record for Hidden Treasure, the smallcap recommendation service, audited for the quarter ended December 2022.

And I would say that we have fared well.

As per verified track record, Hidden Treasure has 26.1% internal rate of return (IRR) since inception in February 2008 until December 2022. This includes all stocks recommended since inception until December 2022.

The CAGR for Sensex and smallcap index stands at 8.5% and 7.7% respectively over this period.

As such, it is an outperformance of more than 3x as compared to benchmark indices.

More importantly, it is not a flash in the pan.

We have maintained an outperformance over a period of almost 15 years. Basically, the journey is not just about getting rich, but staying rich as well.

All recommendations - open, closed, successful and failed, until the end of December 2022 quarter, have been considered for this. And we have not counted dividend returns.

But there are two specific details I must share with you.

First, if I remove the top three gainers - Page Industries (13,921% over 14 years), Balkrishna Industries (1,058% over 7 years), eClerx services (1,400% returns over 11.5 years), the IRR shrinks from 26.1% to 21.4%. That's a noticeable drop in the context of compounding.

It's easy to dismiss such big winners in investing as luck. But it takes a lot of hard work to be on the right side of luck.

It reminds me of a powerful statement by Serena Williams on luck, in an interview to ESPN:

• Luck has nothing to do with it, because I have spent many, many hours, countless hours, on the court working for my one moment in time, not knowing when it would come.

This is so true for investing.

You may not know which stocks would turn out to be a multibagger stocks while picking them. But if you do the hard work, make the right choices, and stay patient and disciplined, you will end up with a few.

If you can do that consistently, you may get a 100-bagger as well.

My second point is about the success rate.

You see, the number of successfully closed positions as a share of all closed positions is 61.5%. Which means, of the 100 stocks recommended in the service, close to 62 performed as per expectations and better.

And almost 38 stocks out of 100 did not give us the minimum desired returns. Some were closed even in losses, which is captured under the CAGR shared above.

I know 61.5% as a score does not sound impressive, especially to someone unseasoned in investing.

But that's the nature of smallcaps. The space is inherently risky. To have a 100% success is an illusive goal.

As the legendary investor Peter Lynch has said...

• In this business if you're good, you're right six times out of ten. You are never going to be right nine times out of ten. Losses do not mean you are a bad investor.

There are times when we have been wrong and humbled. We have been transparent and have owned up our losses. Most importantly, we have learnt from them.

While some individual stocks have disappointed, the process has not.

And that's the nature of volatile smallcaps. Unlike Sensex companies, that come with a lot of disclosures, institutional ownership that ensures a decent level of corporate governance, smallcaps is inherently a lesser known, riskier place.

With thousands of companies to choose from, even with a strong process in place, the success ratio is likely to hover in the range of sixties in the long term.

And yet, it makes sense to allocate a part of one's portfolio to this space for the kind of exceptional returns some stocks may offer.

While Sensex companies can give you a sense of safety, it might be a daunting task to beat Sensex by 3x while investing in its limited constituents.

As long as you are following a prudent allocation, and with a solid process and discipline, you are likely to fare well.

Needless to say, to make such gains in the smallcap space, you needs to have a higher risk appetite and the temperament to deal with the inherent volatility inherent in smallcaps.

So is there a midway?

Is there a universe not limited to just a few well known names, where there is some comfort on the volatility front, and where one can still hope for a 10-bagger, if not a 100-bagger?

A few days ago, I was running a screener to find such multibaggers in the last decade. While most names belonged to the smallcap space, there were quite a few well-known names beyond smallcaps that figured in the list - Bajaj Finance, Titan, MRF - that offer the safety that is often associated with largecaps.

The last decade has indeed generated life-changing wealth for investors in the long term. However, as Equitymaster's co-head of research, Rahul Shah, says, India is all set to take its third giant leap. We are dropping the tag of a developing country and are on our way to become a developed nation.

This journey could even be more rewarding provided if you can find the biggest beneficiaries of the decade.

I would not be surprised to see Sensex touch 100,000 mark in the next 5 years. From current levels, that's a CAGR of just 11%. But if you want to beat the Sensex returns, you need to look beyond Sensex 30 stocks.

So, what exactly is this giant leap and how could you reap huge profits from this once in a lifetime opportunity?

Well, my colleague Rahul Shah has all the details ready for you in a 50-page report that he will discuss in detail on Monday, 13 February at a special event.

I recommend you to join Rahul Shah at this special event and find out how you can ride this once in a generation wealth creation opportunity.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure