Posted on September 9, 2009 - by Createwealth8888

Multibaggers and Compounding – Their differences

Photo by goincase

Some investors or intelligent speculators use Buy and Hold strategy to get multi-bagger stocks if they are right. Where can we probably find multi-bagger stocks?

1) Penny stocks – high risk, high return
2) Speculative stocks – high risk, high return
3) Severely Undervalued stocks – low risk, high return

It is difficult for the Magic of Compounding to work its magic in a Buy and Hold strategy even with dividends re-invested as dividend income is too small to have any impact.

Do you have that type of risk appetite for high risk, high return? If you don’t, then Option 1 and 2 are out for you. You are left with Option 3.

With Option 3, you believe that you are smart enough to find severely undervalued stocks while the rest of the market players have missed them.

Do you believe that on the pavement there lies a $50 note, and everyone stops and looks carefully at it and then walk away without picking it up as he/she concludes that it is a fake $50 note.

But, you are so smart to realize it is a real $50 note, pick it up and put it in your pocket and happily walk away. How often can such things happen? The Market is never short of smart people.

Comparing to finding the potential multibagger stocks without taking too much risks, it is probably easier to let the Magic of Compounding works its magic for you and over time you will have the similar multi-bagger effect.

For example: Read more…

Related posts:

1. Recycling and Reallocating Capital
2. The blind men and the elephant
3. Managing investment risks