Term

Multibagger Meaning

When a stock doubles in value from your purchase price, it becomes a ‘multibagger’. For example, if you had bought Bajaj Finance at ₹ 2000 last year, it would be a ‘multibagger’ for you today. The current market price of Bajaj Finance is more than ₹ 4100 – the stock has more than doubled in value, hence it’s called a ‘multi bagger’.

The term multi bagger originated from American Investor Peter Lynch’s book ‘One Up on Wall Street’. It has since become a popular term to describe investment that double, triples or more in value.

A stock that doubles in value is called ‘2x multi bagger’ or ‘two bagger’. In the same way, a five bagger is a stock which gives returns equal to 5 times the investment.

Veteran banker and investor Christopher W. Mayer was the author of a popular book ‘100 Baggers: Stocks That Return 100-to-1 and How to Find Them’. The book helps you find stocks that can become a ‘100 bagger’ i.e turn ₹ 1,000 investment into ₹ 1,00,000.

If you think ‘100 bagger’ sounds too good to be true, then here are a few examples:

  1. In 25 years, the stock price of Asian Paints has gone from ₹ 11 (adjusted) to ₹ 1745 today. If you had invested ₹ 10,000 back then, the value today would be around ₹ 16 lakhs (without including dividends). A mind-boggling ‘160 bagger’.
  2. HDFC Bank is also a ‘multibagger’ and has created a lot of wealth for its shareholders. In 20 years, the price of the stock has increased from ₹ 15 in December 1999 to ₹ 1271 in December 2019. CAGR of 24.85% and ’85 bagger’ in 20 years. If you had invested ₹ 10,000 in HDFC Bank in 1999, the value of your investment would be ₹ 8,50,000 – not including dividends that are received every year. If you had kept the same amount of ₹ 10,000 in HDFC Bank Fixed Deposit (FD) at 10%, the value would be ₹ 67,300.

There are hundreds of examples of stocks that have become ‘multibaggers’ and generated a lot of wealth for investors. The key is to find good companies, buy them slowly and then hold on to your shares for a long time. Most of these companies will give dividends to shareholders. Dividends are tax free upto ₹ 10 lakhs – unlike interest from fixed deposits that are taxed as per your income slab.

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